<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 0-22563
PC411, INC.
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-4463937
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
100 SE 2ND STREET
MIAMI, FL 33131
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(305) 579-8000
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
9800 S. LA CIENEGA, BLVD., INGLEWOOD, CA 90301-4440
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
CHECK WHETHER THE ISSUER (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT 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
------ ------
AS OF NOVEMBER 13, 1998, THERE WERE OUTSTANDING 3,120,000 SHARES OF THE
ISSUER'S COMMON STOCK, $.01 PAR VALUE.
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PC411, INC.
QUARTERLY REPORT ON FORM 10-QSB
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Page
----
<S> <C>
Item 1. Condensed Consolidated Financial Statements (Unaudited):
Condensed Consolidated Balance Sheets as of September 30,
1998 and December 31, 1997.................................... 3
Condensed Consolidated Statements of Operations for the
three months and nine months ended September 30,
1998 and 1997................................................. 4
Condensed Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997................. 5
Condensed Notes to Quarterly Consolidated Financial
Statements .................................................. 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 19
Item 2 Changes in Securities and Use of Proceeds......................... 19
Item 5. Other Information................................................. 21
Item 6. Exhibits and Reports on Form 8-K.................................. 26
SIGNATURE............................................................................. 27
</TABLE>
2
<PAGE> 3
PC411, INC.
(A DEVELOPMENT STAGE ENTITY)
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- -----------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,337,558 $ 949,157
Investments -- 3,498,116
Restricted assets 100,000 100,000
Accounts receivable 2,842 8,963
Accrued interest receivable 7,402 70,233
Prepaid expenses and other current assets 26,954 103,232
----------- -----------
Total current assets 2,474,756 4,729,701
Machines held for lease, net of depreciation 469,394 --
Property and equipment, net 206,435 128,959
Intangible assets, net 410,238 --
----------- -----------
Total assets $ 3,560,823 $ 4,858,660
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current Liabilities:
Accounts payable and accrued expenses $ 188,888 $ 178,789
Deferred revenue 29,657 54,035
----------- -----------
Total current liabilities 218,545 232,824
----------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, Series A $.01 par value.
Authorized 5,000,000 shares; no shares issued
and outstanding -- --
Common Stock, $.01 par value. Authorized
25,000,000 shares; 3,120,000 and 2,972,500
shares issued and outstanding, respectively 31,200 29,725
Additional paid-in capital 7,747,584 7,409,809
Deficit accumulated during the development stage (4,436,506) (2,813,698)
----------- -----------
Total stockholders' equity 3,342,278 4,625,836
----------- -----------
Total liabilities and stockholders' equity $ 3,560,823 $ 4,858,660
=========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
3
<PAGE> 4
PC411, INC.
(A DEVELOPMENT STAGE ENTITY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Period From
---------------------------- ---------------------------- December 29, 1993
September 30, September 30, September 30, September 30, (Date of Inception)
1998 1997 1998 1997 to September 30, 1998
------------- ------------- ------------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Revenues $ 24,466 $ 20,619 $ 71,977 $ 112,660 $ 285,979
Cost and expenses:
Cost of revenues................ 115,182 25,309 298,622 96,833 618,380
Research and development........ 31,867 100,690 149,540 125,329 864,632
Sales and marketing............. 133,538 80,076 453,792 146,252 789,447
General and administrative...... 380,330 237,028 922,097 523,674 2,528,277
----------- ----------- ----------- ----------- -----------
660,917 443,103 1,824,051 892,088 4,800,736
----------- ----------- ----------- ----------- -----------
Operating loss....................... (636,451) (422,484) (1,752,074) (779,428) (4,514,757)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest and other income....... 36,946 72,935 129,266 108,408 349,512
Interest expense................ -- -- -- (94,002) (268,861)
----------- ----------- ----------- ----------- -----------
36,946 72,935 129,266 14,406 80,651
----------- ----------- ----------- ----------- -----------
Loss before income taxes........ (599,505) (349,549) (1,622,808) (765,822) (4,434,106)
Income taxes......................... -- -- -- 800 2,400
----------- ----------- ----------- ----------- -----------
Net loss........................ (599,505) (349,549) (1,622,808) (765,822) (4,436,506)
Dividends on preferred shares........ -- -- -- (132,679)
----------- ----------- ----------- -----------
Net loss applicable to common stock.. $ (599,505) $ (349,549) $(1,622,808) $ (898,501)
=========== =========== =========== ===========
Net loss per share (basic
and diluted).................... $ (.19) $ (.12) $ (.53) $ (.38)
=========== =========== =========== ===========
Shares used in computing net
loss per share.................. 3,120,000 2,972,500 3,050,215 2,390,217
=========== =========== =========== ===========
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
4
<PAGE> 5
PC411, INC.
