<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 AND 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ending October 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________________ to _______________
Commission File Number 000-21535
_______________
ProsoftTraining.com
(Exact Name of Registrant as Specified in its Charter)
NEVADA 87-0448639
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3001 Bee Caves Road, Suite 100, Austin, Texas 78746
(Address of Principal Executive Offices) (Zip Code)
(512) 328-6140
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]
The number of shares of the registrant's common stock, $.001 par value,
outstanding as of November 11, 1999, was 14,410,239 shares.
<PAGE>
ProsoftTraining.com and Subsidiaries
Consolidated Balance Sheets
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
October 31, 1999 July 31, 1999
---------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................................................... $ 999,914 $ 1,152,715
Accounts receivable, less allowances of $199,362 at October 31 and July 31, 1999.... 2,399,128 1,993,827
Notes receivable.................................................................... 29,300 29,900
Prepaid expenses and other current assets........................................... 168,406 319,943
------------ ------------
Total current assets......................................................... 3,596,748 3,496,385
Property and equipment, net............................................................ 327,033 334,001
Goodwill, net of accumulated amortization of $646,049 and $548,638 at October 31 and
July 31, 1999, respectively......................................................... 2,079,043 2,176,453
License agreements, net of accumulated amortization of $348,059 and $283,891 at
October 31 and July 31, 1999, respectively.......................................... 1,448,651 1,512,819
Other assets........................................................................... 108,100 114,718
------------ ------------
Total assets................................................................. $ 7,559,575 $ 7,634,376
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................................................... $ 1,913,392 $ 1,415,331
Accrued payroll and related expenses................................................ 379,588 565,322
Current portion of capital lease obligations........................................ 925,859 918,680
Accrued restructuring costs......................................................... 875,572 1,230,025
------------ ------------
Total current liabilities.................................................... 4,094,411 4,129,358
Obligations under capital leases, net of current portion............................... 640,054 847,978
Convertible debentures................................................................. 2,006,451 1,992,080
Other.................................................................................. 134,000 136,040
------------ ------------
Total liabilities............................................................ 6,874,916 7,105,456
------------ ------------
Common stock subject to redemption..................................................... 56,649 56,649
Stockholders' equity:
Common shares, par value $.001 per share: shares authorized 50,000,000;
Outstanding 14,382,213 and 14,297,133 at October 31 and July 31, 1999
respectively...................................................................... 14,383 14,297
Additional paid-in capital............................................................. 52,474,823 52,380,454
Accumulated deficit.................................................................... (51,796,988) (51,857,454)
Accumulated other comprehensive income................................................. 10,540 9,722
Less common stock in treasury, at cost: 11,912 shares.................................. (74,748) (74,748)
------------ ------------
Total stockholders' equity.................................................. 628,010 472,271
------------ ------------
Total liabilities and stockholders' equity................................... $ 7,559,575 $ 7,634,376
============ ============
</TABLE>
See Accompanying Notes
<PAGE>
ProsoftTraining.com and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31,
1999 1998
---- ----
<S> <C> <C>
Revenue:
Training............................................ $ 2,656,657 $ 1,696,014
Courseware.......................................... 804,399 313,015
Certification....................................... 319,872 0
----------- -----------
Total revenue............................... 3,780,928 2,009,029
----------- -----------
Costs and expenses:
Costs of services................................... 2,203,777 2,626,509
Sales and marketing................................. 336,249 726,990
General and administrative.......................... 1,011,190 1,606,940
----------- -----------
Total costs and expenses.................... 3,551,216 4,960,439
----------- -----------
Income (loss) from operations......................... 229,712 (2,951,410)
Interest income (expense), net........................ (169,246) (10,281)
----------- -----------
Net income (loss)..................................... $ 60,466 $(2,961,691)
=========== ===========
Net income (loss) per share basic and diluted......... $ 0.00 $ (0.25)
=========== ===========
Weighted average shares outstanding................... 14,329,687 11,626,160
=========== ===========
</TABLE>
See Accompanying Notes
<PAGE>
ProsoftTraining.com and Subsidiaries
Consolidated Statements of Cash Flow
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended October 31,
--------------------------------
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income (loss)....................................................................... $ 60,466 $(2,961,691)
Adjustments to reconcile net income (loss) to cash used in operating activities:
Depreciation and amortization...................................................... 192,934 951,945
Accretion of debt discount......................................................... 64,371 0
Restructuring credit-non cash...................................................... (150,000) 0
Changes in operating assets and liabilities:
Accounts receivable........................................................... (405,301) 140,036
Prepaid expenses and other current assets..................................... 158,155 (253)
Accounts payable and payable to underwriter................................... 498,061 (249,373)
Accrued liabilities........................................................... (185,734) (8,120)
Deferred revenue.............................................................. 0 (1,890)
Accrued restructuring costs................................................... (204,453) 0
---------- -----------
Net cash provided by (used in) operating activities...................... 28,499 (2,129,346)
Investing activities:
Purchase of property and equipment................................................. (24,388) (1,440)
Decrease in notes receivable....................................................... 600 20,000
---------- -----------
Net cash provided by (used in) investing activities..................................... (23,788) 18,560
Financing activities:
Issuance of common stock........................................................... 94,455 43,504
Principal payments on debt and capital leases...................................... (250,745) (311,221)
Other.............................................................................. (2,040) 0
---------- -----------
Net cash used in financing activities.................................... (158,330) (267,717)
---------- -----------
Effects of exchange rate changes on cash................................................ 818 0
---------- -----------
Net decrease in cash and cash equivalents............................................... (152,801) (2,378,503)
Cash and cash equivalents at the beginning of period.................................... 1,152,715 3,311,014
---------- -----------
Cash and cash equivalents at the end of period.......................................... $ 999,914 $ 932,511
========== ===========
</TABLE>
See Accompanying Notes
<PAGE>
ProsoftTraining.com and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
The consolidated financial statements do not include footnotes and certain
financial information normally presented annually under generally accepted
accounting principles and, therefore, should be read in conjunction with the
Company's Annual Report on Form 10-K filed with the Securities and Exchange
Commission. The results of operations for the three month period ended October
31, 1999, are not necessarily indicative of results that can be expected for the
fiscal year ending July 31, 2000. The consolidated financial statements included
herein are unaudited; however, they contain all adjustments (consisting of
normal recurring accruals) which, in the opinion of the Company, are necessary
to present fairly its consolidated financial position, results of operations,
and cash flows as of October 31, 1999 and for the three month periods ended
October 31, 1999 and 1998.
2. Comprehensive income
For the three months ended October 31, 1999 and 1998, the components of
comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Net Income (loss) $60,466 $(2,961,691)
Other comprehensive income:
Foreign currency translation adjustments 818 0
------- -----------
Comprehensive income (loss) $61,284 $(2,961,691)
======= ===========
</TABLE>
3. Restructuring
In the quarter ended April 30, 1999, the Company recorded a $3,723,148 charge
for restructure and other unusual items associated with the Company's decision
to exit the retail training business. The restructuring charge included $258,621
for the Dallas leased facility. In the quarter ended October 31, 1999, the
Company negotiated a lease termination agreement with the Dallas landlord that
resulted in a restructuring credit of $150,000, that was included in costs of
services.
Accrued restructuring costs at October 31, 1999 primarily represents leased
facilities, equipment and other termination costs.
The unsettled amounts may change when final payments are made. The Company
anticipates that the remaining restructuring actions will be substantially
completed by the end of fiscal 2000.
4. Supplemental disclosure of cash flow information
Cash paid in the three-month periods ended October 31, 1999 and 1998 for
interest and income taxes was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Interest $76,910 $46,004
Income taxes 0 0
</TABLE>
<PAGE>
5. Property and equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
October 31, 1999 July 31, 1999
---------------- -------------
<S> <C> <C>
Computer equipment and software $ 769,764 $ 748,089
Office equipment, furniture and fixtures 513,364 510,651
---------- ----------
1,283,128 1,258,740
Less accumulated depreciation 956,095 924,739
---------- ----------
Property and equipment, net $ 327,033 $ 334,001
========== ==========
</TABLE>
6. Subsequent event
On November 22, 1999, the Company received gross proceeds of $3,000,000 from the
sale to an institutional investor of 1,142,857 shares of Common Stock and
warrants to purchase up to an additional 350,000 shares at $.01 per share,
subject to certain vesting conditions over a three year period. In addition,
250,000 of the warrants will only vest if the Company fails to meet certain
performance targets. Net proceeds from that placement, after payment of fees,
was $2,740,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
This Management Discussion and Analysis of Financial Condition and Results
of Operations contains forward-looking statements. For this purpose, any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. Without limiting the foregoing, the
words "believes", "anticipates", "plans", "expects" and similar expressions are
intended to identify forward-looking statements. In addition, forward looking
statements include, but are not limited to, statements regarding future
financing needs, changes in business strategy, future profitability, and factors
affecting liquidity. A number of important factors could cause the Company's
actual results to differ materially from those indicated by such forward-looking
statements. These forward-looking statements represent the Company's judgment as
of the date of the filing of this Form 10-Q. The Company disclaims any intent or
obligation to update these forward-looking statements.
OVERVIEW
ProsoftTraining.com, formerly Prosoft I-Net Solutions, Inc., was founded in 1995
as a proprietorship that delivered training in vocational and advanced technical
subjects. After completing a private placement of stock in March 1997, the
Company embarked on a strategy to build a nationwide network of training centers
to teach technical skills for the emerging Internet market. Overhead costs
associated with the "bricks and mortar" network significantly outpaced revenues.
In fiscal year 1999, the Company closed the training center network and focused
exclusively on selling its educational programs and instructional services to
the technology training industry.
<PAGE>
RESULTS OF OPERATIONS
Three Months Ended October 31, 1999 Compared to the Three Months Ended
October 31, 1998
Revenue
Training revenue for the three months ended October 31, 1999, was
$2,656,657, compared to $1,696,014 in the three months ended October 31, 1998,
an increase of $960,643 or 57%. This increase reflects a higher level of
participation by our training partners, a result of our change in distribution
strategy from a retail to a wholesale model. Training revenue for the first
quarter of fiscal year 2000 primarily came as a result of instructor rental to
other training companies. Training revenue for the first quarter of fiscal year
1999 primarily came from student fees.
Courseware sales increased to $804,399 in the three months ended October
31, 1999, compared to $313,015 in the three months ended October 31, 1998, an
increase of $491,384 or 157%. Courseware sales in both periods came from
courseware licensing and textbook sales.
Certification revenue increased to $319,872 in the three months ended
October 31, 1999, compared to $0 in the three months ended October 31, 1998.
Certification revenue is derived from the new PCTC program and certification
testing.
Costs Of Services
The Company's costs of services include the cost of instructors, courseware
content development employees and materials, classroom equipment and facilities.
Cost of services for the three months ended October 31, 1999, were
$2,203,777, compared to $2,626,509 for the three months ended October 31, 1998,
a decrease of $422,732 or 16%. The reduction in costs was primarily related to
the absence of instructors, classroom equipment and facilities cost in the three
months ended October 31, 1999, a result of our change in distribution strategy
from a retail to a wholesale model. Instructor headcount at October 31, 1999 was
26, compared to 35 at October 31, 1998.
Sales And Marketing
Sales and marketing expenses are composed of:
<TABLE>
<CAPTION>
Three Months Ended October 31,
------------------------------
1999 1998
---- ----
<S> <C> <C>
Advertising and trade shows............. $120,734 $ 16,470
Salaries and wages...................... 172,088 627,572
Travel and entertainment................ 43,427 82,948
-------- --------
Total................................. $336,249 $726,990
======== ========
</TABLE>
Sales and marketing expenses for the three months ended October 31, 1999,
amounted to $336,249, compared to $726,990 for the three months ended October
31, 1998, a decrease of $390,741 or 54%. This decrease reflects the elimination
of the Company's public class schedule and direct mail and telemarketing staff
associated with that distribution method.
<PAGE>
General And Administrative
General and administrative expenses for the three months ended October
31, 1999, were $1,011,190, compared to $1,606,940 for the three months ended
October 31, 1998, a decrease of $595,750 or 37%. The decrease is primarily due
to savings from headcount reductions and other cost control initiatives.
Net Interest Income (Expense)
Net interest expense was $169,246 for the three months ended October 31,
1999, compared to net interest expense of $10,281 for the three months ended
October 31, 1998, an increase of $158,965. Interest expense, which consists
principally of interest on the Company's convertible debentures and capital
leases, is offset by interest earned on cash balances. The increase in net
interest expense was a result of smaller cash balances and the convertible
debenture issued in the second quarter of fiscal year 1999. Only half of the
convertible debenture interest must be paid in cash.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have financed our operations and capital expenditures
primarily through private placement of common stock, the sale of convertible
debentures and, to a lesser extent, from revenues generated from operations. At
October 31, 1999, we had approximately $1 million in cash and cash equivalents.
Cash provided by operating activities for the three months ended October
31, 1999 was $28,499, compared with cash used in operating activities of
$2,129,346 for the three months ended October 31, 1998. This increase in cash
was primarily attributed to the net profit for the three months ended
October 31, 1999.
Cash used in investing activities was $23,788 for the three months ended
October 31, 1999, compared to cash provided by investing activities of $18,560
for the three months ended October 31, 1998. Cash used in investing activities
resulted primarily from the purchases of property and equipment.
Cash used in financing activities for the three months ended October 31,
1999 was $158,330 compared with $267,717 for the three months ended October 31,
1998. The decrease in cash used in financing activities resulted primarily from
a decrease in both debt and capital lease payments and greater sales of the
Company's common stock.
In November of 1998, the Company entered into an Accounts Receivable Line
of Credit agreement with the Silicon Valley Bank, whereby up to 80% of the
accounts receivable can be advanced up to $3,500,000. As of October 31, 1999,
there have been no borrowings on this line of credit.
In November 1999, the Company received gross proceeds of $3,000,000 from
the sale to an institutional investor of 1,142,857 shares of Common Stock and
warrants to purchase up to an additional 350,000 shares at $.01 per share,
subject to certain vesting conditions. Net proceeds from that placement, after
payment of fees, was $2,740,000.
We currently expect that cash on hand and funds from operations, together
with our line of credit with the Silicon Valley Bank for a maximum of $3,500,000
and the $3,000,000 investment in the Company's common stock in November 1999,
will be sufficient to cover our reasonably foreseeable working capital, capital
expenditure and debt service requirements for the next 12 months. We cannot be
certain that assumed levels of revenues and expenses will prove to be accurate.
We may seek additional funding through public or private financing or other
arrangements prior to such time. If funding is insufficient at any time in the
future, we may be unable to develop or enhance our products or services, take
advantage of business opportunities or respond to competitive pressures, any of
which could have a negative impact on our business, operating results and
financial condition.
YEAR 2000 ISSUE RISKS
Many existing computer systems and applications, and other control devices,
use only two digits to identify a year in the date field, without considering
the impact of the upcoming change in the century. As a result, such systems and
applications could fail or create erroneous results unless corrected so that
they can process data related to the year 2000. We rely on our systems,
applications and devices, including financial systems, registration systems,
embedded computer chips, networks and telecommunications equipment.
We have completed our Year 2000 assessment and determined our financial
system needed to be updated at a cost of less than $3,000. This update was
completed in fiscal 1999. We have received assurances from our other software
vendors that their systems are Year 2000 compliant. In addition, we have
conducted an inventory, review and assessment of our personal computers,
networks and servers and desktop software applications to determine whether they
support Year 2000 date codes and we believe that all are Year 2000 compliant. In
the event of an unexpected failure in one of our systems, our employees would be
able to continue operations on a manual basis until such systems have been
restored to full operating capacity. We estimate that the total cost of our Year
2000 compliance will not be significant.
We have contacted our key vendors and service suppliers to determine the
extent to which we are vulnerable to their failure to address the Year 2000
problem. We have received verbal assurances from these key suppliers that their
systems are Year 2000
<PAGE>
compliant. Although we do not believe our operations will be significantly
disrupted even if third parties with whom we have relationships are not Year
2000 compliant, we cannot guarantee that any Year 2000 compliance problems of
our suppliers will not negatively affect our financial performance. If our key
suppliers are unable to provide us sufficient quantities of materials or goods
as a result of their failure to be Year 2000 compliant, we believe that we can
obtain adequate supplies of materials and goods at comparable prices from other
sources. Because uncertainty exists concerning the potential costs and effects
associated with any Year 2000 compliance, we intend to continue to make efforts
to ensure that third parties with whom we have relationships are Year 2000
compliant.
The Year 2000 problem could also have an effect on our customers. If
customers delay or forego purchasing our products based upon Year 2000 related
issues, it could affect our operating results. However, we cannot control the
Year 2000 readiness of third parties and such a risk is possible.
ADDITIONAL FACTORS THAT MAY AFFECT RESULTS OF OPERATIONS OR THE COMPANY
The discussions in this Form 10-Q concerning future financing needs,
changes in business strategy, future profitability, and factors affecting
liquidity contain forward-looking statements. Although management believes that
these statements are reasonable in view of the facts available to it, no
assurance can be given that all of these statements will prove to be accurate.
Numerous factors could have a material effect upon whether these projections
could be realized or whether these trends will continue. Among these factors are
those set forth in the following section, as well as those discussed elsewhere
herein. For purposes of this Form 10-Q, "we" and "our" refer to the Company.
POSSIBILITY OF CONTINUING LOSSES
We have a limited operating history, particularly with the new distribution
strategy, which makes it difficult to predict our future operating results. We
have incurred net losses of approximately $52 million from our inception in
December 5, 1995, through October 31, 1999. For the three months ended October
31, 1999, we reported net income of $60,466. Our ability to continue to
generate revenue growth in the future is subject to uncertainty. In order to
maintain profitability, we must continue to increase our revenues. We cannot
assure you that we will be able to increase revenues or achieve profitability.
UNCERTAINTY OF FUTURE CAPITAL REQUIREMENTS
Since our inception, we have been dependent on outside financing to fund
our operations and growth. We have raised approximately $47 million from
private placements and incurred losses of approximately $52 million since our
inception through October 31, 1999. We experienced revenue growth in the last
two quarters of the fiscal year ended July 31, 1999 and the first quarter of
fiscal year ended July 31, 2000 as a result of the implementation of the new
business strategy. This shift in our business strategy has resulted in a
reduction in overhead expenses and, if revenues continue to grow as demonstrated
in the last three-quarters, we hope to maintain profitability for the balance of
fiscal 2000. We currently expect that cash on hand and funds from operations,
together with our line of credit with the Silicon Valley Bank for a maximum of
$3.5 million and the $3 million investment in the Company's common stock
announced on November 23, 1999, will be sufficient to cover our minimum
foreseeable working capital, capital expenditure and debt service requirements
for the next 12 months. However, if we do not maintain profitability and
generate positive cash flow as anticipated, our ability to continue as a going
concern will be jeopardized unless additional outside financing can be obtained.