(A DEVELOPMENT STAGE ENTITY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended Period From
---------------------------- December 29, 1993
September 30, September 30, (Date of Inception)
1998 1997 to September 30, 1997
------------- ------------- ---------------------
<S> <C> <C> <C>
Cash flows used in operating activities:
Net loss $(1,622,808) $ (765,822) $(4,436,506)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 85,767 30,011 192,558
Interest component of stock options granted -- 70,000 70,000
Amortization of discount on loan payable -- -- 160,940
Changes in assets and liabilities:
Accounts receivable 6,121 10,947 (2,842)
Purchase of machines held for lease (470,638) -- (470,638)
Prepaid expenses and other current assets 139,109 44,776 (34,356)
Accrued expenses 10,099 (59,174) 188,888
Deferred revenues (24,378) 31,867 29,657
----------- ----------- -----------
Net cash used in operating activities (1,876,728) (637,395) (4,302,299)
----------- ----------- -----------
Cash flows from (used in) investing activities:
Increase in restricted assets -- -- (100,000)
Purchase of investments -- (4,847,779) (6,116,584)
Sale of short-term investments 3,498,116 98,917 6,116,584
Acquisition of business (104,250) -- (104,250)
Acquisition of property and equipment (118,737) (30,072) (354,487)
----------- ----------- -----------
Net cash flows from (used in) investing activities 3,275,129 (4,778,934) (558,737)
----------- ----------- -----------
Cash flows (used in) from financing activities:
Proceeds from loan payable -- 369,998 697,063
Repayment of loan to related party, net -- (619,016) (619,016)
Shareholder cash contribution -- -- 92,047
Issuance of common stock -- 5,885,000 6,037,500
Deferred finance charges (10,000) -- (10,000)
Issuance of preferred stock -- -- 1,001,000
----------- ----------- -----------
Net cash flows (used in) provided from financing activities (10,000) 5,635,982 7,198,594
----------- ----------- -----------
Net increase in cash 1,388,401 219,653 2,337,558
Cash and cash equivalents at beginning of period 949,157 8,605 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 2,337,558 $ 228,258 $ 2,337,558
=========== =========== ===========
Detail of acquisition:
Fair value of assets acquired $ 339,750 $ -- $ 397,750
Liabilities assumed 71,500 -- 71,500
</TABLE>
See accompanying Notes to Condensed Consolidated Financial Statements
5
<PAGE> 6
PC411, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(1) BUSINESS AND ORGANIZATION
PC411, Inc. (the "Company") was incorporated in Delaware on December 29,
1993. Prior to May 8, 1998, the Company's principal business was an
on-line service that transmits name, address, telephone number and other
related information digitally to users of personal computers. On May 8,
1998, the Company acquired Controlled Distribution Systems, Inc. ("CDS",
formerly known as Coinexx Corporation).
INITIAL PUBLIC OFFERING
On May 21, 1997, the Company completed an initial public offering ("IPO")
of 1,322,500 units (including 172,500 units from the exercise of the
Underwriter's over-allotment option), each unit consisting of one share
of Common Stock and one Redeemable Class A Warrant to purchase a share of
Common Stock. The units were sold for $5.75 each and the Company
received, after expenses of the IPO, approximately $5.9 million in net
proceeds. In connection with the IPO, the Company effected a
172.7336-for-1 stock split of the Company's Common Stock. All shares and
share amounts have been restated to reflect the stock split.
DAMI TRANSACTION
On November 5, 1998, PC411, Inc. (the "Company") contributed the non-cash
assets and certain liabilities of its on-line electronic delivery
information service (the "PC411 Service") to Digital Asset Management,
Inc. ("DAMI"). DAMI is a newly formed corporation organized by Dean
Eaker, the former President, Chief Executive Officer and a director of
the Company, and Edward Fleiss, the former Vice President and Chief
Technology Officer of the Company, to continue to operate and develop the
PC411 Service. The Company received preferred stock representing an
initial 42.5% interest in DAMI in exchange for the contribution of the
PC411 Service. Acxiom Corporation ("Acxiom") purchased preferred stock
representing a 42.5% interest in DAMI for $1,250,000 and will initially
designate a majority of the Board of Directors of DAMI. DAMI's
management, including Messrs. Eaker and Fleiss, will hold an initial 15%
interest in DAMI with options to increase their ownership position to 50%
upon satisfaction of operational and financial benchmarks over a
three-year period. As a result, the Company will account for its interest
in the PC411 Service by using the equity method of accounting after
November 5, 1998. See Part II - Item 5 - "Other Information" for
additional information concerning the DAMI transaction and certain pro
forma information. The Company has agreed, under certain conditions, to
fund up to $200,000 of an $800,000 working capital line to be provided to
DAMI by Acxiom, the Company and Dean R. Eaker.
6
<PAGE> 7
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
CDS ACQUISITION
On May 8, 1998, the Company acquired CDS, a development stage company
engaged in the marketing and leasing of an inventory control system for
tobacco products. Under the terms of the acquisition, the CDS
stockholders received 147,500 shares of the Company's Common Stock at
closing. In addition, the Company will issue an additional 147,500 shares
to CDS stockholders on each of the first, second and third anniversaries
of the closing provided that on each such delivery date CDS is actively
engaged in the business it is now engaged. The schedule for the deferred
deliveries of stock is subject to a delay of 12 months if the President
of CDS (the "Executive") is not employed by CDS on any of the three
anniversary dates and is subject to acceleration if the Company's Common
Stock trades at $15 per share for 60 consecutive trading days. In
connection with this acquisition, the Company entered into a three-year
employment agreement, subject to certain termination provisions, with the
Executive. The Executive was also granted options to purchase 110,000
shares of Common Stock of the Company at $1.50 per share. CDS did not
have any significant tangible assets at the time of acquisition. The
aggregate of the fair value of the shares issued and issuable to the CDS
stockholders as consideration for the acquisition of $339,250 and legal
and other costs incurred in the acquisition of $104,250 have been
capitalized and will be amortized over an estimated useful life of five
years.
(2) PRINCIPLES OF REPORTING
The consolidated financial statements of the Company as of September 30,
1998 presented herein include the accounts of PC411 and CDS and have been
prepared by the Company without an audit. In the opinion of management,
all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the financial position as of September 30,
1998 and the results of operations and cash flows for all periods
presented have been made. Results for the interim periods are not
necessarily indicative of the results for the entire year.
These financial statements should be read in conjunction with the audited
financial statements and notes thereto for the year ended December 31,
1997 included in the Company's Form 10-KSB (Commission File No.
0001-22563).
Certain reclassifications have been made to prior year financial
information to conform with current year presentation.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
7
<PAGE> 8
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
STOCK OPTIONS
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for its stock options. In 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which, if fully adopted, changes the methods of
recognition of cost on certain stock options. The Company has elected to
apply the "disclosure only" provisions of SFAS No. 123. Such disclosures
are not required in interim financial statements.
RESTRICTED ASSETS
Restricted assets consist of cash pledged as collateral for a letter of
credit collateralizing a credit card facility $100,000.
NEW ACCOUNTING PRONOUNCEMENTS
For transactions entered into in fiscal years beginning after December
15, 1997, the Company adopted and is reporting in accordance with SOP
97-2, "Software Revenue Recognition". The adoption of SOP 97-2 did not
have a material impact on the Company's financial statements. In March
1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides
guidance that the carrying value of software developed or obtained for
internal use is assessed based upon an analysis of estimated future cash
flows on an undiscounted basis and before interest charges. SOP 98-1 is
effective for transactions entered into in fiscal years beginning after
December 15, 1998. The Company believes that adoption of SOP 98-1 will
not have a material impact on the Company's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information", which establishes standards
for the way that public business enterprises report information about
operating segments. SFAS No. 131 is effective for financial statements
for fiscal years beginning after December 15, 1997. The Company is
currently reviewing its operating segment disclosures and will adopt SFAS
No. 131 in the fourth quarter of 1998.