UNCERTAINTY OF FUTURE FUNDING
If we do not maintain profitability and generate positive cash flow as
anticipated, we may need additional outside financing. Even if we do maintain
profitability and positive cash flow, we may need outside financing to fund
further growth of our business. We do not know at this time when we may need
additional funds, and we cannot be certain that if we do need additional funds
in the future we will be able to obtain them on terms satisfactory to us, if at
all. If we are unable to raise additional funds when necessary, we may have to
reduce planned capital expenditures, scale back our operations or growth, or
enter into financing arrangements on terms which we would not otherwise accept.
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 future. Many of our existing competitors
<PAGE>
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 will not be able to
successfully compete with existing and future competitors, which would adversely
affect our financial performance.
NEED TO RESPOND TO 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.
EFFECT OF MARKET OVERHANG ON STOCK PRICE
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 affect the price. As long as certain registration statements which
have been filed with the SEC remain effective, the selling stockholders under
those registration statements may sell approximately 8,000,000 shares (or
approximately 47% of the shares of Common Stock currently outstanding on a
fully-diluted basis). These shares were privately issued and are otherwise
subject to restrictions on resale under securities laws. Any such sales, or
even the market perception that such sales could be made, may depress the price
of the Common Stock. The majority of the shares registered are already saleable
under rule 144.
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 affect 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
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATES
The Company's credit arrangements bear interest at fixed rates and do not
expose it to fluctuations in interest rates. Based upon the interest rates and
borrowings at October 31, 1999, a 10% increase in interest rates would not
materially effect the Company's financial position, results of operations or
cash flows.
PART II - OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
a) Exhibits
10.1 Securities Purchase Agreement dated as of November 22, 1999 among
ProsoftTraining.com and Hunt Capital Growth Fund, II L.P.
10.2 Registration Rights Agreement dated as of November 22, 1999 among
ProsoftTraining.com and Hunt Capital Growth Fund, II L.P.
10.3 Warrant Agreement dated as of November 22, 1999 among
ProsoftTraining.com and Hunt Capital Growth Fund, II L.P.
Financial Data Schedule.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the three months ended October
31, 1999.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ProsoftTraining.com
Dated: December 15, 1999
/s/ JERRELL M. BAIRD
--------------------------------
Jerrell M. Baird
Chief Executive Officer
and Chairman of the Board
(Duly Authorized Officer)
Dated: December 15, 1999
/s/ WILLIAM J. WERONICK
--------------------------------
William J. Weronick
Vice President, Finance
(Principal Financial Officer)
<PAGE>
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
dated as of
November 22, 1999
by and among
ProsoftTraining.com
as the Issuer,
and
Hunt Capital Growth Fund II, L.P.,
as the Purchaser
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, (this "Agreement") is dated as of
November 22, 1999, between ProsoftTraining.com (the "Company") and the Hunt
Capital Growth Fund II, L.P. (the "Purchaser").
R E C I T A L S:
WHEREAS, the Company desires to sell and issue to the Purchaser, and the
Purchaser desires to purchase from the Company, 1,142,857 shares of the
Company's Common Stock (as defined below) (the "Initial Shares"); and
WHEREAS, in order to induce the Purchaser to enter into the transactions
described in this Agreement, the Company desires to enter into the Warrant
Agreement attached hereto as Exhibit A (the "Warrant Agreement"), pursuant to
---------
which the Company agrees to issue to the Purchaser warrants (the "Warrants") to
purchase 350,000 shares of the Company's Common Stock at a $0.01 per share
exercise price (the "Warrant Shares") subject to the terms and conditions of the
Warrant Agreement regarding vesting, exercising and adjustment of the Warrants;
and
WHEREAS, the Purchaser will have certain registration rights with respect
to the Initial Shares and the Warrant Shares as set forth in the Registration
Rights Agreement in the form attached hereto as Exhibit B; and
---------
NOW, THEREFORE, in consideration of the foregoing premises and the
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
I. DEFINITIONS
SECTION 1.1. Definitions. The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Subsidiary of the Subject Person) which is
Controlled by or is under common Control with a Controlling Person.
"Agreement" means this Securities Purchase Agreement, as amended,
supplemented or otherwise modified from time to time in accordance with its
terms.
"Balance Sheet Date" has the meaning set forth in Section 3.7.
- ----------------------------------------------------------------------------
SECURITIES PURCHASE AGREEMENT - Page 1
<PAGE>
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by the Company.
"Benefit Plans" has the meaning set forth in Section 3.9(b).
"Board" shall mean the Company's Board of Directors.
"Broker's Fees" has the meaning set forth in Section 8.6.
"Business Day" means a day other than a Saturday, a Sunday or a day on
which banks in Dallas, Texas are required or permitted by law (other than a
general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
"Closing Date" means the date on which all of the conditions set forth in
Sections 5.1 and 5.2 shall have been satisfied and the Initial Shares and the
Warrants issued to the Purchaser.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the voting common stock, $0.001 par value per share,
of the Company.
"Company" means ProsoftTraining.com, a Nevada corporation, and its
successors.
"Company Corporate Documents" means the certificate of incorporation and
by-laws of the Company.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (y)
are capitalized in accordance with GAAP or (z) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others guaranteed by such Person.
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"Directors" means the individuals then serving on the Board of Directors or
similar such management council of the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under the Code.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Expense Reimbursement Fee" has the meaning set forth in Section 8.4.
"GAAP" has the meaning set forth in Section 1.2.
"Intellectual Property" has the meaning set forth in Section 3.20.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell or convey, option, claim, title
imperfection, encroachment or other survey defect, pledge, restriction, security
interest or other adverse claim, whether arising by contract or under law or
otherwise (including, without limitation, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of any financing statement under the Uniform Commercial Code or comparable law
of any jurisdiction in respect of any of the foregoing).
"Listing Applications" has the meaning set forth in Section 3.4.
"Major Investor" means the Purchaser as long as the Purchaser and/or any
Affiliate of the Purchaser continues to own at least 650,000 Purchaser Shares.
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<PAGE>
"Major Purchaser" means a Person to whom the Purchaser has transferred at
least 650,000 of the Purchaser Shares.
"Material Adverse Effect" means any material adverse effect on the
operations, results of operations, properties, assets or condition (financial or
otherwise) of the Company or the Company and its Subsidiaries, taken as a whole,
or on the transactions contemplated hereby or by the agreements or instruments
to be entered into in connection herewith.
"Nasdaq Market" means the Nasdaq Stock Market's National Market System,
including the Nasdaq SmallCap Market on which the Company's stock currently
trades.
"Net Cash Proceeds" means, with respect to a Qualified Public Offering, the
total amount of cash proceeds received by the Company or any Subsidiary less
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction.
"New Securities" has the meaning set forth in Section 6.14.
"Notice of Exercise" means the form to be delivered by a holder of a
Warrant upon exercise of all or a portion thereof to the Company substantially
in the form of Exhibit A to the form of Warrant.
---------
"Officer's Certificate" shall mean a certificate executed by the President,
chief executive officer or chief financial officer of the Company in the form of
Exhibit C attached hereto.
- ---------
"Original Purchase Amount" shall mean $3,000,000, the aggregate purchase
price for the 1,142,857 Initial Shares.
"Original Share Price" means $2.625 per share of Common Stock.
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, franchises, grants,
authorizations, permits, easements, variances, exemptions, consents,
certificates, orders and approvals necessary to own, lease and operate the
properties of, and to carry on the business of the Company and the Subsidiaries.
"Person" means an individual, corporation, partnership, trust, incorporated
or unincorporated association, joint venture, joint stock company, government
(or any agency or political subdivision thereof) or other entity of any kind.
"Plan" means at any time an employee pension benefit plan which is covered
by Title IV of ERISA or subject to the minimum funding standards under the Code
and either (i) is
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<PAGE>
maintained, or contributed to, by any member of the ERISA group for employees of
any member of the ERISA group or (ii) has at any time within the preceding five
years been maintained, or contributed to, by any Person which was at such time a
member of the ERISA Group for employees of any Person which was at such time a
member of the ERISA group.
"Purchaser" means Hunt Capital Growth Fund II, L.P., a Delaware limited
partnership.
"Purchaser's Designee" has the meaning set forth in Section 6.15.
"Purchaser Shares" means collectively the Initial Shares and the Qualified
Warrant Shares.
"Qualified Public Offering" means a firm commitment underwritten public
offering of the Company's Common Stock which (i) results in Net Cash Proceeds to
the Company of not less than $20,000,000, and (ii) is offered at a per share
price equal to or greater than $2.625 per share.
"Qualified Transferee" means any Affiliate of the Purchaser (or its
Affiliates) or any Person that qualifies as a Major Purchaser.
"Qualified Warrant Shares" means, of the 350,000 Warrant Shares, the
following:
(i) all of the 100,000 Warrant Shares which are not subject to vesting as
described in the Warrant Agreement, unless the Purchaser fails to
exercise the Warrant with respect to such Warrant Shares on or before
the fifth anniversary of the Closing; and
(ii) with respect to the 250,000 Warrant Shares which are subject to
vesting as provided in the Warrant Agreement, the following:
(A) prior to the occurrence of a Calculation Event (as defined in the
Warrant Agreement), all of such Warrant Shares; and
(B) upon the occurrence of a Calculation Event, the number of Warrant
Shares which vest in connection therewith;
provided, any Warrant Shares under this clause (ii) which constitute
--------
Qualified Warrant Shares shall cease to be Qualified Warrant Shares if
the Purchaser fails to exercise the Warrant with respect to such
Warrant Shares on or before the fifth anniversary of the Closing.
"Registration Rights Agreement" has the meaning set forth in the recital to
this Agreement.
"Reimbursement Expense Fee" has the meaning set forth in Section 8.4.
"SEC Reports" shall have the meaning set forth in Section 3.7.
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SECURITIES PURCHASE AGREEMENT - Page 5
<PAGE>
"Securities" means the Initial Shares, the Warrants, and any Warrant
Shares.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which (x) a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the Board of Directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person or (y) the results of operations, the assets and
the liabilities of which are consolidated with such Person under GAAP.
"Subsidiary Corporate Documents" means the certificates of incorporation
and by-laws of each Subsidiary.
"Trading Day" shall mean any Business Day in which the Nasdaq Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transaction Agreements" means this Agreement, the Warrant Agreement and
the Registration Rights Agreement.
"Warrant Agreement," "Warrant Shares" and "Warrants" have the meaning set
forth in the Recitals to this Agreement.
SECTION 1.2. Accounting Terms and Determinations. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"). All references to "dollars," "Dollars"
or "$" are to United States dollars unless otherwise indicated.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. Purchase and Sale of Common Stock Notes. Subject to the terms
and conditions set forth herein, the Company agrees to issue and sell to the
Purchaser, and the Purchaser agrees to purchase from the Company, the Initial
Shares at $2.625 per share for an aggregate purchase price for the Initial
Shares in the amount of $3,000,000.
SECTION 2.2 Payment. On the Closing Date, subject to the satisfaction of
all terms and conditions set forth herein, the Purchaser shall deliver by wire
transfer to the Company immediately available funds in an amount equal to the
Original Purchase Amount.
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<PAGE>
SECTION 2.3 Closing. Subject to satisfaction of the conditions set forth
in Sections 5.1 and 5.2 hereof, the Closing Date shall occur on November 22,
1999, or such other date as the parties shall mutually agree upon.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser, as of the Closing
Date, the following:
SECTION 3.1. Organization and Qualification. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own, lease, use and operate its
properties and to carry on its business as and where now owned, leased, used,
operated and conducted. Schedule 3.1 sets forth a list of all Subsidiaries and
the country or jurisdiction in which each is incorporated. The Company and each
of its Subsidiaries is duly qualified to conduct business as a foreign
corporation and is in good standing in every jurisdiction in which the nature of
the business conducted by it makes such qualification necessary, except where
such failure would not have a Material Adverse Effect.
SECTION 3.2. Authorization and Execution.
(a) The Company has all requisite corporate power and authority to
enter into and perform each Transaction Agreement and to consummate the
transactions contemplated hereby and thereby and to issue the Securities in
accordance with the terms hereof and thereof.
(b) The execution, delivery and performance by the Company of each
Transaction Agreement and the issuance by the Company of the Securities
have been duly and validly authorized and no further consent or
authorization of the Company, its Board of Directors or its shareholders is
required.
(c) This Agreement has been duly executed and delivered by the
Company.
(d) This Agreement constitutes, and upon execution and delivery
thereof by the Company, each of the other Transaction Agreements will
constitute, a valid and binding agreement of the Company, in each case
enforceable against the Company in accordance with its respective terms.
SECTION 3.3. Capitalization. As of the date hereof, the authorized, issued
and outstanding capital stock of the Company is as set forth on Schedule 3.3
hereto and no other shares of capital stock of the Company will be outstanding
as of the Closing Date. All of such outstanding shares of capital stock are, or
upon issuance will be, duly authorized, validly issued,
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SECURITIES PURCHASE AGREEMENT - Page 7
<PAGE>
fully paid and non-assessable. No shares of capital stock of the Company are
subject to preemptive rights or similar rights of the stockholders of the
Company or any liens or encumbrances imposed through the actions or failure to
act of the Company. Other than as set forth on Schedule 3.3 hereto, as of the
date hereof, (i) there are no outstanding options, warrants, scrip, rights to
subscribe for, puts, calls, rights of first refusal, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries are obligated to register the sale of any of its or their
securities under the Securities Act (except pursuant to the Registration Rights
Agreement) and (iii) there are no anti-dilution or price adjustment provisions
contained in any security issued by the Company (or in any agreement providing
rights to security holders) that will be triggered by the issuance of the
Warrant Shares. The Company has furnished to the Purchaser true and correct
copies of the Company's Corporate Documents, and of all securities convertible
into or exercisable for Common Stock (a list of such securities, and a summary
of the material terms thereof, being attached hereto as Schedule 3.3).
SECTION 3.4. Governmental Authorization. The execution and delivery by the
Company of the Transaction Agreements does not and will not, the issuance and
sale by the Company of the Securities does not and will not, and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, require any action by or in respect of, or
filing with, any governmental body, agency or governmental official except (a)
such actions or filings that have been undertaken or made prior to the date
hereof and that will be in full force and effect (or as to which all applicable
waiting periods have expired) on and as of the date hereof or which are not
required to be filed on or prior to the Closing Date, (b) such actions or
filings that, if not obtained, would not result in a Material Adverse Effect,
(c) listing applications ("Listing Applications") to be filed with the Nasdaq
Market relating to the Initial Shares and the Warrant Shares, and (d) the filing
of a "Form D" as described in Section 7.13 below.
SECTION 3.5. Issuance of Shares. The issuance of the Initial Shares is
and, upon exercise in accordance with the terms of the Warrant Agreement
(assuming the payment of the exercise price set forth in the Warrants), the
issuance of the Warrant Shares shall be, duly and validly issued and
outstanding, fully paid and nonassessable, free and clear of any taxes, Liens
and charges with respect to issuance and shall not be subject to preemptive
rights or similar rights of any other stockholders of the Company. Assuming the
representations and warranties of the Purchaser herein are true and correct in
all material respects, each of the Securities will have been issued in material
compliance with all applicable U.S. federal and state securities laws. The
Company understands and acknowledges that, in certain circumstances, the
issuance of Warrant Shares could dilute the ownership interests of other
stockholders of the Company. The Company further acknowledges that its
obligation to issue Warrant Shares upon exercise of the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
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SECURITIES PURCHASE AGREEMENT - Page 8
<PAGE>
SECTION 3.6. No Conflicts. The execution and delivery by the Company of
the Transaction Agreements to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and by the other
Transaction Agreements will not, contravene or constitute a default under or
violation of (i) any provision of applicable law or regulation, (ii) the Company
Corporate Documents, (iii) any agreement, judgment, injunction, order, decree or
other instrument binding upon the Company or any Subsidiary or any of their
respective assets, or result in the creation or imposition of any Lien on any
asset of the Company or any Subsidiary. The Company and each Subsidiary is in
compliance with and conforms to all statutes, laws, ordinances, rules,
regulations, orders, restrictions and all other legal requirements of any
domestic or foreign government or any instrumentality thereof having
jurisdiction over the conduct of its businesses or the ownership of its
properties, except where such failure would not have a Material Adverse Effect.
SECTION 3.7. Financial Information and SEC Reports. Since December 1,
1996, the Company has timely filed all forms, reports and documents with the
Commission required to be filed by it under the Exchange Act through the date
hereof (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
(other than exhibits) incorporated by reference therein, being referred to
herein collectively as the "SEC Reports"). The Company has delivered to the
Purchaser true and complete copies of the SEC Reports, except for such exhibits
and incorporated documents. Such SEC Reports, at the time filed, complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder applicable to such SEC Reports. None of
the SEC Reports, including without limitation, any financial statements or
schedules included therein, contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements made,
in light of the circumstances under which they were made, not misleading. There
have been no material adverse changes in the Company's business, properties,
results of operations or condition (financial or otherwise) since the date of
the Company's most recent Report on Form 10-K for the fiscal year ended July 31,
1999 which have not been disclosed in the Company's SEC Reports or to the
Purchaser in writing. The audited and unaudited consolidated balance sheets of
the Company and its Subsidiaries contained in the SEC Reports, and the related
consolidated statements of income, changes in stockholders' equity and changes
in cash flows for the periods then ended, including the footnotes thereto,
except as indicated therein, (i) complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto and (ii) have been prepared in accordance
with GAAP consistently applied throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments. Such financial statements
fairly present the financial condition of the Company and its Subsidiaries at
the dates indicated and the consolidated results of their operations and cash
flows for the periods then ended and, except as indicated therein, reflect all
claims against and all Debts and liabilities of the Company and its
Subsidiaries, fixed or contingent. Since July 31, 1999 (the "Balance Sheet
Date"), except as disclosed in the SEC Reports, there has been (x) no material
adverse change in the assets or liabilities, or in the business or condition,
financial or otherwise, or in the results of operations, of the Company and its
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SECURITIES PURCHASE AGREEMENT - Page 9
<PAGE>
Subsidiaries, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God,
public force or otherwise and (y) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations, of the Company and its Subsidiaries except in the
ordinary course of business; and no fact or condition exists or is contemplated
or threatened which might cause such a change in the future.
SECTION 3.8. Litigation. Except as set forth in the SEC Reports, there is
no action, suit or proceeding pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, before any court or arbitrator
or any governmental body, agency or official in which there is a reasonable
possibility of an adverse decision which could materially adversely affect the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or which challenges the validity of any
Transaction Agreements.
SECTION 3.9. Compliance with ERISA and other Benefit Plans.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Code with respect to each Plan and is
in compliance in all material respects with the presently applicable provisions
of ERISA and the Code with respect to each Plan. No member of the ERISA Group
has (i) sought a waiver of the minimum funding standard under Section 412 of the
Code in respect of any Plan, (ii) failed to make any required contribution or
payment to any Plan or Multiemployer Plan or in respect of any Benefit
Arrangement, or made any amendment to any Plan or Benefit Arrangement, which has
resulted or could result in the imposition of a Lien or the posting of a bond or
other security under ERISA or the Code or (iii) incurred any liability under
Title IV of ERISA other than a liability to the PBGC for premiums under Section
4007 of ERISA.