(3) RELATED PARTY TRANSACTIONS
Certain accounting and related finance functions are performed on behalf
of the Company by employees of New Valley Corporation ("NVC"), the
Company's principal stockholder. Expenses incurred relating to these
functions are allocated to the Company and paid as incurred to NVC based
on management's best estimate of the cost involved. The amounts allocated
were immaterial for all periods presented herein.
8
<PAGE> 9
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
(4) NET LOSS PER SHARE
Basic loss per share of common stock is computed by dividing net loss
applicable to common shareholders by the weighted average shares of
common stock outstanding during the period. Diluted per share results
reflect the potential dilution from the exercise or conversion of
securities into common stock.
Stock options, warrants and contingent shares (both vested and
non-vested) totaling 3,767,933 and 3,368,954 shares at September 30, 1998
and 1997, respectively, were excluded from the calculation of diluted per
share results presented because their effect was accretive. Accordingly,
diluted net loss per common share is the same as basic net loss per
common share.
(5) CONTINGENCIES
The Company is a defendant in a lawsuit asserted by a former employee
seeking a severance payment of $150,000. The Company believes the claim
is without merit; however, no assurance can be given that the Company
will prevail in its defense of the claim.
9
<PAGE> 10
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis of the Financial Condition and Results of
Operations of the Company should be read in conjunction with the Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
consolidated financial statements and the notes thereto included in the
Company's Form 10-KSB (Commission File No. 0001-22563) relating to the year
ended December 31, 1997.
OVERVIEW
The Company presently has two lines of business: the delivery of an on-line
electronic directory information service (the "PC411 Service") and the marketing
of an inventory control system for tobacco products through its subsidiary,
Controlled Distribution Systems, Inc. ("CDS").
PC411 SERVICE - The Company has conducted the PC411 Service since 1994. The
PC411 Service licenses a database for Acxiom Corporation ("Acxiom") with more
than 110 million U.S. and Canadian residence and business telephone numbers,
addresses and ZIP codes. A customer can access the PC411 Service using a
computer by either dialing directly into the Company's server, in which the
database is housed, or indirectly via the Internet. Either method requires the
use of the Company's copyrighted, Windows-based, software program, PC411 FOR
WINDOWS 3.0, which was introduced in November 1997. Designed to operate in a
Windows 95 environment, PC411 FOR WINDOWS 3.0 is Internet compatible and has
been enhanced to provide a quicker, easier to use search tool. In addition, a
limited version of the PC411 Service is available at no charge via the Internet
at the address http://www.pc411.com.
On November 5, 1998, the Company contributed the non-cash assets and certain
liabilities of its on-line electronic delivery information service (the "PC411
Service") to Digital Asset Management, Inc. ("DAMI"). The assets contributed
include the tradename for "PC411 for Windows 3.0", distribution agreements with
equipment manufacturers, subscriber contracts for the PC411 Service, the
Company's internet site and domain name, all property, plant and equipment,
including hardware and software, relating to the PC411 Service and all accounts
receivable, inventories and prepaid expenses relating to the PC411 Service. The
contributed assets do not include the Company's cash and marketable securities
and other financial investments. The liabilities assumed by DAMI include the
Company's obligations under the Acxiom data licensing agreement, up to $10,000
of liabilities under the OEM distribution agreements, obligations of the Company
to provide the PC411 Service to subscribers and up to $10,000 of other
pre-closing liabilities.
DAMI is a newly formed corporation organized by Dean Eaker, the former
President, Chief Executive Officer and a director of the Company, and Edward
Fleiss, the former Vice President and Chief Technology Officer of the Company,
to continue to operate and develop the PC411 Service. The Company received
preferred stock representing an initial 42.5% interest in DAMI in exchange for
the contribution of the PC411 Service. Acxiom purchased preferred stock
representing a 42.5% interest in DAMI for $1,250,000 and will initially
designate a majority of the Board of Directors of DAMI. DAMI's management,
including Messrs. Eaker and Fleiss, will hold an initial 15% interest in DAMI
with options to increase their ownership position to 50% upon satisfaction of
operational and financial benchmarks over a three-year period. As a result, the
Company will account for its interest in the PC411 Service by using the equity
method of accounting after November 5, 1998. See Part II - Item 5 - "Other
Information" for additional information concerning the DAMI transaction and
certain pro forma information.
10
<PAGE> 11
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
CDS - In May, 1998, the Company acquired the stock of CDS, a development stage
company engaged in the marketing and leasing of an inventory control system for
tobacco products. Under the terms of the acquisition, the former CDS
stockholders received 147,500 shares of the Company's Common Stock at closing.