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the
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SECURITIES PURCHASE AGREEMENT - Page 10
<PAGE>
administration of any relevant pension benefits regulatory authority or being
required to pay any taxes or penalties (in any material amounts) under any
applicable laws.
SECTION 3.10. Environmental Matters. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a Material Adverse Effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
SECTION 3.11. Taxes. All United States federal, state, county,
municipality local or foreign income tax returns and all other material tax
returns (including foreign tax returns) which are required to be filed by or on
behalf of the Company and each Subsidiary have been filed and all material taxes
due pursuant to such returns or pursuant to any assessment received by the
Company and each Subsidiary have been paid except those being disputed in good
faith and for which adequate reserves have been established. The charges,
accruals and reserves on the books of the Company and each Subsidiary in respect
of taxes or other governmental charges have been established in accordance with
GAAP.
SECTION 3.12. Investments, Joint Ventures. Other than as set forth on
Schedule 3.1, , the Company has no Subsidiaries or other direct or indirect
Investment in any Person, and the Company is not a party to any partnership,
management, shareholders' or joint venture or similar agreement.
SECTION 3.13. Not an Investment Company. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 3.14. Full Disclosure. The information heretofore furnished by the
Company to the Purchaser for purposes of or in connection with this Agreement or
any transaction contemplated hereby does not, and all such information hereafter
furnished by the Company or any Subsidiary to the Purchaser will not (in each
case taken together and on the date as of which such information is furnished),
contain any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements contained therein, in the light of the
circumstances under which they are made, not misleading.
SECTION 3.15. No Solicitation; No Integration with Other Offerings. No
form of general solicitation or general advertising was used by the Company or,
to the best of its actual knowledge, any other Person acting on behalf of the
Company, in connection with the offer and sale of the Securities. The issuance
of the Securities to the Purchaser will not be integrated with any other
issuance of the Company's securities (past, current or future) which requires
stockholder approval under the rules of the Nasdaq Market.
SECTION 3.16. Permits. (a) Each of the Company and its Subsidiaries has
all material Permits; (b) all such Permits are in full force and effect, and
each of the Company and
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<PAGE>
its Subsidiaries has fulfilled and performed all material obligations with
respect to such Permits; (c) no event has occurred which allows, or after notice
or lapse of time would allow, revocation or termination by the issuer thereof or
which results in any other material impairment of the rights of the holder of
any such Permit; and (d) the Company has no reason to believe that any
governmental body or agency is considering limiting, suspending or revoking any
such Permit.
SECTION 3.17. Leases. Except as disclosed on Schedule 3.17 hereto, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
SECTION 3.18. Absence of Any Undisclosed Liabilities or Capital Calls.
Except for litigation described in the SEC Reports, there are no liabilities of
the Company or any Subsidiary of any kind whatsoever, whether accrued,
contingent, absolute, determined, determinable or otherwise, and there is no
existing condition, situation or set of circumstances which could reasonably be
expected to result in such a liability, other than (i) those liabilities
provided for in the financial statements delivered pursuant to Section 3.7
hereof and (ii) other undisclosed liabilities which, individually or in the
aggregate, would not have a Material Adverse Effect. Except for payment by the
Company of approximately $55,000, no other amounts have been paid or will be
owed by the Company in connection with the settlement of that certain
consolidated class action lawsuit filed in Orange County, California Robertson
v. ProSoft I-Net Solutions, Inc., et al., which was settled on November 16,
1999.
SECTION 3.19. Public Utility Holding Company. Neither the Company nor any
Subsidiary is, or will be upon the issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to issue and perform its obligations under any Transaction
Agreement.
SECTION 3.20. Intellectual Property Rights. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of the
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 3.21. Insurance. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
Material Adverse Effect. All insurance coverages of the Company and its
Subsidiaries are in full force and effect and there are no past due premiums in
respect of any such insurance.
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<PAGE>
SECTION 3.22. Title to Properties. The Company and its Subsidiaries have
good and marketable title to all their respective properties reflected on the
financial statements referred to in Section 3.7, free and clear of all Liens,
other than Liens set forth on Schedule 3.22 or in the SEC Reports.
SECTION 3.23. Eligibility to Use Form S-3. As of the date hereof, the
Company meets the "registrant eligibility" requirements set forth in the general
instructions applicable to registration statements on Form S-3 covering the
resale of the Registrable Securities.
SECTION 3.24. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's Board of Directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management's general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
SECTION 3.25. Year 2000 Compliance.
(a) Computer and Other Systems. To the best of the Company's knowledge
after reasonable testing and inquiry, all software programs and computer
hardware that are owned, leased or licensed by the Company and each Subsidiary,
or used by third parties on behalf of the Company and each Subsidiary ("Computer
Systems"), are designated to be used prior to, during and after the calendar
year 2000 A.D., including leap years; (b) all other operational systems that use
software or equipment that are owned, leased, or licensed by the Company and
each Subsidiary, or used by third parties on behalf of the Company and each
Subsidiary ("Other Systems"), are designated to be used prior to, during and
after the calendar year 2000 A.D., including leap years; (c) the Computer
Systems and Other Systems will properly operate during each such period without
error or degradation of performance caused by a lack of Year 2000 Capabilities,
and (d) the Computer Systems and Other Systems will properly operate during each
such period without requiring intervention or modification to Date Data.
(b) Capabilities of Suppliers, Vendors and Landlords. To the best of the
Company's knowledge, the Company and each Subsidiary will not suffer a loss from
interruption or cessation of business operations, in whole or in part, as a
result of such suppliers, vendors or landlords failing to provide materials,
labor, supplies or access to leased space for the operation of the Company and
each Subsidiary as a result of such suppliers or vendors not having Year 2000
Capabilities.
(c) Definitions. For purposes of this Agreement, (x) "Year 2000
Capabilities" means the ability to: (i) manage and manipulate data involving
dates, including single century formulas and multi-century formulas, in a manner
that will not cause an abnormally ending scenario or
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generate incorrect values or invalid results involving such dates, (ii) include
the indication of proper century dates in all date-related user interface
functions and date fields, and (iii) operate with proper century dates in date-
related software or hardware interface functions and (y) "Date Data" means any
existing data or input of data which includes an indication of or reference to
date.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER
SECTION 4.1. Representations and Warranties. The Purchaser hereby
represents and warrants to the Company solely that:
(a) the Purchaser is an "accredited investor" within the meaning of
Rule 501(a)(3) under the Securities Act and the Securities to be acquired
by it pursuant to this Agreement are being acquired for its own account
and, as of the date hereof, not with a view toward, or for sale in
connection with, any distribution thereof except in compliance with
applicable United States federal and state securities law; provided that
the disposition of the Purchaser's property shall at all times be and
remain within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant hereto are within the Purchaser's
partnership powers, and have been duly and validly authorized by all
requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by the
Purchaser.
(d) the execution and delivery by the Purchaser of the Transaction
Agreements to which it is a party does not, and the consummation of the
transactions contemplated hereby and thereby will not, contravene or
constitute a default under or violation of (i) any provision of applicable
law or regulation, or (ii) any agreement, judgment, injunction, order,
decree or other instrument binding upon the Purchaser;
(e) the Purchaser understands that the Securities have not been
registered under the Securities Act and may not be transferred or sold
except as permitted under the Securities Act and applicable state
securities laws, pursuant to either an effective registration statement or
an exemption therefrom, and that the Securities will contain a legend to
that effect.
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency or similar laws affecting the
enforceability of creditors rights generally and (ii) equitable principles
of general applicability;
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(g) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of
its investment in the Securities and the Purchaser is capable of bearing
the economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations
on transfer described herein; the Purchaser has been afforded access to
information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient to
enable it to evaluate its investment in the Securities; the Purchaser has
been afforded the opportunity to ask such questions as it has deemed
necessary of, and to receive answers from, representatives of the Company
concerning the terms and conditions of the offering of the Securities and
the merits and the risks of investing in the Securities; and the Purchaser
has been afforded the opportunity to obtain such additional information
which the Company possesses or can acquire that is necessary to verify the
accuracy and completeness of the information given to the Purchaser
concerning the Company. The foregoing does not in any way relieve the
Company of its representations and other undertakings hereunder, and shall
not limit the Purchaser's ability to rely thereon;
(i) no part of the source of funds used by the Purchaser to acquire
the Securities constitutes assets allocated to any separate account
maintained by the Purchaser in which any employee benefit plan (or its
related trust) has any interest; and
(j) the Purchaser is a limited partnership formed under the laws of
the State of Delaware, 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.
SECTION 4.2 Purchaser Covenants.
(a) The Purchaser agrees that, notwithstanding the Purchaser's rights
under an effective registration statement as contemplated by the
Registration Rights Agreement, it shall not be permitted to publicly sell
pursuant to such registration statement any or all of the Initial Shares
for a period of twelve months from the Closing Date.
(b) Notwithstanding anything to the contrary set forth in clause (a)
above, the Purchaser will be permitted to (i) transfer the Securities to
Affiliates, subject to compliance with all applicable securities laws, (ii)
pledge the Securities as collateral against the obligations of the
Purchaser, and (iii) transfer the Securities pursuant to any private
transaction which is in compliance with the Securities Act or exemptions
thereunder.
(c) The Purchaser acknowledges and agrees that the Company is
publicly traded and that the Purchaser may have been provided material non-
public information
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SECURITIES PURCHASE AGREEMENT - Page 15
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concerning the Company. The Purchaser acknowledges that federal and state
securities laws prohibit it from trading securities of a Company about
which it has material non-public information and the Purchaser agrees to
comply with all such applicable laws.
ARTICLE V
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 5.1. Conditions Precedent to the Purchaser's Obligation to
Purchase. The obligation of the Purchaser hereunder to purchase the Initial
Shares at the Closing is subject to the satisfaction, on or before the Closing
Date of each of the following conditions, provided that these conditions are for
the Purchaser's sole benefit and may be waived by such Purchaser at any time in
its sole discretion:
(a) The Company shall have executed this Agreement, the Warrant
Agreement and the Registration Rights Agreement and delivered the same to
the Purchaser;
(b) The Company shall have delivered to the Purchaser duly executed
certificates representing the Initial Shares;
(c) The Company shall have delivered to the Purchaser the Warrants;
(d) The representations and warranties of the Company contained in
each Transaction Agreement shall be true and correct in all material
respects as of the date when made and as of the Closing Date as though made
at such time (except for representations and warranties that speak as of a
specified date) and the Company shall have performed, satisfied and
complied with all covenants, agreements and conditions required by such
Transaction Agreements to be performed, satisfied or complied with by it at
or prior to the Closing Date;
(e) The Purchaser shall have received an Officer's Certificate
executed by the chief executive officer of the Company, dated as of the
Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by the Purchaser, including but not limited to
certificates with respect to the Company Corporate Documents, resolutions
relating to the transactions contemplated hereby and the incumbencies of
certain officers and Directors of the Company. (the form of such
certificate is attached hereto as Exhibit C);
---------
(f) The Company shall have received all governmental, Board of
Directors, shareholders and third party consents and approvals necessary or
desirable in connection with the issuance and sale of the Securities;
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(g) All applicable waiting periods in respect to the issuance and
sale of the Securities shall have expired without any action having been
taken by any competent authority that could restrain, prevent or impose any
materially adverse conditions thereon or that could seek or threaten any of
the foregoing;
(h) No law or regulation shall have been imposed or enacted that, in
the judgment of the Purchaser, could adversely affect the transactions set
forth herein or in the other Transaction Agreements, and no law or
regulation shall have been proposed that in the reasonable judgment of
Purchaser could reasonably have any such effect;
(i) The Purchaser shall have received an opinion, dated the Closing
Date, of counsel to the Company, substantially in the form attached as
Exhibit D hereto;
---------
(j) All fees and expenses due and payable by the Company on or prior
to the Closing Date shall have been paid, including but not limited to the
payment to the Purchaser of the Reimbursement Expense Fee;
(k) The Company Corporate Documents shall be in full force and effect
and no term or condition thereof shall have been amended, waived or
otherwise modified without the prior written consent of the Purchaser;
(l) There shall have occurred no change in the business, condition
(financial or otherwise), operations, performance or properties of the
Company or any Subsidiary which would have, in the aggregate, a Material
Adverse Effect since July 31, 1999;
(m) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect this Agreement or any other Transaction Agreement, or other
transaction contemplated hereby or thereby or that could reasonably be
expected to have a Material Adverse Effect, or any material adverse effect
on the enforceability of the Transaction Agreements or the Securities or
the rights of the holders of the Securities or the Purchaser;
(n) The Purchaser shall have confirmed receipt of the Initial Shares
and the Warrants, duly executed by the Company in the denominations and
registered in the name of the Purchaser;
(o) There shall not have occurred any disruption or adverse change in
the financial or capital markets generally, or in the market for the Common
Stock (including but not limited to any suspension or delisting), which the
Purchaser reasonably deems material in connection with the purchase of the
Securities; and
(p) The Purchaser shall have received all other opinions,
resolutions, certificates, instruments, agreements or other documents as it
shall reasonably request.
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SECTION 5.2. Conditions to the Company's Obligations. The obligations of
the Company to issue and sell the Securities to the Purchaser pursuant to this
Agreement are subject to the satisfaction, at or prior to any Closing Date, of
the following conditions:
(a) The representations and warranties of the Purchaser contained
herein shall be true and correct in all material respects on the Closing
Date and the Purchaser shall have performed and complied in all material
respects with all agreements required by this Agreement to be performed or
complied with by the Purchaser at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation;
(c) Receipt by the Company of duly executed counterparts of this
Agreement, the Warrant Agreement, and the Registration Rights Agreement
signed by the Purchaser; and
(d) The Company shall have received payment of the Original Purchase
Amount.
ARTICLE VI
AFFIRMATIVE COVENANTS
The Company hereby agrees that, from and after the date hereof until the
earliest of (a) the date that none of the Warrants remain outstanding and
unexercised or (b) the date that the Purchaser and/or its Affiliates no longer
qualifies as a Major Investor:
SECTION 6.1. Information. The Company will deliver to the Purchaser
promptly upon the filing thereof, copies of (i) all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent), and (ii) all reports on Forms 10-K, 10-Q and 8-K (or their
equivalents) which the Company or any Subsidiary has filed with the Commission;
SECTION 6.2. Payment of Obligations. The Company will, and will cause
each Subsidiary to, pay and discharge, at or before maturity, all their
respective material obligations, including, without limitation, tax liabilities,
except where the same may be contested in good faith by appropriate proceedings
and will maintain, in accordance with GAAP, appropriate reserves for the accrual
of any of the same.
SECTION 6.3. Maintenance of Property; Insurance.
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(a) The Company will, and will cause each Subsidiary to, keep all
property useful and necessary in its business in good working order and
condition, ordinary wear and tear excepted.
(b) The Company and each Subsidiary will maintain insurance in at
least such amounts and against such risks as it has insured against as of
the Closing Date.
(c) The Company will obtain and maintain insurance to cover any
liabilities incurred by the actions of its directors and officers in an
amount not less than $5,000,000.
(d) The Company will use its best efforts to maintain life insurance,
payable to the Company, in an amount of at least $2,000,000 on the life of
each of the Company's top four executives (as designated from time to time
by the Board of Directors).
SECTION 6.4. Maintenance of Existence. The Company will, and will cause
each Subsidiary to, continue to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
SECTION 6.5. Compliance with Laws. The Company will, and will cause each
Subsidiary to, comply, in all material respects, with all federal, state,
municipal, local or foreign applicable laws, ordinances, rules, regulations,
municipal by-laws, codes and requirements of governmental authorities
(including, without limitation, Environmental Laws and ERISA and the rules and
regulations thereunder) except (i) where compliance therewith is contested in
good faith by appropriate proceedings or (ii) where non-compliance therewith
could not reasonably be expected, in the aggregate, to have a Material Adverse
Effect on the business, condition (financial or otherwise), operations,
performance, properties of the Company or such Subsidiary.
SECTION 6.6. Maintenance of Records; Inspection
(a) The Company will, and will cause each Subsidiary to, keep proper
books of record and account in which full, true and correct entries shall
be made of all dealings and transactions in relation to their respective
businesses and activities.
(b) The Company will permit, and will cause each Subsidiary to
permit, the Purchaser's Representative or an affiliate thereof, as
representatives of the Purchaser, to visit and inspect any of their
respective properties, upon reasonable prior notice and during normal
business hours, to examine and make abstracts from any of their respective
books and records and to discuss their respective affairs, finances and
accounts with their respective executive officers and independent public
accountants (and by this provision the Company authorizes its independent
public accountants to disclose and discuss with the Purchaser the affairs,
finances and accounts of the Company and its Subsidiaries), all at such
reasonable times.
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SECTION 6.7. Investment Company Act. The Company will not be or become an
open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 6.8. Use of Proceeds.
(a) The proceeds from the issuance and sale of the Initial Shares by
the Company shall be used as set forth on Schedule 6.8 attached hereto and
for other working capital purposes.
(b) None of the proceeds from the issuance and sale of the Initial
Shares by the Company pursuant to this Agreement will be used directly or
indirectly for the purpose, whether immediate, incidental or ultimate, of
purchasing or carrying any "margin stock" within the meaning of Regulation
G of the Board of Governors of the Federal Reserve System.
(c) None of the proceeds from the issuance and sale of the Initial
Shares by the Company pursuant to this Agreement will be used directly or
indirectly to make any principal payment on or prepay any Debt of the
Company or to settle any pending litigation in which the Company is
involved.
SECTION 6.9. Compliance with Terms and Conditions of Material Contracts.
The Company will, and will cause each Subsidiary to, comply, in all respects,
with all terms and conditions of all material contracts to which it is subject.
SECTION 6.10. Reserved Shares and Listings
(a) The Company shall at all times have authorized, and reserved for
the purpose of issuance, a sufficient number of shares of Common Stock to
provide for the exercise in full of the Warrants and the issuance of the
Warrant Shares, pursuant to the terms of the Warrant Agreement.
(b) The Company shall promptly file the Listing Applications and
secure the listing of the Initial Shares and Warrant Shares upon each
national securities exchange or automated quotation system, if any, upon
which shares of Common Stock are then listed (subject to official notice of
issuance) and shall maintain, so long as any other shares of Common Stock
shall be so listed, such listing of all Warrant Shares from time to time
issuable upon exercise of the Warrants. The Company will obtain and
maintain the listing and trading of its Common Stock on the Nasdaq Market,
the Nasdaq SmallCap Market, the New York Stock Exchange, Inc., or the
American Stock Exchange Inc., and will comply in all respects with the
Company's reporting, filing and other obligations under the bylaws or rules
of the National Association of Securities Dealers, Inc. (the "NASD") and
such exchanges, as applicable. The Company shall promptly provide to the
Purchaser copies of any notices it receives from Nasdaq regarding the
continued eligibility of the Common Stock for listing on the Nasdaq Market.
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SECURITIES PURCHASE AGREEMENT - Page 20
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SECTION 6.11. Irrevocable Instructions. Upon receipt of a Notice of
Exercise, the Company shall immediately issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of the Purchaser or
its nominee, for the Warrant Shares, in such amounts as specified from time to
time by the Purchaser to the Company upon proper exercise of the Warrants. Upon
exercise of any Warrants in accordance with their terms, the Company will, and
will use its best lawful efforts to cause its transfer agent to, issue one or
more certificates representing shares of Common Stock in such name or names and
in such denominations specified by a Purchaser in a Notice of Exercise. The
Company further warrants and agrees that no instructions other than these
instructions have been or will be given to its transfer agent. Nothing in this
Section 6.11 shall affect in any way the Purchaser's obligation to comply with
all securities laws applicable to the Purchaser upon resale of such shares of
Common Stock, including any prospectus delivery requirements.
SECTION 6.12. Maintenance of Reporting Status; Supplemental Information.
So long as any of the Securities are outstanding, the Company shall timely file
all reports required to be filed with the Commission pursuant to the Exchange
Act. The Company shall not terminate its status as an issuer required to file
reports under the Exchange Act, even if the Exchange Act or the rules and
regulations thereunder would permit such termination. If at anytime the Company
is not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish at its expense, upon request, for the benefit
of the holders from time to time of Securities, and prospective purchaser of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 6.13. Form D; Blue Sky Laws. The Company agrees to file a "Form D"
with respect to the Securities as required under Regulation D of the Securities
Act and to provide a copy thereof to the Purchaser promptly after such filing.
The Company shall, on or before the Closing Date, take such action as the
Company shall reasonably determine is necessary to qualify the Securities for
sale to the Purchaser at the Closing pursuant to this Agreement under applicable
securities or "blue sky" laws of the states of the United States (or to obtain
an exemption from such qualification), and shall provide evidence of any such
action so taken to each Purchaser on or prior to the Closing Date.
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SECTION 6.14. Right of First Refusal Upon Issuance of New Securities.
(a) In the event that the Company offers to issue any of its equity
stock, or any securities exercisable or exchangeable for or convertible
into any equity security or otherwise having an equity feature, other than
(i) the issuance of any security in connection with employee/director stock
grants, employee stock options or purchase plans, (ii) the issuance of any
security upon the exercise or conversion of any outstanding convertible
securities, rights, options or warrants to acquire Common Stock of the
Company in existence as of the date hereof, or (iii) the issuance of any
security in the first Qualified Public Offering of the Company following
the Closing Date ("New Securities"), the Company hereby grants to the
Purchaser the right of first refusal to purchase a pro rata share of any
such New Securities.
(b) "Pro rata" shall mean, for purposes of this section, the ratio of
the number of shares of Common Stock owned by the Purchaser immediately
prior to the issuance of New Securities, assuming full exercise of the
Purchaser's Warrants (regardless whether these Warrants have vested or been
exercised), to the total number of shares of Common Stock outstanding
immediately prior to the issuance of New Securities, assuming full
conversion and/or exercise of all outstanding convertible securities,
rights options, and warrants to acquire Common Stock of the Company.
(c) In the event that Company proposes to undertake an issuance of New
Securities, it shall give the Purchaser written notice of its intention,
describing the type of New Securities, and their price and the general
terms upon which the Company proposes to issue the same.
(d) The Purchaser shall have ten (10) days after any such notice is
mailed or delivered to agree to purchase the Purchaser's pro rata share of
such New Securities for the price and upon the terms specified in the
notice by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased.
(e) The Company's obligations under this Section 6.14 shall terminate
upon the earlier of (i) the completion of the first Qualified Public
Offering following the Closing Date, (ii) the date none of the Warrants
remain outstanding, or (iii) the date that the Purchaser and/or its
Affiliates no longer qualifies as a Major Investor.
(f) The Company's obligations to the Purchaser under this Section 6.14
are expressly transferable by the Purchaser to a Qualified Transferee.
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SECTION 6.15. Nomination of the Purchaser's Designee to the Company's
Board of Directors.
(a) For the period beginning from the date of this Agreement and
ending on the earlier to occur of (i) the fifth anniversary of the Closing,
or (ii) the date that the Purchaser no longer qualifies as a Major
Investor, the Company agrees to use its best efforts to cause one person
designated by the Purchaser (the "Purchaser's Designee") to be elected as a
member of the Board, including, but not limited to, taking any of the
following actions: creating a vacancy on the Board, nominating the
Purchaser's Designee to the Board from time to time and at all meetings or
actions of the stockholders of the Company, and using its best efforts to
provide information to, and promote the election of the Purchaser's
Designee by, the Company's stockholders. As of the date hereof, the Company
represents and warrants that (x) its existing Board has lawfully nominated
J.R. Holland, Jr., the initial Purchaser's Designee, as a class III
director for a term expiring in 2002, such nomination to be voted upon by
the Company's shareholders at the annual meeting of the Company currently
scheduled to be held on Monday, December 13, 1999, and (y) the actions
taken by the Board in clause (x) are valid and binding and do not create or
result in a breach of the Company's Certificate of Incorporation, Bylaws or
any other material agreement of the Company.
(b) The Company shall provide notice to the Purchaser at least thirty
(30) days prior to any upcoming nomination by the Board or vote of the
Company's stockholders regarding the election of or continued service of
the members of the Board. The Purchaser may, at any time, with or without
cause, remove and replace the Purchaser's Designee with another individual
selected by the Purchaser. If the Purchaser desires to select another
Purchaser's Designee, then the Purchaser shall provide written notice to
the Company of its replacement designee, and the Company will take all
necessary action and use its best efforts to promptly cause such
replacement of the Purchaser's Designee to occur.
(c) The Company's obligations under this Section 6.15 are expressly
transferable by the Purchaser to any Affiliate, but not to any other
Person, including, without limitation, a Qualified Transferee.
ARTICLE VII
NEGATIVE COVENANTS
SECTION 7.1. Restrictions on Certain Amendments. The Company will not,
without the prior written consent of the Purchaser, (i) amend the rights and
privileges granted under the Warrants, or (ii) amend any provision of the
Company Corporate Documents so as to adversely affect the rights or privileges
granted under the Warrants.
SECTION 7.2. Board Representative. The Company will not take, or induce
or solicit any Person to take, any action inconsistent with or adverse to the
Purchaser's right to
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appoint a representative to the Company's Board of Directors under the
provisions of Section 6.15.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1. Notices. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties. Each such notice, demand or other
communication shall be effective (i) if given by telecopy, when such telecopy is
transmitted to the telecopy number specified on the signature page hereof, (ii)
if given by mail, four days after such communication is deposited in the mail
with first class postage prepaid, addressed as aforesaid or (iii) if given by
any other means, when delivered at the address specified in or pursuant to this
Section.
SECTION 8.2. No Waivers; Amendments.
(a) No failure or delay on the part of any party in exercising any
right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or
waived if, but only if, such amendment, supplement or waiver is in writing
and is signed by the Company and the Purchaser, or the Purchaser's
permitted successors or assigns.
SECTION 8.3. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Purchaser,
its Affiliates, and each Person, if any, who controls the Purchaser, or any
of its Affiliates, within the meaning of the Securities Act or the Exchange
Act (each, a "Controlling Person"), and the respective partners, agents,
employees, officers and Directors of the Purchaser, their Affiliates and
any such Controlling Person (each an "Indemnified Party" and collectively,
the "Indemnified Parties"), from and against any and all losses, claims,
damages, liabilities and expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any
such claim or action, whether or not such Indemnified Party is a party
thereto, provided that the Company shall not be obligated to advance such
costs to any Indemnified Party other than the Purchaser unless it has
received from such Indemnified Party an undertaking to repay to the Company
the costs so advanced if it should be determined by final judgment of a
court of competent jurisdiction that such Indemnified Party was not
entitled to indemnification hereunder with respect to such costs) which may
be incurred by such Indemnified Party in
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connection with any investigative, administrative or judicial proceeding
brought or threatened that relates to or arises out of, or is in connection
with any activities contemplated by any Transaction Agreement; provided
--------
that the Company will not be responsible for any claims, liabilities
losses, damages or expenses that are determined by final judgment of a
court of competent jurisdiction to result from such Indemnified Party's
gross negligence, willful misconduct or bad faith.
(b) If any action shall be brought against an Indemnified Party with
respect to which indemnity may be sought against the Company under this
Agreement, such Indemnified Party shall promptly notify the Company in
writing and the Company, at its option, may, assume the defense thereof,
including the employment of counsel reasonably satisfactory to such
Indemnified Party and payment of all reasonable fees and expenses. The
failure to so notify the Company shall not affect any obligations the
Company may have to such Indemnified Party under this Agreement or
otherwise unless the Company would suffer a Material Adverse Effect as a
result of such failure. Such Indemnified Party shall have the right to
employ separate counsel in such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense
of such Indemnified Party, unless: (i) the Company has failed to assume the
defense and employ counsel or (ii) the named parties to any such action
(including any impleaded parties) include such Indemnified Party and the
Company, and such Indemnified Party shall have been advised by counsel that
there may be one or more legal defenses available to it which are different
from or additional to those available to the Company, in which case, if
such Indemnified Party notifies the Company in writing that it elects to
employ separate counsel at the expense of the Company, the Company shall
not have the right to assume the defense of such action or proceeding on
behalf of such Indemnified Party, provided, however, that the Company shall
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not, in connection with any one such action or proceeding or separate but
substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances,
be responsible hereunder for the reasonable fees and expenses of more than
one such firm of separate counsel, in addition to any local counsel, which
counsel shall be designated by the Purchaser. The Company shall not be
liable for any settlement of any such action effected without the written
consent of the Company (which shall not be unreasonably withheld) and the
Company agrees to indemnify and hold harmless each Indemnified Party from
and against any loss or liability by reason of settlement of any action
effected with the consent of the Company. In addition, the Company will
not, without the prior written consent of the Purchaser, settle or
compromise or consent to the entry of any judgment in or otherwise seek to
terminate any pending or threatened action, claim, suit or proceeding in
respect to which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Party is a party thereto) unless such
settlement, compromise, consent or termination includes an express
unconditional release of the Purchaser and the other Indemnified Parties,
satisfactory in form and substance to the Purchaser, from all liability
arising out of such action, claim, suit or proceeding.
(c) If for any reason the foregoing indemnity is unavailable
(otherwise than pursuant to the express terms of such indemnity) to an
Indemnified Party or insufficient to
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SECURITIES PURCHASE AGREEMENT - Page 25
<PAGE>
hold an Indemnified Party harmless, then in lieu of indemnifying such
Indemnified Party, the Company shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, liabilities,
losses, damages, or expenses (i) in such proportion as is appropriate to
reflect the relative benefits received by the Company on the one hand and
by the Purchaser on the other from the transactions contemplated by this
Agreement or (ii) if the allocation provided by clause (i) is not permitted
under applicable law, in such proportion as is appropriate to reflect not
only the relative benefits received by the Company on the one hand and the
Purchaser on the other, but also the relative fault of the Company and the
Purchaser as well as any other relevant equitable considerations. It is
hereby further agreed that the relative benefits to the Company on the one
hand and the Purchaser on the other with respect to the transactions
contemplated hereby shall be determined by reference to, among other
things, whether any untrue or alleged untrue statement of material fact or
the omission or alleged omission to state a material fact related to
information supplied by the Company or by the Purchaser and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. 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
(d) The indemnification, contribution and expense reimbursement
obligations set forth in this Section 8.3 (i) shall be in addition to any
liability the Company may have to any Indemnified Party at common law or
otherwise, (ii) shall survive the termination of this Agreement and the
other Transaction Agreements and (iii) shall remain operative and in full
force and effect regardless of any investigation made by or on behalf of
the Purchaser or any other Indemnified Party.
SECTION 8.4. Expenses: Documentary Taxes. At or promptly following the
Closing, the Company agrees to pay to the Purchaser the reasonable out-of-pocket
expenses of the Purchaser, including attorneys' fees incurred in connection with
the preparation and consummation the contemplated Transaction Agreements and
related disclosure reports required to be filed by the Purchaser or J.R.
Holland, Jr. with the Securities and Exchange Commission as a result of the
acquisition by Purchaser of the Securities, up to a maximum of $30,000 (the
"Expense Reimbursement Fee"). If the Transaction Agreements are not consummated
because the Purchaser has determined during its due-diligence review that the
historical performance, future projects, or any information of the Company is
significantly different from that presented to the Purchaser by the Company, the
Company agrees to pay to the Purchaser the Expense Reimbursement Fee, calculated
through the date the Purchaser made the determination not to consummate the
Transaction Agreements.
SECTION 8.5. Successors and Assigns. This Agreement shall be binding upon
the Company and upon the Purchaser and their respective successors and assigns;
provided that the Company shall not assign or otherwise transfer its rights or
- --------
obligations under this Agreement to any other Person without the prior written
consent of the Purchaser. All provisions hereunder purporting to give rights to
Purchaser and their affiliates or to holders of Securities are for the
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SECURITIES PURCHASE AGREEMENT - Page 26
<PAGE>
express benefit of such Persons and their successors and assigns, except where
transfer of the Purchaser's rights hereunder are expressly limited to certain
transferees.
SECTION 8.6. Brokers. The Company represents and warrants that other than
the individuals or entities and their corresponding fees as set forth on
Schedule 8.6 hereof, it has not employed any broker, finder, financial advisor
or investment banker who would be entitled to any brokerage, finder's or other
fee or commission payable by the Company or the Purchaser in connection with the
sale of the Securities ("Broker's Fees"). The Company acknowledges that payment
of any Broker's Fees is the Company's sole obligation and hereby indemnifies and
holds the Purchaser harmless for any claim that the Purchaser is in any way
obligated to pay any amount of such Broker's Fees.
SECTION 8.7. Texas Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF TEXAS. EACH PARTY HERETO HEREBY SUBMITS TO
THE EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS AND OF ANY TEXAS STATE COURT SITTING IN DALLAS FOR PURPOSES OF
ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 8.8. Severability. If any term, provision, covenant or restriction
of this Agreement is held by a court of competent jurisdiction to be invalid,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated unless a failure of consideration
would result thereby.
SECTION 8.9 Survival. All provisions contained in this Agreement (unless
specifically noted to the contrary) shall survive the issuance of the Initial
Shares and the Warrants and shall remain operative and in full force and effect
until twelve months after all of the Warrants shall have been exercised or have
expired.
SECTION 8.10. Counterparts. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
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SECURITIES PURCHASE AGREEMENT - Page 27
<PAGE>
SECTION 8.11. Powers and Remedies Cumulative. No right or remedy herein
conferred upon or reserved to the Purchaser is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to ever other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by any of the Transaction
Documents or by law may be exercised from time to time, and as often as shall be
deemed expedient, by the Purchaser.
[Signature page follows]
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SECURITIES PURCHASE AGREEMENT - Page 28
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
PROSOFTTRAINING.COM
By:_________________________________________
Name:_______________________________________
Title:______________________________________
Address: 3001 Bee Caves Road, Suite 100
Austin, Texas 78746
Telephone: (512) 328-6140
Fax: (512) 328-5239
Attn: Chief Executive Officer
HUNT CAPITAL GROWTH FUND II, L.P.
By: HUNT CAPITAL GROWTH, L.P.
its general partner
By: HUNT CAPITAL
MANAGEMENT, L.L.C., its
general partner
By: _________________________________
Name: J.R. Holland, Jr.
Title: President
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Thomas J. Fowler, Esq.
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SECURITIES PURCHASE AGREEMENT
<PAGE>
EXHIBITS
Exhibit A Warrant Agreement
Exhibit B Registration Rights Agreement
Exhibit C Officer's Certificate
Exhibit D Opinion of Counsel
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SECURITIES PURCHASE AGREEMENT
<PAGE>
SCHEDULES
Schedule 3.1 Subsidiaries
Schedule 3.3 Convertible Securities
Schedule 3.17 Leases
Schedule 3.22 Liens
Schedule 6.8 Use of Proceeds
Schedule 8.6 Broker's Fees
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SECURITIES PURCHASE AGREEMENT
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of November
22, 1999, among PROSOFTTRAINING.COM, a Nevada corporation (the "Company"), and
HUNT CAPITAL GROWTH FUND II, L.P., a Delaware limited partnership (the "Security
Holder")
1. Introduction.
(a) Securities Purchase Agreement. The Company and the Security
Holder have today executed that certain Securities Purchase Agreement (the
"Securities Purchase Agreement"), pursuant to which the Company has agreed,
among other things, to issue an aggregate of 1,142,857 shares (the "Initial
Shares") of the common stock of the Company, par value $.001 per share, (the
"Common Stock") to the Security Holder or their successors, assigns or
transferees (collectively, the "Holders"). In addition, pursuant to the terms of
the Securities Purchase Agreement and the transactions contemplated thereby, the
Company has entered into an agreement (the "Warrant Agreement") whereby the
Company has issued to the Security Holder warrants (the "Warrants") exercisable
for an aggregate of 350,000 shares of Common Stock (the "Warrant Shares"). The
number of Warrant Shares is subject to adjustment upon the occurrence of stock
splits, recapitalizations and similar events occurring after the date hereof, as
set forth in the Warrant Agreement.
(b) Definition of Securities. The Initial Shares and the Warrant
Shares (whether the Warrant Shares have been exercised and issued or are
currently exercisable by the holder of the Warrants pursuant to the terms and
conditions of the Warrant Agreement) are collectively herein referred to as the
"Securities."
(c) National Market Representation. The Company represents and
warrants that the Company's Common Stock is currently eligible for trading on
the Nasdaq SmallCap Market ("National Market") under the symbol "POSO." Certain
capitalized terms used in this Agreement are defined in Section 3 hereof;
references to sections shall be to sections of this Agreement.
2. Registration under Securities Act, etc.
2.1 Registration Upon Demand.
(a) Registration of Registrable Securities. At any time after six
months from the date of this Agreement and before the termination of this
Agreement, the holders of 51% of the Registrable Securities currently
outstanding and/or exercisable may deliver to the Company a written request that
the Registrable Securities be registered pursuant to the terms of this Agreement
(a "Registration Request"). Within thirty-one (31) days after a Registration
Request, the Company shall prepare and file a registration statement to effect
the registration under the Securities Act of all, but not less than all, of the
Registrable Securities which relate (or, because of the indeterminable number
thereof, which could reasonably be deemed to relate) to the Securities; all to
the extent requisite to permit the public disposition of such Registrable
Securities so to be registered. The Company shall use its best efforts to cause
the Registration Statement which is the subject of this Section 2.1(a) (the
"Registration Statement") to be declared effective by the Commission upon the
earlier to occur of (i) 120 days after the date of the Registration Request,
(ii) 90 days following the filing of the Registration Statement contemplated by
this Section 2.1, or (iii) ten (10) business days after receipt of a "no review"
or similar letter from the Commission (the "Required Effectiveness Date").