In addition, the Company will issue an additional 147,500 shares in the
aggregate to the former CDS stockholders on each of the first, second and third
anniversaries of the closing provided that on each such delivery date CDS was
actively engaged in the business it is now engaged. The schedule for the
deferred deliveries of stock is subject to a delay of 12 months if the current
President of CDS (the "Executive") is not employed by CDS on any of the three
anniversary dates and is subject to acceleration if the Company's Common Stock
trades at $15 per share for 60 consecutive trading days. In connection with this
acquisition, the Company entered into a three-year employment agreement, subject
to certain termination provisions, with the Executive. The Executive was also
granted options to purchase 110,000 shares of Common Stock of the Company at
$1.50 per share. CDS did not have any significant tangible assets at the time of
acquisition. The aggregate of the fair value of the shares issued and issuable
to the CDS stockholders as consideration for the acquisition of $339,250 and
legal and other costs incurred in the acquisition of $104,250 have been
capitalized and will be amortized over an estimated useful life of five years.
CDS markets a dispensing machine for cigarettes, which is controlled by a
remote-control device. The dispensing machine is designed to replace the current
money-operated cigarette vending machine. The Company's product is
differentiated from the current money-operated vending machine by a
remote-control transmitter, which may only be activated by an authorized
individual. Thus, the operation of the machine requires a face-to-face
transaction between the operator (typically a cashier) and the customer wishing
to purchase cigarettes. CDS' management believes that this method for dispensing
cigarettes would be permitted under the final Food and Drug Administration
regulations issued August 28, 1996 and various bills proposed before Congress
this year which would restrict the sale and distribution of cigarettes. CDS
believes that the principal market for its equipment consists of restaurants,
bars and taverns. The Company intends to lease its equipment to these entities
for a 36-month term and intends to derive additional revenues by selling
advertising space on the machine's panels. CDS will depreciate the equipment
over five years. As of November 13, 1998, CDS had entered into 17 leases for
machines.
11
<PAGE> 12
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company may also seek to acquire other businesses and/or properties, which
may or may not be related to its existing businesses. Acquisitions involve
numerous risks, including difficulties in the assimilation of the operations and
products or services of the acquired companies, the expenses incurred in
connection with the acquisition and subsequent assimilation of operations and
products or services, the diversion of management's attention from other
business concerns and the potential loss of key employees of the acquired
company. The Company may also face increased competition for acquisition
opportunities which may inhibit its ability to consummate suitable acquisitions
on terms favorable to the Company. There can be no assurance that the Company
will successfully identify, complete or integrate any future acquisitions, or
that acquisitions, if completed, will contribute favorably to the Company's
operations and future financial condition.
The limited operating history of the Company makes the prediction of future
results of operations difficult or impossible. The Company believes that period
to period comparisons of its operating results for any period should not be
relied upon as an indication of future performance. The continued development of
the CDS businesses will require the Company to significantly increase its
operating expenses in order to build its sales and marketing staff, increase
product development spending, and invest in infrastructure. As a result, the
Company expects to continue to incur significant losses for the foreseeable
future.
The Company's operating results may fluctuate significantly in the future as a
result of a variety of factors, many of which are outside the Company's control.
In addition, the Company does not have historical financial data for any
significant period of time on which to base planned operating expenses. The
Company's expense levels are based in part on its expectations concerning future
revenue and to a large extent are fixed. Quarterly revenue and operating results
depend substantially upon signing up new customers and retaining such customers
which are difficult to forecast accurately. The Company may be unable to adjust
spending in a timely manner to compensate for any unexpected revenue shortfall,
and any significant shortfall in revenue in relation to the Company's
expectations would have an immediate adverse effect on the Company's business,
results of operations and financial condition. In addition, the Company
currently expects CDS to increase significantly its operating expenses as it
builds its sales and marketing staff, increases product development spending and
invests in infrastructure. To the extent that such expenses precede or are not
subsequently followed by increased revenue, the Company's business, results of
operations and financial condition will be materially and adversely affected.