Nothing contained herein shall be
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REGISTRATION RIGHTS AGREEMENT - Page 1
<PAGE>
deemed to limit the number of Registrable Securities to be registered by the
Company hereunder. As a result, should the Registration Statement not relate to
the maximum number of Registrable Securities acquired by (or potentially
acquirable by) the holders thereof upon exercise of the Warrants described in
Section 1 above, the Company shall be required to promptly file a separate
registration statement (utilizing Rule 462 promulgated under the Exchange Act,
where applicable) relating to such Registrable Securities which then remain
unregistered. The provisions of this Agreement shall relate to such separate
registration statement as if it were an amendment to the Registration Statement.
(b) Registration Statement Form. Registrations under this Section
2.1 shall be on Form S-3 or such other appropriate registration form of the
Commission as shall permit the disposition of such Registrable Securities in
accordance with the intended method or methods of disposition specified by the
Security Holder; provided, however, such intended method of disposition shall
not include an underwritten offering of the Registrable Securities.
(c) Expenses. The Company will pay all Registration Expenses in
connection with any registration required by this Section 2.1.
(d) Effective Registration Statement. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective within
the time period specified herein, provided that a registration which does not
become effective after the Company has filed a registration statement with
respect thereto solely by reason of the refusal to proceed of any holder of
Registrable Securities (other than a refusal to proceed based upon the advice of
counsel in the form of a letter signed by such counsel and provided to the
Company relating to a disclosure matter unrelated to such holder) shall be
deemed to have been effected by the Company unless the holders of the
Registrable Securities shall have elected to pay all Registration Expenses in
connection with such registration, (ii) if, after it has become effective, such
registration becomes subject to any stop order, injunction or other order or
extraordinary requirement of the Commission or other governmental agency or
court for any reason or (iii) if, after it has become effective, such
registration ceases to be effective for more than an aggregate of ninety (90)
days.
(e) Plan of Distribution. The Company hereby agrees that the
Registration Statement shall include a plan of distribution section reasonably
acceptable to the Security Holder and substantially in the form annexed hereto;
provided, however, such plan of distribution section shall be modified by the
Company so as to not provide for the disposition of the Registrable Securities
on the basis of an underwritten offering.
2.2 Incidental Registration. (a) Right to Include Registrable
Securities. If at any time after the date hereof but before the fifth
anniversary of the date hereof, the Company proposes to register any of its
securities under the Securities Act (other than by a registration in connection
with an acquisition in a manner which would not permit registration of
Registrable Securities for sale to the public, on Form S-8, or any successor
form thereto, on Form S-4, or any successor form thereto and other than pursuant
to Section 2.1), on an underwritten basis (either best-efforts or firm-
commitment), then, the Company will each such time give prompt written notice to
all Holders of its intention to do so and of such Holders' rights under this
Section 2.2. Upon the written request of any such Holder made within ten (10)
days after the receipt of any such notice (which request shall specify the
Registrable Securities intended to be disposed of by such Holder and the
intended method of disposition thereof), the Company will, subject to the terms
of this Agreement, effect the registration under the Securities Act of the
Registrable Securities, to the extent requisite to permit the disposition (in
accordance with the intended
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REGISTRATION RIGHTS AGREEMENT - Page 2
<PAGE>
methods thereof as aforesaid) of such Registrable Securities so to be
registered, by inclusion of such Registrable Securities in the registration
statement which covers the securities which the Company proposes to register,
provided that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason either not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder and, thereupon, (i) in the case of a determination
not to register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to request that such registration be effected as a
registration under Section 2.1, and (ii) in the case of a determination to delay
registering, shall be permitted to delay registering any Registrable Securities,
for the same period as the delay in registering such other securities. No
registration effected under this Section 2.2 shall relieve the Company of its
obligation to effect any registration upon a Registration Request under Section
2.1, nor shall any such registration hereunder be deemed to have been effected
pursuant to Section 2.1. The Company will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 2.2. The right provided the holders of the Registrable
Securities pursuant to this Section shall be exercisable at their sole
discretion.
(b) Priority in Incidental Registrations. If the managing
underwriter of the underwritten offering contemplated by this Section 2.2 shall
inform the Company and holders of the Registrable Securities requesting such
registration by letter of its belief that the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering, then the Company will include in such registration, to the extent of
the number which the Company is so advised can be sold in such offering, (i)
first securities proposed by the Company to be sold for its own account, and
(ii) second Registrable Securities and securities of other selling security
holders requested to be included in such registration pro rata on the basis of
the number of shares of such securities so proposed to be sold and so requested
to be included; provided, however, the holders of Registrable Securities shall
have priority to all shares sought to be included by officers and directors of
the Company as well as holders of ten percent (10%) or more of the Company's
Common Stock unless the holders of such shares are exercising their own
registration rights.
2.3 Registration Procedures. If and whenever the Company is required
to effect the registration of any Registrable Securities under the Securities
Act as provided in Section 2.1 and, as applicable, 2.2, the Company shall, as
expeditiously as possible:
(a) prepare and file with the Commission the Registration Statement to
effect such registration (including such audited financial statements
as may be required by the Securities Act or the rules and regulations
promulgated thereunder) and thereafter use its best efforts to cause
such registration statement to be declared effective by the
Commission, as soon as practicable, but in any event no later than the
Required Effectiveness Date (with respect to a registration pursuant
to Section 2.1); provided, however, that before filing such
registration statement or any amendments thereto, the Company will
furnish to the counsel selected by the holders of Registrable
Securities which are to be included in such registration, copies of
all such documents proposed to be filed;
(b) with respect to any Registration Statement pursuant to Section 2.1,
prepare and file with the Commission such amendments and supplements
to such registration statement and the
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REGISTRATION RIGHTS AGREEMENT - Page 3
<PAGE>
prospectus used in connection therewith as may be necessary to keep
such registration statement effective and to comply with the
provisions of the Securities Act in order to permit the disposition of
all Registrable Securities covered by such registration statement,
until the earlier to occur of five (5) years after the date of this
Agreement (subject to the right of the Company to suspend the
effectiveness thereof for not more than 30 consecutive days or an
aggregate of 90 days in such five (5) year period) or such time as all
of the Securities which are the subject of such registration statement
cease to be Registrable Securities (such period, in each case, the
"Registration Maintenance Period");
(c) furnish to each holder of Registrable Securities covered by such
registration statement such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies
of the prospectus contained in such registration statement (including
each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in
conformity with the requirements of the Securities Act, and such other
documents, as such holder and underwriter, if any, may reasonably
request in order to facilitate the public sale or other disposition of
the Registrable Securities owned by such holder;
(d) use its reasonable efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities laws or blue sky laws as any holder
thereof shall reasonably request, to keep such registrations or
qualifications in effect for so long as such registration statement
remains in effect, and take any other action which may be reasonably
necessary to enable such holder to consummate the disposition in such
jurisdictions of the securities owned by such holder, except that the
Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction
wherein it would not but for the requirements of this subdivision (d)
be obligated to be so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to cause all Registrable Securities covered by
such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to
enable the holder or holders thereof to consummate the disposition of
such Registrable Securities;
(f) in connection with an underwritten offering, furnish to each holder of
Registrable Securities a signed counterpart, addressed to such holder,
and the underwriters of:
(i) an opinion of counsel for the Company, dated the effective
date of such registration statement (or, if such registration
includes an underwritten public offering, an opinion dated
the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to such holder)
including that the prospectus and any prospectus supplement
forming a part of the Registration Statement does not contain
an untrue statement of a material fact or omits a material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they were made, not misleading, and
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REGISTRATION RIGHTS AGREEMENT - Page 4
<PAGE>
(ii) a "comfort" letter (or, in the case of any such Person which
does not satisfy the conditions for receipt of a "comfort"
letter specified in Statement on Auditing Standards No. 72,
an "agreed upon procedures" letter), dated the effective date
of such registration statement (or, if such registration
includes an underwritten public offering, a "comfort" letter
dated the date of the closing under the underwriting
agreement), signed by the independent public accountants who
have certified the Company's financial statements included in
such registration statement, covering substantially the same
matters with respect to such registration statement (and the
prospectus included therein) and, in the case of the
accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered
in accountants' letters delivered to the underwriters in
underwritten public offerings of securities (with, in the
case of an "agreed upon procedures" letter, such
modifications or deletions as may be required under Statement
on Auditing Standards No. 35) and, in the case of the
accountants' letter, such other financial matters, and, in
the case of the legal opinion, such other legal matters, as
such holder (or the underwriters) may reasonably request;
(g) notify holders of the Registrable Securities and their respective
counsel promptly and confirm such advice in writing promptly after the Company
has knowledge thereof:
(i) when the Registration Statement, the prospectus or any
prospectus supplement related thereto or post-effective
amendment to the Registration Statement 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 or
supplements to the Registration Statement or the prospectus
or for additional information;
(iii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or
the initiation of any proceedings by any Person for that
purpose; and
(iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue
sky laws of any jurisdiction or the initiation or threat of
any proceeding for such purpose;
(h) notify each holder of Registrable Securities covered by such
registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in the light
of the circumstances then existing, and at the request of any such
holder promptly prepare and furnish to such holder a reasonable
number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to
the purchasers of such securities, such prospectus shall not include
an untrue statement of a material fact or omit to state a material
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REGISTRATION RIGHTS AGREEMENT - Page 5
<PAGE>
fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances
then existing;
(i) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the Registration Statement at the
earliest possible moment;
(j) otherwise use its best efforts to comply with all applicable rules
and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings
statement covering the period of at least twelve months, but not
more than eighteen months, beginning with the first full calendar
month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder;
(k) enter into such agreements and take such other actions as the
Security Holder shall reasonably request in writing in order to
expedite or facilitate the disposition of such Registrable
Securities; and
(l) use its best efforts to list all Registrable Securities covered by
such registration statement on any securities exchange on which any
of the Registrable Securities are then listed.
The Company may require each holder of Registrable Securities as to
which any registration is being effected to furnish the Company such information
regarding such holder and the distribution of such securities as the Company may
from time to time reasonably request in writing.
The Company will not file any registration statement pursuant to Section
2.1, or amendment thereto or any prospectus or any supplement thereto (including
such documents incorporated by reference and proposed to be filed after the
initial filing of the Registration Statement) to which the Security Holder shall
reasonably object, provided that the Company may file such document in a form
required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby other than such waivers, consents and/or
authorizations specifically contemplated by the Securities Purchase Agreement.
The Security Holder agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in subdivision (h)
of this Section 2.3, the Security Holder will forthwith discontinue its
disposition of Registrable Securities pursuant to the Registration Statement
relating to such Registrable Securities until its receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (h) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in its
possession of the prospectus relating to such Registrable Securities current at
the time of receipt of such notice.
2.4 Underwritten Offerings.
(a) Incidental Underwritten Offerings. If the Company at any time
proposes to register any of its securities under the Securities Act as
contemplated by Section 2.2 and such securities
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REGISTRATION RIGHTS AGREEMENT - Page 6
<PAGE>
are to be distributed by or through one or more underwriters, the Company will,
if requested by the Security Holder as provided in Section 2.2 and subject to
the provisions of Section 2.2(a), use its reasonable efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such holder among the securities to be distributed by such underwriters.
(b) Holdback Agreements. Subject to such other reasonable
requirements as may be imposed by the underwriter as a condition of inclusion of
a holder's Registrable Securities in the registration statement, each such
holder agrees by acquisition of Registrable Securities, if so required by the
managing underwriter, not to sell, make any short sale of, loan, grant any
option for the purchase of, effect any public sale or distribution of or
otherwise dispose of, except as part of such underwritten registration, any
equity securities of the Company, during such reasonable period of time
requested by the underwriter; provided however, such period shall not exceed the
120 day period commencing 30 days prior to the commencement of such underwritten
offering and ending 90 days following the completion of such underwritten
offering.
(c) Participation in Underwritten Offerings. No holder of Registrable
Securities may participate in any underwritten offering under Section 2.2 unless
such holder of Registrable Securities (i) agrees to sell such Person's
securities on the basis provided in any underwriting arrangements approved,
subject to the terms and conditions hereof, by the holders of a majority of
Registrable Securities to be included in such underwritten offering and (ii)
completes and executes all questionnaires, indemnities, underwriting agreements
and other documents (other than powers of attorney) required under the terms of
such underwriting arrangements. Notwithstanding the foregoing, no underwriting
agreement (or other agreement in connection with such offering) shall require
any holder of Registrable Securities to make any representations or warranties
to or agreements with the Company or the underwriters other than representations
and warranties contained in a writing furnished by such holder expressly for use
in the related registration statement or representations, warranties or
agreements regarding such holder, such holder's Registrable Securities and such
holder's intended method of distribution and any other representation required
by law.
2.5 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration statement, and their respective
counsel and accountants, the opportunity to participate in the preparation of
such registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
2.6 Indemnification. (a) Indemnification by the Company. In the event of
any registration of any securities of the Company under the Securities Act, the
Company will, and hereby does agree to, indemnify and hold harmless the holder
of any Registrable Securities covered by such registration statement, its
directors and officers, each other Person who participates as an underwriter in
the offering or sale of such securities and each other Person, if any, who
controls such holder or any such underwriter within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which such holder or any such director or officer or underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or
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<PAGE>
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such holder and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding, provided that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
holder or underwriter stating that it is for use in the preparation thereof and,
provided further that the Company shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or to any other Person, if any, who controls such underwriter within the meaning
of the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, within the time required by the
Securities Act to the Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such Person if
such statement or omission was corrected in such final prospectus or an
amendment or supplement thereto. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such holder or
any such director, officer, underwriter or controlling person and shall survive
the transfer of such securities by such holder.
(b) Indemnification by the Holders. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to this Agreement, that the Company shall have received an
undertaking satisfactory to it from the holder of such Registrable Securities,
to indemnify and hold harmless (in the same manner and to the same extent as set
forth in subdivision (a) of this Section 2.6) the Company, each director of the
Company, each officer of the Company and each other Person, if any, who controls
the Company within the meaning of the Securities Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amendment or supplement thereto, if such
statement or alleged statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such holder specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect, regardless
of any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by such holder.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.6, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the
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<PAGE>
indemnifying party of its obligations under the preceding subdivisions of this
Section 2.6, except to the extent that the indemnifying party is actually
prejudiced by such failure to give notice. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the defense thereof, jointly with any
other indemnifying party similarly notified, to the extent that the indemnifying
party may wish, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof other than
reasonable costs of investigation. No indemnifying party shall, without the
consent of the indemnified party, consent to entry of any judgment or enter into
any settlement of any such action which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability, or a covenant not to sue, in respect to such
claim or litigation. No indemnified party shall consent to entry of any judgment
or enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying party.
(d) Other Indemnification. Indemnification similar to that specified
in the preceding subdivisions of this Section 2.6 (with appropriate
modifications) shall be given by the Company and each holder of Registrable
Securities (but only if and to the extent required pursuant to the terms of
2.6(b)) with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
(e) Indemnification Payments. The indemnification required by this
Section 2.6 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(f) Contribution. If the indemnification provided for in the
preceding subdivisions of this Section 2.6 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability 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 expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the holder or underwriter, as the case may be, on
the other from the distribution 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 of the holder or underwriter, as the case may be, on the other
in connection with the statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the holder or underwriter, as the case may be, on the other in connection
with the distribution of the Registrable Securities shall be deemed to be in the
same proportion as the total net proceeds received by the Company from the
initial sale of the Registrable Securities by the Company to the purchasers bear
to the total net proceeds received by all selling holders participating in such
offering or the underwriting discounts and commissions received by the
underwriter, as the case may be. The relative fault of the Company on the one
hand and of the Holder or underwriter, as the case may be, on the other shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission to state a material fact relates
to information supplied by the Company, by the Holder or by the underwriter and
the parties' relative intent, knowledge, access to information and
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REGISTRATION RIGHTS AGREEMENT - Page 9
<PAGE>
opportunity to correct or prevent such statement or omission, provided that the
foregoing contribution agreement shall not inure to the benefit of any
indemnified party if indemnification would be unavailable to such indemnified
party by reason of the provisions contained in the first sentence of subdivision
(a) of this Section 2.6, and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (f) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (b) of
this Section 2.6 had been available under the circumstances.
The Company and the holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this subdivision (f) were
determined by pro rata allocation (even if the holders and any underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (c) of this
Section 2.6, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. 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.
3. Definitions. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
"Agreement": As defined in Section 1.
"Commission": The Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
"Common Stock": As defined in Section 1.
"Company": As defined in the introductory paragraph of this Agreement.
"Exchange Act": The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"Holder": As defined in Section 1.
"Initial Shares": As defined in Section 1.
"National Market": As defined in Section 1.
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<PAGE>
"Person": A corporation, association, partnership, organization, business,
individual, governmental or political subdivision thereof or a governmental
agency.
"Registrable Securities": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or any adjustment otherwise provided for
in the Securities Purchase Agreement or the Warrant Agreement. Once issued such
securities shall cease to be Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been
distributed in accordance with such registration statement, (b) they shall be
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
them shall not require registration or qualification of them under the
Securities Act or any similar state law then in force, (d) they shall have
ceased to be outstanding, (e) on the expiration of the applicable Registration
Maintenance Period or (f) any and all legends restricting transfer thereof have
been removed in accordance with the provisions of Rule 144(k) (or any successor
provision) under the Securities Act. The Securities shall constitute
Registrable Securities while owned by (a) the Purchaser or any Affiliate (as
defined in the Securities Purchase Agreement) or (b) a transferee of at least
100,000 of the Initial Shares or Warrant Shares.
"Registration Expenses": All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing and NASD fees; all stock exchange and National Market
listing fees; all fees and expenses of complying with securities or blue sky
laws; all word processing, duplicating and printing expenses, messenger and
delivery expenses; the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance; in connection with an underwritten offering, the reasonable fees and
disbursements of not more than one law firm (not to exceed $25,000) retained by
the holder or holders of more than 50% of the Registrable Securities; premiums
and other costs of policies of insurance of the Company against liabilities
arising out of the public offering of the Registrable Securities being
registered and any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities, but excluding underwriting discounts and
commissions and transfer taxes, if any; provided that, in any case where
Registration Expenses are not to be borne by the Company, such expenses shall
not include salaries of Company personnel or general overhead expenses of the
Company, auditing fees, premiums or other expenses relating to liability
insurance required by underwriters of the Company or other expenses for the
preparation of financial statements or other data normally prepared by the
Company in the ordinary course of its business or which the Company would have
incurred in any event.
"Registration Maintenance Period": As defined in Section 2.3.
"Registration Request": As defined in Section 2.1
"Required Effectiveness Date": As defined in Section 2.1.
"Securities": As defined in Section 1(b).
"Securities Act": The Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
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<PAGE>
"Securities Purchase Agreement": As defined in Section 1.
"Security Holder": As defined in the Introductory paragraph to this
Agreement.
"Warrant Agreement": As defined in Section 1.
"Warrants": As defined in Section 1.
"Warrant Shares": As defined in Section 1.
4. Rule 144. The Company shall timely file the reports required to be filed
by it under the Securities Act and the Exchange Act (including but not limited
to the reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c) of Rule 144 adopted by the Commission under the Securities Act)
and the rules and regulations adopted by the Commission thereunder (or, if the
Company is not required to file such reports, will, upon the request of any
holder of Registrable Securities, make publicly available other information) and
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any holder of Registrable Securities, the Company will deliver to such holder
a written statement as to whether it has complied with the requirements of this
Section 4.
5. Amendments and Waivers. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the date
such consent is sought). Each holder of any Registrable Securities at the time
or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. Notices. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any Person provided for hereunder shall be
in writing and shall be given to such Person (a) in the case of a party hereto
other than the Company, addressed to such party in the manner set forth in the
Securities Purchase Agreement or at such other address as such party shall have
furnished to the Company in writing, or (b) in the case of any other holder of
Registrable Securities, at the address that such holder shall have furnished to
the Company in writing, or, until any such other holder so
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REGISTRATION RIGHTS AGREEMENT - Page 12
<PAGE>
furnishes to the Company an address, then to and at the address of the last
holder of such Registrable Securities who has furnished an address to the
Company, or (c) in the case of the Company, at the address set forth on the
signature page hereto, to the attention of its Chief Executive Officer, or at
such other address, or to the attention of such other officer, as the Company
shall have furnished to each holder of Registrable Securities at the time
outstanding. Each such notice, request or other communication shall be effective
(i) if given by mail, 72 hours after such communication is deposited in the
mails with first class postage prepaid, addressed as aforesaid or (ii) if given
by any other means (including, without limitation, by fax or air courier), when
delivered at the address specified above, provided that any such notice, request
or communication shall not be effective until received.
8. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities. Each of the Holders of the Registrable Securities
agrees, by accepting any portion of the Registrable Securities after the date
hereof, to the provisions of this Agreement including, without limitation,
appointment of a representative to act on behalf of such Holder pursuant to the
terms hereof which such actions shall be made in the good faith discretion of
the Holder's representative and be binding on all persons for all purposes.
9. Descriptive Headings. The descriptive headings of the several sections
and paragraphs of this Agreement are inserted for reference only and shall not
limit or otherwise affect the meaning hereof.
10. Texas Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent.
THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY
THE LAWS OF THE STATE OF TEXAS. EACH PARTY HERETO HEREBY SUBMITS TO THE
EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN
DISTRICT OF TEXAS AND OF ANY TEXAS STATE COURT SITTING IN DALLAS FOR PURPOSES OF
ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT
AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT
IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND
ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11. Counterparts. This Agreement may be executed by facsimile and may be
signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
12. Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
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<PAGE>
13. Severability. If any provision of this Agreement, or the application of
such provisions to any Person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
[Signature Page Follows]
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<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
PROSOFTTRAINING.COM
By:________________________________
Name:______________________________
Title:_____________________________
Address: 3001 Bee Caves Road, Suite 100
Austin, Texas 78746
Telephone: (512) 328-6140
Fax: (512)328-5239
Attn: Chief Executive Officer
HUNT CAPITAL GROWTH FUND II, L.P.
By: HUNT CAPITAL GROWTH, L.P.
its general partner
By: HUNT CAPITAL
MANAGEMENT, L.L.C., its
general partner
By:
____________________________
Name: J.R. Holland, Jr.
Title: President
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Thomas J. Fowler, Esq.
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<PAGE>
EXHIBIT 10.3
================================================================================
PROSOFTTRAINING.COM
___________________________________
WARRANT AGREEMENT
___________________________________
Dated as of November 22, 1999
Warrants to Purchase 350,000 Shares of Common Stock
Issued to
Hunt Capital Growth Fund II, L.P.
WARRANT AGREEMENT
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (this "Agreement") is dated as of November 22, 1999,
between PROSOFTTRAINING.COM (the "Company"), a Nevada corporation, and HUNT
CAPITAL GROWTH FUND II, L.P., a Delaware limited partnership (the "Purchaser").
RECITALS:
A. Certain capitalized terms used in this Agreement shall have the
meanings ascribed to them in Section 6 hereof.
B. The Board of Directors has authorized the issuance of three hundred
and fifty thousand (350,000) Warrants (the "Warrants") of the Company, each
Warrant representing the right to purchase one (1) share of the Company's Common
Stock, upon the terms and subject to the conditions hereinafter set forth, and
subject to adjustment as set forth herein,.
C. The Company has entered into that certain Securities Purchase
Agreement (as may be amended from time to time, the "Purchase Agreement"), of
even date herewith, with the Purchaser, pursuant to which the Company agreed to
sell, and the Purchaser agreed to purchase, 1,142,857 shares of the Company's
Common Stock, $0.001 par value (the "Common Stock") and, in consideration of
which, the Company also agreed to issue the Warrants to the Purchaser.
AGREEMENT:
NOW, THEREFORE, in consideration of the premises and the mutual agreements
set forth herein, the parties to this Agreement hereby agree as follows:
1. FORM, EXECUTION AND TRANSFER OF WARRANT CERTIFICATES.
1.1 Form of Warrant Certificates.
The warrant certificates (individually, a "Warrant Certificate" and,
collectively, the "Warrant Certificates") evidencing the Warrants and the forms
of assignment and of election to purchase shares to be attached to such
certificates, shall be substantially in the form set forth in Attachments A and
B hereto, and may have such letters, numbers or other marks of identification or
designation as may be required to comply with any law or with any rule or
regulation of any governmental authority, stock exchange or self-regulatory
organization made pursuant thereto. Each Warrant Certificate shall be dated the
date of issuance thereof by the Company, either upon initial issuance or upon
transfer or exchange, and on its face shall initially entitle the holder thereof
to purchase a number of shares of Common Stock equal to the number of Warrants
represented by such Warrant Certificate at a price per share equal to the
Purchase Price, but the number of such shares and the Purchase Price shall be
subject to adjustment as provided herein.
1.2 Execution of Warrant Certificates; Registration Books.
(a) Execution of Warrant Certificates. The Warrant Certificates shall
be executed on behalf of the Company by its President, one of its Vice
Presidents or any other officer of the Company authorized by the Board of
Directors. In case the officer of the Company who shall have signed any Warrant
Certificate shall cease to be such an officer of the Company before issuance and
delivery by the Company of such Warrant Certificate, such Warrant Certificate
nevertheless may be issued and delivered
WARRANT AGREEMENT
<PAGE>
with the same force and effect as though the individual who signed such Warrant
Certificate had not ceased to be such an officer of the Company, and any Warrant
Certificate may be signed on behalf of the Company by any individual who, at the
actual date of the execution of such Warrant Certificate, shall be a proper
officer of the Company to sign such Warrant Certificate, although at the date of
the execution of this Agreement any such individual was not such an officer.
(b) Registration Books. The Company will keep or cause to be kept at
its office maintained at the address of the Company set forth in Section 7.7
hereof, or at such other office of the Company in the United States of America
of which the Company shall have given notice to each holder of Warrant
Certificates, books for registration and transfer of the Warrant Certificates
issued hereunder. Such books shall show the names and addresses of the
respective holders of the Warrant Certificates, the registration number and the
number of Warrants evidenced on its face by each of the Warrant Certificates and
the date of each of the Warrant Certificates.
1.3 Transfer, Split up, Combination and Exchange of Warrant
Certificates; Lost or Stolen Warrant Certificates.
(a) Transfer, Split up, etc. Any Warrant Certificate, with or without
other Warrant Certificates, may be transferred, split up, combined or exchanged
for another Warrant Certificate or Warrant Certificates, entitling the
registered holder or transferee thereof to purchase a like number of shares of
Common Stock as the Warrant Certificate or Warrant Certificates surrendered then
entitled such registered holder to purchase. Any registered holder desiring to
transfer, split up, combine or exchange any Warrant Certificate shall make such
request in writing delivered to the Company, and shall surrender the Warrant
Certificate or Warrant Certificates to be transferred, split up, combined or
exchanged at the office of the Company referred to in Section 1.2(b) hereof,
whereupon the Company shall deliver promptly to the Person entitled thereto a
Warrant Certificate or Warrant Certificates, as the case may be, as so
requested. Each registered holder of a Warrant Certificate, by its acceptance
thereof, agrees not to transfer any Warrant Certificate in any manner which
would violate Section 5 of the Securities Act.
(b) Loss, Theft, etc. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate (which evidence shall be,
in the case of an Institutional Investor, notice from such Institutional
Investor of such ownership (or of ownership by such Institutional Investor's
nominee) and such loss, theft, destruction or mutilation), and:
(i) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to the Company; provided, however, that if the
holder of such Warrant Certificate is an Institutional Investor or a
nominee of an Institutional Investor, such Institutional Investor's
own unsecured agreement of indemnity shall be deemed to be
satisfactory; or
(ii) in the case of mutilation, upon surrender and cancellation
thereof;
the Company at its own expense will execute and deliver, in lieu thereof, a new
Warrant Certificate, dated the date of such lost, stolen, destroyed or mutilated
Warrant Certificate and of like tenor, in lieu of the lost, stolen, destroyed or
mutilated Warrant Certificate.
1.4 Subsequent Issuance of Warrant Certificates.
Subsequent to the original issuance, no Warrant Certificates shall be
issued except:
WARRANT AGREEMENT 2
<PAGE>
(a) Warrant Certificates issued upon any transfer, combination, split
up or exchange of Warrants pursuant to Section 1.3(a) hereof;
(b) Warrant Certificates issued in replacement of mutilated,
destroyed, lost or stolen Warrant Certificates pursuant to Section 13(b)
hereof; and
(c) Warrant Certificates issued pursuant to Section 2.4 hereof upon
the partial exercise of any Warrant Certificate to evidence the unexercised
portion of such Warrant Certificate.
2. EXERCISE OF WARRANTS; PAYMENT OF PURCHASE PRICE
2.1 Exercise of Warrant
(a) Manner of Exercise. At any time after the Exercise Date and prior
to the Expiration Date, the holder of a Warrant Certificate may exercise the
Warrants evidenced thereby that have vested in accordance with the schedule set
forth in Section 5 by surrendering the Warrant Certificate, with an election to
purchase (a form of which is attached to each Warrant Certificate) attached
thereto duly executed, to the Company at its office referred to in Section
12.(b) hereof, together with payment of the Purchase Price for each share of
Common Stock with respect to which the Warrants are then being exercised.
(b) Payment in Cash. Upon exercise of any Warrants, the holder of a
Warrant Certificate may pay the Purchase Price in cash or by certified or
official bank check payable to the order of the Company or by wire transfer of
immediately available funds to the account of the Company.
2.2 Cashless Exercise of Warrants.
Notwithstanding the provisions of Section 2.1 hereof, if the Fair Market
Value is greater than the Purchase Price (at the date of calculation, as set
forth below), in lieu of exercising the Warrant as permitted in Section 2.1, the
holder of a Warrant Certificate may elect to receive shares of Common Stock
equal to the value (as determined below) of the Warrants (or the portion thereof
being canceled) by surrender of the Warrant Certificate, together with the
election to purchase (a form of which is attached to each Warrant Certificate)
attached thereto duly executed, to the Company at its office referred to in
Section 1.2(b) hereof, in which event the Company shall issue to the holder of
the Warrant Certificate that number of shares of Common Stock computed using the
following formula:
CS = WCS x (FMV - PP)
----------------
FMV
Where
CS equals the number of shares of Common Stock to be issued to the
holder of the Warrant Certificate
WCS equals the number of shares of Common Stock purchasable under the
Warrants being exercised (at the date of such calculation)
FMV equals the Fair Market Value of one share of the Common Stock (at
the date of such calculation)
WARRANT AGREEMENT 3
<PAGE>
PP equals the Purchase Price (as adjusted to the date of such
calculation).
For purposes of Rule 144 under the Securities Act, 17 C.F.R. (S) 230.144,
the parties hereto agree that the exercise of any Warrants in accordance with
this Section 2.2 shall be deemed to be a conversion of such Warrants, pursuant
to the terms of this Agreement and the Warrants, into Common Stock.
2.3 Issuance of Common Stock.
Upon timely receipt of a Warrant Certificate, with the form of election to
purchase duly executed, accompanied by payment of the Purchase Price for each of
the shares to be purchased in the manner provided in Section 2.1 or Section 2.2
hereof and an amount equal to any applicable transfer tax (if not payable by the
Company as provided in Section 3.3 hereof, the Company shall thereupon promptly
cause certificates representing the number of whole shares of Common Stock then
being purchased to be delivered to or upon the order of the registered holder of
such Warrant Certificate, registered in such name or names as may be designated
by such holder, and, promptly after such receipt deliver the cash, if any, to be
paid in lieu of fractional shares pursuant to Section 4.2 hereof to or upon the
order of the registered holder of such Warrant Certificate.
2.4 Unexercised Warrants.
In case the registered holder of any Warrant Certificate shall exercise
less than all the Warrants evidenced thereby, a new Warrant Certificate
evidencing Warrants equal in number to the number of Warrants remaining
unexercised shall be issued by the Company to the registered holder of such
Warrant Certificate or to its duly authorized assigns.
2.5 Cancellation and Destruction of Warrant Certificates.
All Warrant Certificates surrendered to the Company for the purpose of
exercise, exchange, substitution or transfer shall be canceled by it, and no
Warrant Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall cancel
and retire any other Warrant Certificates purchased or acquired by the Company
otherwise than upon the exercise thereof.
2.6 Notice of Expiration.
All Warrants that have not been exercised or purchased in accordance with
the provisions of this Agreement shall expire and all rights of holders of such
Warrants shall terminate and cease on the Expiration Date.
2.7 Restrictions on Transfer; Restrictive Legends
(a) No Warrant or shares of Common Stock issued upon exercise of a
Warrant may be offered, sold, transferred, or otherwise disposed of, in
whole or in part, to any Person except as permitted under the Securities
Act and applicable state securities laws, pursuant to either an effective
registration statement or an exemption therefrom.
(b) Each Warrant Certificate and each certificate for shares of
Common Stock initially issued upon exercise of a Warrant, unless at the
time of exercise such shares are registered under the Securities Act, shall
bear the following legend:
WARRANT AGREEMENT 4
<PAGE>
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and may not
be sold, exchanged or transferred in any manner in the absence of such
registration or an opinion of counsel reasonably acceptable to the
Company that no such registration is required. The securities are
subject to the terms of a certain Warrant Agreement, dated November
22, 1999, pursuant to which they were issued"
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the
Securities Act of the shares represented thereby) shall also bear the above
legend unless, in the opinion of counsel satisfactory to the Company, the
securities represented thereby need no longer be subject to such restrictions.
3. RESERVATION AND AVAILABILITY OF SHARES OF COMMON STOCK; TRANSFER TAXES.
3.1 Reservation of Common Stock.
The Company covenants and agrees that it will at all times cause to be
reserved and kept available out of its authorized and unissued shares of Common
Stock such number of shares of Common Stock as will be sufficient to permit the
exercise in full of all Warrants issued hereunder.
3.2 Common Stock to Be Duly Authorized and Issued, Fully Paid and
Nonassessable.
The Company covenants and agrees that it will take all such action as may
be necessary to ensure that all shares of Common Stock delivered upon the
exercise of any Warrants, at the time of delivery of the certificates
representing such shares, shall be duly and validly authorized and issued and
fully paid and nonassessable, free of any preemptive rights and free of any
Lien.
3.3 Transfer Taxes.
The Company covenants and agrees that it will pay when due and payable any
and all federal and state transfer taxes and charges that may be payable in
respect of the initial issuance or delivery of:
(a) each Warrant Certificate;
(b) each Warrant Certificate issued in exchange for any other Warrant
Certificate pursuant to Section 1.3(a) or Section 2.4 hereof; and
(c) each share of Common Stock issued upon the exercise of any
Warrant.
The Company shall not, however, be required to:
(i) pay any transfer tax that may be payable in respect of the
transfer or delivery of Warrant Certificates or the issuance or
delivery of certificates for shares of Common Stock in a name other
than that of the registered holder of the Warrant Certificate
evidencing any Warrant surrendered for exercise (any such tax being
payable by the holder of such Warrant Certificate at the time of
surrender); or
WARRANT AGREEMENT 5
<PAGE>
(ii) issue or deliver any such certificates referred to in the
foregoing clause (i) for shares of Common Stock upon the exercise of
any Warrant until any such tax referred to in the foregoing clause (i)
shall have been paid.
3.4 Common Stock Record Date.
Each Person in whose name any certificate for shares of Common Stock is
issued upon the exercise of Warrants shall for all purposes be deemed to have
become the holder of record of the Common Stock represented thereby on, and such
certificate shall be dated, the date upon which the originally executed Warrant
Certificate evidencing such Warrants was duly surrendered with an election to
purchase attached thereto duly executed and payment of the aggregate Purchase
Price (and any applicable transfer taxes, if payable by such Person) was made.
Prior to the exercise of the Warrants evidenced thereby, the holder of a Warrant
Certificate shall not be entitled to any rights of a stockholder in the Company
with respect to shares for which the Warrants shall be exercisable, including,
without limitation, the right to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided herein or in any other
applicable agreement between the Company and such holder.
3.5 CUSIP Number.
The Company covenants and agrees that it shall maintain its current CUSIP
Number in respect of the Common Stock from the CUSIP Service Bureau of Standard
& Poor's, a division of McGraw-Hill, Inc.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES; FRACTIONAL SHARES;
SPECIAL AGREEMENTS
4.1 Adjustments.
The Authorized Number of Shares and the Purchase Price shall be subject to
adjustment pursuant to the provisions of this Section 4.
(a) Distribution of Property. In case, at any time during the term of
the Warrants, the Company shall declare a cash dividend upon its Common Stock or
shall distribute to holders of its Common Stock shares of its capital stock
(other than Common Stock), stock or other Securities of any other Person(s),
evidences of indebtedness issued by the Company or any other Person(s), other
assets or options or warrants or rights, then, in each such case, immediately
following the record date fixed for the determination of the holders of Common
Stock entitled to receive such dividend or distribution:
(i) the number of shares of Common Stock purchasable upon the
exercise of the Warrants thereafter shall be determined by multiplying
the Authorized Number of Shares immediately prior to such record date
by a fraction, of which the numerator shall be the Reference Price and
the denominator shall be an amount equal to (A) the Reference Price
minus (B) the Fair Market Value of the stock, securities, evidences of
indebtedness, assets, options, warrants or rights so distributed in
respect of one share of Common Stock; and
(ii) the Purchase Price shall be adjusted by multiplying the
Purchase Price in effect immediately prior to the record date for such
dividend or distribution by a fraction, of which the numerator shall
be an amount equal to (A) the Reference Price minus (B) the Fair
Market Value of the stock, securities, evidences of indebtedness,
assets, options,
WARRANT AGREEMENT 6
<PAGE>
warrants or rights so distributed in respect of one share of Common
Stock, and the denominator shall be the Reference Price; and
(iii) each adjustment made pursuant to this Section 4.1 (a)
shall be made on the date such dividend or distribution is made, and
shall become effective at the opening of business on the Business Day
next following the record date for the determination of stockholders
entitled to such dividend or distribution.
(b) Dividends, Subdivisions and Combinations. In case at any time
during the term of the Warrants 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, following the record
date fixed for the determination of holders of Common Stock entitled to receive
such stock dividend, subdivision or split-up, the Authorized Number of Shares
shall be increased in proportion to such increase in outstanding shares and the
Purchase Price in effect immediately prior to such stock dividend, subdivision
or split-up shall be proportionately reduced. Conversely, in case at any time
during the term of this Warrant the Company shall combine its outstanding shares
of Common Stock into a smaller number of shares, the Authorized Number of Shares
immediately prior to such combination shall be proportionately reduced and the
Purchase Price in effect immediately prior to such combination shall be
proportionately increased.
(c) Consolidation; Merger; Sale; Reclassification. If at any time
during the term of the Warrants any capital reorganization or reclassification
of the capital stock of the Company (other than a change in par value or from no
par value to par value or as a result of a stock dividend or subdivision or
split-up or combination of shares), or consolidation or merger of the Company
with another corporation, or the sale or other disposition of all or
substantially all of the Company's or any of its Subsidiaries' properties and
assets to another Person, shall be effected in such a way that holders of shares
of Common Stock shall be entitled to receive stock, other Securities or assets
with respect to or in exchange for Common Stock, then as a condition of such
reorganization, reclassification, consolidation, merger, sale or disposition,
lawful and adequate provision shall be made whereby the holders of the Warrants
shall thereafter have the right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the exercise of the Warrants, such
shares of stock, other Securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of Common Stock
equal to the number of shares of Common Stock immediately theretofore so
receivable had such reorganization, reclassification, consolidation, merger,
sale or disposition not taken place, and in any such case lawful and adequate
provision shall be made with respect to the rights and interests of the holders
of the Warrants to the end that the provisions of this Agreement and of the
Warrants (including without limitation provisions for adjustment of the Purchase
Price and of the Authorized Number of Shares) shall thereafter be applicable, as
nearly as may be, in relation to any shares of stock, other Securities or assets
thereafter deliverable upon the exercise of the Warrants. The Company shall not
effect any such consolidation, merger or sale unless prior to or simultaneously
with the consummation thereof the survivor or successor corporation (if other
than the Company) resulting from such consolidation or merger or the Person
purchasing such properties and assets shall assume the obligation to deliver to
such holders such shares of stock, other Securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to receive. The
provisions of this Section 4.1 (c) shall similarly apply to successive
reorganizations, reclassification, consolidations, mergers, sales or other
dispositions.
(d) Issuance of Additional Common Stock. In addition to all other
adjustments to the Authorized Number of Shares set forth elsewhere in this
Agreement, if the Company shall at any time or from time to time during the term
of the Warrants issue or sell any shares of Common Stock (or be
WARRANT AGREEMENT 7
<PAGE>
deemed to have issued any shares of Common Stock as provided herein), other than
Excluded Securities (i) to the Company's Affiliates for consideration greater
than $2.625 per share (subject to adjustment on the same basis as the Purchase
Price), but below the Reference Price (a "Discounted Issuance") or (ii) to any
Person (whether or not an Affiliate of the Company) for consideration less than
$2.625 per share (a "Below Exercise Price Issuance"), then the following
adjustments shall occur:
(A) In the event of a Discounted Issuance, the Purchase Price in
effect immediately prior to such issuance or sale shall be reduced
effective concurrently with such issuance or sale to an amount
determined by multiplying the Purchase Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to the
Discounted Issuance plus (2) the number of shares of Common Stock
which the aggregate consideration received by the Company in exchange
for the Discounted Issuance would purchase at the Reference Price then
in effect and (y) the denominator of which shall be the number of
shares of Common Stock of the Company outstanding immediately after
the Discounted Issuance. For purposes of the foregoing fraction,
Common Stock outstanding shall include, without limitation, any equity
securities then outstanding, whether or not they are exercisable or
convertible when such fraction is to be determined.
(B) In the event of a Below Exercise Price Issuance, the
Purchase Price in effect immediately prior to such issuance or sale
shall be reduced effective concurrently with such issuance or sale to
an amount determined by multiplying the Purchase Price then in effect
by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to the
Below Exercise Price Issuance plus (2) the number of shares of Common
Stock which the aggregate consideration received by the Company in
exchange for the Below Exercise Price Issuance would purchase at
$2.625 per share (subject to adjustment pursuant to this Section 4.1)
and (y) the denominator of which shall be the number of shares of
Common Stock of the Company outstanding immediately after the Below
Exercise Price Issuance. For purposes of the foregoing fraction,
Common Stock outstanding shall include, without limitation, any equity
securities then outstanding, whether or not they are exercisable or
convertible when such fraction is to be determined.
(C) In the event of either a Discounted Issuance or a Below
Exercise Price Issuance, the number of shares which may be purchased
pursuant to the Warrant Certificates shall be increased
proportionately to any reduction in Purchase Price pursuant to this
paragraph 4.1(d) so that after such adjustments the aggregate Purchase
Price payable hereunder for the increased number of shares of Common
Stock shall be the same as the aggregate Purchase Price in effect
immediately prior to such adjustments
(e) Calculation of Consideration Received; Options and Warrants. For
the purposes of any adjustment of the Authorized Number of Shares and the
Purchase Price pursuant to Section 4.1 (d), the following provisions shall be
applicable:
(i) In the case of the issuance of Common Stock for cash, the
consideration received upon such issuance shall be deemed to be the
gross amount of cash paid therefor.
(ii) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration
received upon such issuance other
WARRANT AGREEMENT 8
<PAGE>
than cash shall be deemed to be the Fair Market Value thereof,
provided, however, that the aggregate Fair Market Value of such non-
cash and cash consideration shall not be deemed to exceed the Current
Market Price of the shares of Common Stock being issued if the Common
Stock is then quoted by an organization referred to in the definition
of Current Market Price.
(iii) In the case of the issuance of Common Stock without
consideration, the consideration received upon such issuance shall be
deemed to be $.001 per share.
(iv) In the case of the issuance of (A) options to purchase or
rights to subscribe for Common Stock, (B) Securities by their terms
convertible into or exchangeable for Common Stock, or (C) options to
purchase or rights to subscribe for such convertible or exchangeable
Securities:
(A) the aggregate maximum number of shares of Common
Stock deliverable upon the exercise of such options to purchase
or rights to subscribe for Common Stock shall be deemed to have
been issued at the time such options or rights were issued and
for a consideration equal to the consideration (determined in the
manner provided in Sections 4.1(e)(i) through 4.1(e)(iii)
inclusive), if any, received by the Company upon the issuance of
such options or rights plus the minimum purchase price provided
in such options or rights for the Common Stock covered thereby,
and
(B) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable Securities or upon the exercise of
options to purchase or rights to subscribe for such convertible
or exchangeable Securities and subsequent conversion or exchange
thereof shall be deemed to have been issued at the time such
Securities were issued or such options or rights were issued and
for a consideration equal to the consideration, if any, received
by the Company for any such Securities and related options or
rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the minimum additional
consideration, if any, to be received by the Company upon the
conversion or exchange of such Securities or the exercise of any
related options or rights (the consideration in each case to be
determined in the manner provided in Sections 4.1(e)(i) through
4.1(e)(iii) inclusive); and
(C) on any change in the aggregate maximum number of
shares of, or the minimum purchase price or other additional
consolidation payable for Common Stock deliverable upon the
exercise of any such options or rights or conversions of or
exchanges for such Securities, other than a change resulting from
the anti-dilution provisions thereof, the Authorized Number of
Shares automatically and forthwith shall be readjusted to such
number as would have been obtained had the adjustment made upon
the issuance of such options, rights or other Securities not
converted prior to such change or options or rights related to
such Securities not converted prior to such change been made upon
the basis of such change; and
(D) on the expiration of all such options or rights, the
termination of all such rights to convert or exchange or the
expiration of all options or rights related to such convertible
or exchangeable Securities, the Authorized Number
WARRANT AGREEMENT 9
<PAGE>
of Shares automatically and forthwith shall be readjusted to such
number as would have obtained had the adjustment made upon the
issuance of such options, rights or other Securities or options
or rights related to such Securities not been made.
(f) Other Adjustments. In case at any time or from time to time
during the term of the Warrants conditions arise by reason of any action(s)
taken or omitted to be taken by the Company which, in the opinion of the
Company's Board of Directors, are not adequately covered by the provisions of
this Section 4.1, and which might materially and adversely affect the exercise
rights of the holders of the Warrants, the Company shall obtain an opinion of
the Company's independent certified public accountants, or of other independent
certified public accountants selected by the Company and reasonably satisfactory
to the Required Holders, setting forth any adjustment of the Authorized Number
of Shares and/or of the Purchase Price, on a basis consistent with the standards
established in the other provisions of this Section 4.1, necessary in order to
preserve, without diminution, the proportionate interest in the Common Stock
purchasable upon the exercise of the Warrants and the exercise rights of the
holders of the Warrants. Upon receipt of such opinion, the Board of Directors of
the Company shall forthwith make the adjustments described therein.
(g) Company Stock. For purposes of this Section 4.1, the number of
shares of Common Stock outstanding or deemed to be outstanding at any given time
shall not include shares owned or held by or for the account of the Company, and
the disposition of any such shares shall be considered an issuance or sale of
Common Stock for the purposes of Section 4.1(d).
(h) Notice of Adjustment. Upon each adjustment of the Purchase Price
and upon each change in the Authorized Number of Shares, and in the event of any
change in the rights of the holders of the Warrants by reason of any other
event(s) herein set forth, then and in each such case the Company promptly shall
deliver to the holders of the Warrants, by first-class certified mail, return
receipt requested, postage prepaid, a statement, signed by the Company's
principal financial officer, showing in reasonable detail the basis of such
determination or the facts requiring such adjustment and/or change, and stating
the adjusted Purchase Price and the new Authorized Number of Shares, or
specifying the other shares of stock, other Securities or assets and the amount
thereof receivable as a result of such change in' rights, and setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based. Where appropriate, such statement may be given in advance
and may be included as part of a notice required to be mailed under the
provisions of Section 4.1(i).
(i) Notice of Certain Events. If the Company shall propose to take
any action requiring a calculation pursuant to this Section 4.1, the Company
shall give notice to the holders of the Warrants in the manner set forth in
Section 4.1 (h), which notice shall specify the record date, if any, with
respect to any such action and the date on which such action is to take place.
Such notice also shall set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Authorized Number of
Shares and the number, kind or class of shares or other Securities or other
property or assets which shall be deliverable or purchasable upon the occurrence
of such action or deliverable upon the exercise of the Warrants. In the case of
any action which would require the fixing of a record date, such notice shall be
given at least ten (10) days prior to the date so fixed, and in the case of all
other actions, such notice shall be given at least ten (10) days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action. The
holder of any Warrant may within ten (10) days of any notice delivered by the
Company pursuant to this Section 4.1(i) object to any of the Company's
calculations contained in such notice by delivery of a notice setting forth such
objection in reasonable detail. If such holder of any Warrant and the Company
shall be unable to resolve
WARRANT AGREEMENT 10
<PAGE>
such objection within 10 days of delivery of such notice to the Company, such
objection shall be resolved by an independent accounting firm mutually agreed
upon by the Company and such holder of the Warrant. The Company shall bear the
fees and expenses of such firm if the Company's calculations are not upheld by
such firm. Such holder of the Warrant shall bear the fees and expenses of such
firm if the Company's calculations are upheld by such firm.
(j) Agreement and Warrants Not Required to be Restated. Irrespective
of any adjustments in the Authorized Number of Shares, the Purchase Price or the
number or kind of cash, Securities or other property or assets purchasable upon
the exercise of the Warrants, this Agreement and the Warrants may continue to
express the same price and number and kind of Securities as are initially stated
in this Agreement and the Warrants.
(k) Rounding. All calculations under this Section 4.1 shall be made
to the nearest sixth decimal place.
(l) Single Adjustment. In no event shall the Authorized Number of
Shares or Purchase Price be adjusted pursuant to more than one paragraph of this
Section 4.1 with respect to a single event.
4.2 Fractional Shares.
The Company shall not be required to issue fractional shares of Common
Stock upon the exercise of any Warrant. Upon the exercise of any Warrant, there
shall be paid to the holder thereof, in lieu of any fractional share of Common
Stock resulting therefrom, an amount of cash equal to the product of:
(a) the fractional amount of such share; times
(b) (i) if the Common Stock is then quoted by an organization
referred to in the definition of Current Market Price, the Current
Market Price of the Common Stock; or
(ii) if the Common Stock is not then quoted by such an
organization, the Fair Market Value of one share of Common Stock;
in each case, as determined on the Business Day immediately prior to the date of
exercise of such Warrant.
4.3 Right of Action.
All rights of action in respect of the Warrants are vested in the
respective registered holders of the Warrant Certificates, and any registered
holder of any Warrant Certificate, without the consent of the registered holder
of any other Warrant Certificate, may, in its own behalf and for its own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, its right to
exercise the Warrants evidenced by such Warrant Certificate in the manner
provided in such Warrant Certificate and in this Agreement.
4.4 Special Agreement of Warrant Certificate Holders.
Every holder of a Warrant Certificate by accepting the same consents and
agrees with the Company and with every other holder of a Warrant Certificate
that:
WARRANT AGREEMENT 11
<PAGE>
(a) the Warrant Certificates are transferable only on the registry
books of the Company if surrendered at the office of the Company referred
to in Section 1.2(b) hereof, duly endorsed or accompanied by an instrument
of transfer (in the form attached hereto); and
(b) the Company may deem and treat the Person in whose name each
Warrant Certificate is registered as the absolute owner thereof and of the
Warrants evidenced thereby (notwithstanding any notations of ownership or
writing on the Warrant Certificates made by anyone other than the Company)
for all purposes whatsoever, and the Company shall not be affected by any
notice to the contrary.
4.5 Special Agreements of the Company.
The Company covenants and agrees that the Company shall not, by amendment
to its Amended and Restated Certificate of Incorporation, as in effect on the
date hereof, or through any reorganization, transfer of assets, consolidation,
merger, dissolution, liquidation, issuance or sale of Securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but shall at all
times in good faith assist in the carrying out of all the provisions of this
Section 4 and in the taking of all such actions as may be necessary or
appropriate in order to protect the rights of the holders of the Warrant
Certificates against dilution or other impairment.
5. VESTING OF WARRANTS
5.1 Vesting at Closing.
The Warrants issued to the Purchaser for 100,000 shares of Common Stock
represented by the Warrant Certificate in the form attached hereto as Attachment
----------
A shall immediately vest upon the date of this Agreement, and may be immediately
- -
exercised from and after the Exercise Date.
5.2 Post Closing Vesting Schedule.
If, upon the occurrence of a Calculation Event, the Target EBITDA exceeds
the Cumulative EBITDA (such excess amount referred to herein as a "Shortfall")
then the remaining Warrants for 250,000 shares of Common Stock represented by
the Warrant Certificate in the form attached hereto as Attachment B shall vest
------------
as follows:
(a) Warrants for 75,000 shares of Common Stock shall immediately vest
in the event that the Shortfall is in an amount equal to or greater than
10% of the Target EBITDA;
(b) Warrants for the remaining 175,000 shares of Common Stock shall
vest ratably for that portion of the Shortfall between 10% and 30% of the
Target EBITDA; and
(c) Accordingly, Warrants for the remaining 175,000 shares of Common
Stock shall immediately vest in the event that the Shortfall is equal to or
greater than 30% of the Target EBITDA.
5.3 Notice of Certain Events.
The Company shall give prompt written notice to the holders of the
Warrants, in the manner set forth in Section 4.1(i), if a Calculation event has
occurred, is planned to occur, or is reasonably foreseen to occur.
WARRANT AGREEMENT 12
<PAGE>
6. INTERPRETATION OF THIS AGREEMENT
6.1 Certain Defined Terms.
For the purpose of this Agreement, the following terms shall have the
meanings specified with respect thereto below:
Affiliate -- means, at any time, a Person (other than a Subsidiary or the
Purchaser):
(a) that directly or indirectly through one or more intermediaries
Controls, or is Controlled by, or is under common Control with, the
Company;
(b) that beneficially owns or holds five percent (5%) or more of any
class of the Common Stock;
(c) five percent (5%) or more of the Voting Stock (or in the case of a
Person that is not a corporation, five percent (5%) or more of the equity
interest) of which is beneficially owned or held by the Company or a
Subsidiary; or
(d) that is an officer or director (or a member of the immediate
family of an officer or director) of the Company or any Subsidiary, at such
time.
As used in this definition,
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 securities, by
contract or otherwise.
Agreement -- references to "this Agreement" shall mean this Warrant
Agreement as it may from time to time be amended or supplemented.
Authorized Number of Shares -- shall mean the number of shares of Common
Stock purchasable upon the exercise of the Warrants, adjusted in accordance with
Section 4.1.
Below Exercise Price Issuance - shall have the meaning set forth in Section
4.1(d).
Board of Directors -- means the board of directors of the Company or any
committee thereof that, in the instance, shall have the lawful power to exercise
the power and authority of such board of directors.
Business Day -- means a day other than a Saturday, a Sunday or a day on
which banks in Dallas, Texas are required or permitted by law (other than a
general banking moratorium or holiday for a period exceeding four (4)
consecutive days) to be closed.
Calculation Event - means the earlier of (i) a Qualified Public Offering,
(ii) a Liquidation Event, or (iii) July 31, 2002.
Common Stock -- means the Common Stock, $.001 par value, of the Company.
Company -- shall have the meaning specified in the introductory paragraph
hereof.
WARRANT AGREEMENT 13
<PAGE>
Current Market Price -- shall mean, with respect to any Security, asset,
right or evidence of indebtedness, on any date, the average of the closing bid
prices per unit of such Security, asset, right or evidence of indebtedness for
the previous ten (10) consecutive trading days on the principal securities
exchange or trading market where such security is listed or traded or, if the
foregoing does not apply, the closing bid price of such security in the over-
the-counter market on the electronic bulletin board for such security or, if no
trading price is reported for such security, then the average of the bid prices
of any market makers for such securities as reported in the "Pink Sheets" by
National Quotation Bureau, Inc.
Cumulative EBITDA -- means the sum of the Company's actual cumulative
EBITDA for the period beginning on August 1, 1999 and ending on either (i) the
last date of the Company's most recently completed fiscal quarter preceding a
Calculation Event, or (ii) if the financial statements for the most recently
completed fiscal quarter preceding the Calculation Event shall not have been
reported in the Company's Form 10-K or Form 10-Q and the Purchaser so elects,
the last date of the Company's most recently completed fiscal quarter preceding
a Calculation Event for which financial statements shall have been reported in
the Company's Form 10-K or Form 10-Q. If the Purchaser elects to measure
Cumulative EBITDA for the period ending on the date specified in (ii) of this
definition, then Target EBITDA must also be measured for the period ending on
the same date.
Discounted Issuance - shall have the meaning set forth in Section 4.1(d).
EBITDA -- means with respect to any period, the sum of, without
duplication, consolidated net income for such period plus, in each case to the
extent deducted in determining such consolidated net income for such period, the
sum of the following (without duplication); (i) consolidated interest expense,
(ii) consolidated tax expense of the Company and its subsidiaries, (iii)
consolidated depreciation and amortization expense of the Company and its
Subsidiaries, (iv) any other non-cash charges of the Company and its
Subsidiaries, and (vii) any extraordinary losses of the Company and its
Subsidiaries, and minus, to the extent included in determining consolidated net
-----
income for such period, (a) any non-cash income or non-cash gains of the Company
and its Subsidiaries (other than accrual of revenue in the ordinary course of
business), and (b) any extraordinary gain or income of the Company and its
Subsidiaries, all as determined on a consolidated basis in accordance with
generally accepted accounting principles.
Event of Breach - means any of the following events: (i) the commencement
of any case, proceeding, or other action relating to the insolvency, bankruptcy
reorganization or relief of debtors of the Company or seeking appointment of a
receiver, trustee, custodian, conservator, or other similar official for the
Company on all or any substantial part of the Company's assets; (ii) the Company
shall make a general assignment for the benefit of its creditors; (iii) any
breach by the Company of its representations and Warranties in this Agreement,
the Purchase Agreement, or any document contemplated by these agreements;
provided that the Company shall have a period of fifteen (15) days to cure such
breach from the date the Purchaser provides notice to the Company of the breach;
(iv) any breach by the Company of its covenants or obligations under the
provisions of this Agreement, the Purchase Agreement or any document
contemplated by these Agreements; provided that the Company shall have a period
of fifteen (15) days to cure such breach from the date the Purchaser provides
notice to the Company of the breach.
Exercise Date shall mean the earlier of (i) three years from the date of
this Agreement; (ii) the completion by the Company of a Qualified Public
Offering; or (iii) the occurrence of a Liquidation Event.
WARRANT AGREEMENT 14
<PAGE>
Excluded Employee Stock -- means one or more stock options, the shares of
Common Stock issued upon the exercise of such options and stock grants for up to
an aggregate of four million (4,000,000) shares of Common Stock (as
appropriately adjusted for stock dividends, splits, combinations and other
similar events affecting the Common Stock) granted to employees, directors and
consultants of the Company pursuant to a stock plan approved by the Board of
Directors.
Excluded Securities -- means and includes:
(a) shares of Common Stock issued in any of the transactions described
in Section 4.1 (a), Section 4.1 (b) or Section 4.1 (c) hereof and in
respect of which an adjustment has been made pursuant to such Section;
(b) shares of Common Stock issuable upon exercise of the Warrants;
(c) shares of Common Stock issued upon the exercise, conversion or
exchange of any warrant, option or other right to acquire Common Stock or
any convertible or exchangeable Security in respect of which an adjustment
was made (or was not required to be made) pursuant to Section 4.1 (d)
hereof;
(d) shares of Common Stock issued or issuable upon the exercise,
conversion, or any exchange of any Right outstanding on the date of this
Agreement; and
(e) Excluded Employee Stock.
Expiration Date - means November 22, 2004.
Fair Market Value -- of any Security, asset, right or evidence of
indebtedness shall mean, on any date, the Current Market Price of such Security,
asset, right or evidence of indebtedness, or, if on any such date the price of
such Security, asset, right or evidence of indebtedness is not quoted by any
organization referred to in the definition of Current Market Price, an amount
determined in good faith by the Board of Directors of the Company or if the
Required Holders object to such determination, by the Valuation Agent. Such
Valuation Agent's determination of the Fair Market Value of such Security,
asset, right or evidence of indebtedness shall be binding upon the Company and
the holders of the Warrants. With respect to the determination by the Valuation
Agent of the Fair Market Value of any share of Common Stock, such Fair Market
Value shall be determined to equal the quotient of:
(a) the sum of:
(i) the fair salable value of the Company, as a going concern,
giving effect to all Property thereof and subject to all liabilities
thereof, that would be realized in an arm's length sale between an
informed and willing buyer and an informed and willing seller, under
no compulsion to buy or sell, respectively, as of a date that is
within fifteen (15) days of the date as of which the determination is
to be made, determined by the Valuation Agent, such determination to
be made without regard to the absence of a liquid or ready market for
such Common Stock; plus
(ii) the aggregate exercise or conversion price of all Rights in
existence and remaining unexercised on such date;
divided by
WARRANT AGREEMENT 15
<PAGE>
(b) the sum of
(i) the total number of shares of Common Stock outstanding at
such time; plus
(ii) the aggregate number of shares of Common Stock issuable in
respect of Rights in existence and remaining unexercised at such time,
Initial Purchase Price -- means one cent ($.01) per share.
Institutional Investor -- means the Purchaser, any affiliate of the
Purchaser, and any holder of Warrants that is an "accredited investor" as
defined in Section 2(15) of the Securities Act.
Lien -- means any mortgage, pledge, security interest, encumbrance, lien
(statutory or otherwise) or charge of any kind (including any agreement to give
any of the foregoing), any conditional sale or other title retention agreement,
any lease in the nature thereof, and the filing of or agreement to give any
financing statement under the Uniform Commercial Code of any jurisdiction or any
other type of preferential arrangement for the purpose, or having the effect, of
protecting a creditor against loss or securing the payment or performance of an
obligation.
Liquidation Event --shall mean any of the following occurrences:
(i) a sale of all or substantially all of the stock or assets of the
Company;
(ii) a merger or consolidation, of the Company or any other
transaction which would result in the voting securities of the Company
outstanding immediately prior thereto to no longer represent more than
fifty percent (50%) of the combined voting power of the voting securities
of the Company or such surviving entity outstanding immediately after such
merger, consolidation or other transaction; provided, however, that a
merger or consolidation effected to implement a recapitalization of the
Company (or similar transaction) in which no Person acquires more than
fifty percent (50%) of the combined voting power of the Company's
outstanding securities shall not constitute a Liquidation Event;
(iii) a stock sale, tender offer or similar transaction in which one
or more Persons acting together acquire more than fifty percent (50%) of
the combined voting power of the voting securities of the Company;
(iv) liquidation or dissolution of the Company; or
(v) (A) the Company shall commence any case, proceeding or other
action under any existing or future law of any jurisdiction, domestic or
foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it a bankrupt or insolvent, or seeking
reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts,
or seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of its
assets, or the Company shall make a general assignment for the benefit of
its creditors; or (B) there shall be commenced against the Company any
case, proceeding or other action of a nature referred to in clause (A)
above which results in the entry of an order for relief or any such
adjudication or appointment or remains undismissed, undischarged or
unbonded for a period of sixty days; or (C) there shall be commenced
against the Company any case, proceeding or other action seeking issuance
of a warrant of attachment,
WARRANT AGREEMENT 16
<PAGE>
execution, distraint or similar process against all or any substantial part
of its assets which results in the entry of an order for any such relief
which shall not have been vacated, discharged, or stayed or bonded pending
appeal within sixty days from the entry thereof; or (D) the Company shall
take any action in furtherance of, or indicating its consent to, approval
of, or acquiescence in, any of the acts set forth in clause (A), (B), or
(C) above.
NASDAQ -- means the National Association of Securities Dealers Automated
Quotation System.
Net Cash Proceeds - means, with respect to a Qualified Public Offering, the
total amount of cash proceeds received by the Company or any Subsidiary less
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction.
Person -- means an individual, a partnership, a joint venture, a
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
Property -- means any interest in any kind of property or asset, whether
real, personal or mixed, and whether tangible or intangible.
Purchase Agreement -- shall have the meaning specified in Recital C of this
Agreement.
Purchaser -- shall have the meaning specified in the introductory paragraph
hereof.
Purchase Price -- means, prior to any adjustment pursuant to Section 4.1 of
this Agreement, the Initial Purchase Price and thereafter, the Initial Purchase
Price as adjusted and readjusted from time to time.
Qualified Public Offering - means a firm commitment underwritten public
offering of the Company's Common Stock which (i) results in Net Cash Proceeds to
the Company of not less than $20,000,000 and (ii) is offered at a per share
price equal to or greater than $2.625 per share.
Reference Price -- means as of any date of determination, the Fair Market
Value of the Common Stock.
Required Holders -- means, at any time, the holders (other than the Company
or any Affiliate) of Warrant Certificates representing more than fifty percent
(50%) of the Warrants.
Right -- means and includes any warrant (including, without limitation, any
Warrant), option or other right, to acquire Common Stock and including, without
limitation, any right which, pursuant to the provisions of any Security, is
convertible or exchangeable into Common Stock.
Securities Act -- means the Securities Act of 1933, as amended.
Security -- shall have the meaning specified in section 2(l) of the
Securities Act.
Shortfall - has the meaning set forth in Section 5.2.
Subsidiary -- means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
more than fifty percent (50%) of the total Voting Stock is at the time owned or
controlled, directly or indirectly, by that Person or one or more of
WARRANT AGREEMENT 17
<PAGE>
the other Subsidiaries of that Person or a combination thereof. Unless otherwise
expressly provided, all references herein to a "Subsidiary" shall mean a
Subsidiary of the Company.
Target EBITDA - means the target cumulative EBITDA of the Company (as
agreed to by the Company and the Purchaser and attached hereto as Attachment C)
for the period beginning August 1, 1999 and ending on either (i) the last date
of the Company's most recently completed fiscal quarter preceding a Calculation
Event, or (ii) if the financial statements for the most recently completed
fiscal quarter preceding the Calculation Event shall not have been reported in
the Company's Form 10-K or Form 10-Q and the Purchaser so elects, the last date
of the Company's most recently completed fiscal quarter preceding a Calculation
Event for which financial statements shall have been reported in the Company's
Form 10-K or Form 10-Q. The Purchaser agrees that the Target EBITDA is a
negotiated target only, and no representation or warranty regarding the
Company's ability to achieve such target is made herein.
Valuation Agent -- means an investment banking firm or appraisal firm
(which firm shall own no Securities of, and shall not be an Affiliate,
Subsidiary or a related Person of, the Company or any holder of Warrants) of
recognized national standing retained by the Company and acceptable to the
Required Holders.
Voting Stock - means, with respect to any corporation, any shares of stock
of such corporation whose holders are entitled under ordinary circumstances to
vote for the election of directors of such corporation (irrespective of whether
at the time stock of any other class or classes shall have or might have voting
power by reason of the happening of any contingency).
Warrant -- shall have the meaning specified in Recital B hereof.
Warrant Certificate -- shall have the meaning specified in Section 1.1
hereof.
6.2 Use of Term "Underwritten".
Wherever this Agreement refers to an "underwriting" or an "underwritten
offering," such term shall mean and include any sale pursuant to any arrangement
by which any Person engages in a distribution of the Securities subject to such
underwriting, whether such underwriting is undertaken on a best efforts or firm
commitment basis.
6.3 Descriptive Headings.
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and do not constitute a part of this Agreement.
7. MISCELLANEOUS
7.1 Expenses.
The Company agrees to pay, and save and hold harmless the Purchaser and any
other holder of a Warrant Certificate against liability for the payment of all
out-of-pocket expenses (including, without limitation, reasonable attorney's
fees and disbursements) arising in connection with the issuance of the Warrants
under this Agreement, including, without limitation:
(a) the cost, if any, of complying with Section 3.3 hereof;
WARRANT AGREEMENT 18
<PAGE>
(b) any subsequent proposed modification of, or proposed consent
requested or initiated by or on behalf of the Company under, this Agreement
or the Warrants, whether or not such proposed modification shall be
effected or proposed consent granted (including, without limitation, all
document production and duplication charges and the reasonable fees and
expenses of any one special counsel engaged by the Purchaser to represent
the Purchaser and any other holder of a Warrant Certificate in connection
therewith); and
(c) the enforcement of (or determination of whether or how to enforce)
any rights under this Agreement or the Warrant Certificates or in
responding to any subpoena or other legal process or informal investigative
demand issued in connection with this Agreement or the transactions
contemplated hereby or by reason of the Purchaser's or such other holder's
having acquired any Warrant Certificate, including, without limitation,
reasonable attorney's fees incurred by the Purchaser or such other holder
and the costs and expenses incurred in any bankruptcy case involving the
Company or any Subsidiary.
The obligations of the Company under this Section 7.1 shall survive the transfer
of any Warrant Certificate or interest therein by the Purchaser or any other
holder of a Warrant Certificate and the exercise or expiration of any Warrant,
7.2 Amendment and Waiver.
This Agreement may be amended, and the observance of any term of this
Agreement may be waived, with and only with the written consent of the Company
and:
(a) in the case of Section 1 through Section 7, inclusive, hereof
(other than this Section 7.2 and the definition of "Required Holders" in
Section 6), the written consent of the Required Holders; or
(b) in the case of this Section 7.2 and the definition of "Required
Holders" in Section 7, the written consent of all holders of Warrant
Certificates;
provided that no such amendment or waiver of any of the provisions of this
Agreement pertaining to the Purchase Price or the number of shares of Common
Stock that may be purchased upon exercise of each Warrant shall be effective as
to the holder of any Warrant unless consented to in writing by such holder.
7.3 No Rights or Liabilities as Stockholder.
Nothing contained in this Agreement shall be construed as conferring upon
the holder of any Warrant any rights of a stockholder of the Company or as
imposing any obligation on such holder to purchase any securities or as imposing
any liabilities on such holder as a stockholder of the Company, whether such
obligation or liabilities are asserted by the Company or by creditors of the
Company.
7.4 Directly or Indirectly.
Where any provision in this Agreement refers to any action to be taken by
any Person, or that such Person is prohibited from taking, such provision shall
be applicable whether such action is taken directly or indirectly by such
Person, including actions taken by or on behalf of any partnership in which such
Person is a general partner.
WARRANT AGREEMENT 19
<PAGE>
7.5 Survival of Representations and Warranties; Entire Agreement.
All representations and warranties contained herein and in the Purchase
Agreement in connection herewith shall survive the execution and delivery of
this Agreement and the Warrant Certificates, the transfer by the Purchaser of
any Warrant Certificate or portion thereof or interest therein and the exercise
or expiration of any Warrant, and may be relied upon by the Purchaser or other
holder of a Warrant Certificate, regardless of any investigation made at any
time by or on behalf of the Purchaser or such other holder. Subject to the
preceding sentence, this Agreement and the Warrant Certificates embody the
entire agreement and understanding between the Purchaser and the Company, and
supersede all prior agreements and understandings, relating to the subject
matter hereof.
7.6 Successors and Assigns.
All covenants and other agreements in this Agreement contained by or on
behalf of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto (including, without
limitation, any holder of a Warrant Certificate) whether so expressed or not.
7.7 Notices.
All communications hereunder or under the Warrants shall be in writing,
shall be delivered by nationwide overnight courier, or facsimile transmission
(confirmed by delivery by nationwide overnight courier sent on the day of the
sending of such facsimile transmission), and
(a) if to the Purchaser, addressed to it at as provided in the
Purchase Agreement, or to such other address as the Purchaser shall have
specified to the Company in writing;
(b) if to any other holder of a Warrant Certificate, addressed to such
other holder at such address as such holder shall have specified to the
Company in writing or, if any such other holder shall not have so specified
an address to the Company, then addressed to such other holder in care of
the last holder of such Warrant Certificate that shall have so specified an
address to the Company; and
(c) if to the Company, addressed to it at:
ProsoftTraining.com
3001 Bee Caves Road, Suite 100
Austin, Texas 78746
Telephone: (512) 328-6140
Facsimile: (512) 328-5239
Attn: Chief Executive Officer
or at such other address as the Company shall have specified to the
holders of the Warrant Certificates in writing; provided that any such
communication to the Company may also, at the option of any holder of
a Warrant Certificate, be delivered by any other means either to the
Company at its address specified above or to any officer of the
Company.
Any communication addressed and delivered as herein provided shall be deemed to
be received when actually delivered to the address of the addressee (whether or
not delivery is accepted) or received by the telecopy machine of the recipient,
Any communication not so addressed and delivered shall be
WARRANT AGREEMENT 20
<PAGE>
ineffective.
7.8 Breach of this Agreement. Upon the occurrence of any Event of Breach,
the Purchaser may, in addition to and not in lieu of any other remedy the
Purchaser may have at law or equity, elect to immediately accelerate and
exercise any of the provisions of this Agreement, and notwithstanding the
vesting provisions in Section 5.2, all of the remaining Warrants for 250,000
shares of Common Stock represented by the Warrant Certificate in the form
attached hereto as Attachment B shall immediately vest and may be immediately
exercised as of the date of any Event of Breach.
7.9 Satisfaction Requirement.
If any agreement, certificate or other writing, or any action taken or to
be taken, is by the terms of this Agreement required to be satisfactory to the
Purchaser or to any other holder of a Warrant Certificate, the determination of
such satisfaction shall be made by the Purchaser or such other holder, as the
case may be, in the sole and exclusive judgment (exercised in good faith) of the
Person or Persons making such determination.
7.10 Severability.
Any provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
7.11 Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall be an original but all of which together shall constitute one instrument.
7.12 Texas Law; Submission to Jurisdiction; Waiver of Jury Trial;
Appointment of Agent. THIS AGREEMENT AND THE WARRANTS CERTIFICATES ISSUED
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE
STATE OF TEXAS. EACH PARTY HERETO HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION
OF THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS AND OF
ANY TEXAS STATE COURT SITTING IN DALLAS FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED
HEREBY. EACH PARTY HERETO IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE
OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH
PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHT TO TRIAL BY JURY
IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
[Remainder of page intentionally blank. Next page is signature page.]
WARRANT AGREEMENT 21
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed and delivered by one of its duly authorized officers or
representatives.
PROSOFTTRAINING.COM
By:________________________________________
Name:______________________________________
Title:_____________________________________
Address: 3001 Bee Caves Road, Suite 100
Austin, Texas 78746
Telephone: (512) 328-6140
Fax: (512) 328-5239
Attn: Chief Executive Officer
HUNT CAPITAL GROWTH FUND II, L.P.
By: HUNT CAPITAL GROWTH, L.P.
its general partner
By: HUNT CAPITAL
MANAGEMENT, L.L.C., its
general partner
By: ________________________
Name: J.R. Holland, Jr.
Title: President
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Thomas J. Fowler, Esq.
WARRANT AGREEMENT 22
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-2000
<PERIOD-START> AUG-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 999,914
<SECURITIES> 0
<RECEIVABLES> 2,598,490
<ALLOWANCES> 199,362
<INVENTORY> 0
<CURRENT-ASSETS> 3,596,748
<PP&E> 1,283,128
<DEPRECIATION> 956,095
<TOTAL-ASSETS> 7,559,575
<CURRENT-LIABILITIES> 4,094,411
<BONDS> 774,054
0
0
<COMMON> 14,383
<OTHER-SE> 613,627
<TOTAL-LIABILITY-AND-EQUITY> 7,559,575
<SALES> 3,780,928
<TOTAL-REVENUES> 3,780,928
<CGS> 2,203,777
<TOTAL-COSTS> 3,551,216
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 169,246
<INCOME-PRETAX> 60,466
<INCOME-TAX> 0
<INCOME-CONTINUING> 60,466
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60,466
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