RECENT ACCOUNTING DEVELOPMENTS. For transactions entered into in fiscal years
beginning after December 15, 1997, the Company adopted and is reporting in
accordance with SOP 97-2, "Software Revenue Recognition". The adoption of SOP
97-2 did not have a material impact on the Company's financial statements. In
March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 provides guidance
that the carrying value of software developed or obtained for internal use is
assessed based upon an analysis of estimated future cash flows on an
undiscounted basis and before interest charges. SOP 98-1 is effective for
transactions entered into in fiscal years beginning after December 15, 1998. The
Company believes that adoption of SOP 98-1 will not have a material impact on
the Company's financial statements.
12
<PAGE> 13
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information", which establishes standards for the way
that public business enterprises report information about operating segments.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. The Company is currently reviewing its operating
segment disclosures and will adopt SFAS No. 131 in the fourth quarter of 1998.
YEAR 2000 COSTS. The Company, its subsidiary and its affiliate have evaluated
the implementation of the century date change on their internal computer systems
and believes they are year 2000 compliant. CDS believes that its dispensing
machine is Year 2000 compliant and the Company has been informed by DAMI that
the PC411 Service is Year 2000 compliant. Furthermore, the Company uses personal
computers less than three years old for all accounting functions. However, the
failure of the Company's service providers to resolve their own processing
issues in a timely manner could result in a material financial risk. As a
result, the Company is presently confirming that its service providers are
adequately addressing Year 2000 issues. However, there can be no complete
assurance of success, or that interaction with service providers will not impair
the Company, its subsidiary and its affiliate's services.
RESULTS OF OPERATIONS
For the three and nine months ended September 30, 1998, the results of
operations of the Company's primary operating units, which include the PC411
Service and CDS were as follows. Effective November 5, 1998, the Company
contributed the PC411 Service to DAMI in exchange for preferred stock in DAMI.
See Part I - Item 2 - "Overview". The Company will account for its interest in
the PC411 Service using the equity method of accounting subsequent to November
5, 1998.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
PC411 SERVICE
Sales $ 24,466 $ 20,619 $ 70,608 $ 112,660
Cost of sales 86,360 25,309 269,800 96,833
Research and development 31,867 100,690 120,291 125,329
Sales and marketing 45,526 76,076 365,781 134,252
General and administrative 140,975 199,889 525,914 481,689
----------- ----------- ----------- -----------
Total expenses 304,728 401,964 1,281,786 838,103
----------- ----------- ----------- -----------
Operating loss $ (280,262) $ (381,345) $(1,211,178) $ (725,443)
=========== =========== =========== ===========
CDS(1)
Sales $ 1,369 $ -- $ 1,369 $ --
Cost of sales 28,822 -- 28,822 --
Research and development -- -- -- --
Sales and marketing 88,012 -- 88,012 --
General and administrative 221,061 -- 307,034 --
----------- ----------- ----------- -----------
Total expenses 337,895 -- 423,868 --
----------- ----------- ----------- -----------
Operating loss $ (337,895) $ -- $ (422,499) $ --
=========== =========== =========== ===========
</TABLE>
13
<PAGE> 14
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
CORPORATE AND OTHER
Sales $ -- $ -- $ -- $ --
Cost of sales -- -- -- --
Research and development -- -- 29,249 --
Sales and marketing -- 4,000 -- 12,000
General and administrative 18,294 37,139 89,148 41,985
--------- --------- --------- ---------
Total expenses 18,294 41,139 118,397 53,985
--------- --------- --------- ---------
Operating loss $ (18,294) $ (41,139) $(118,397) $ (53,985)
========= ========= ========= =========
(1) CDS' results for the nine months ended September 30, 1998 are for the
period from the date of acquisition (May 8, 1998) through September 30, 1998.
THE PC411 SERVICE
REVENUES. The Company's revenues from the PC411 Service have been derived from
registration fees and usage charges for the modem dial-up PC411 service.
Revenues are recognized over the period in which the related services are to be
provided. Revenues for the PC411 Service for the three and nine months ended
September 30, 1998 were $24,466 and $70,608, respectively, compared to $20,619
and $112,660 for the same periods in the prior year. The decrease in revenues
for the nine-month period was due primarily to lower sales due to the
cancellation of a bundling agreement with an OEM partner in the third quarter of
1997.
COST OF REVENUES. Cost of revenues for the PC411 Service consists primarily of
the cost of data and the distribution fees payable to OEM partners in 1997 and
1998. Cost of revenues in 1998 also includes employee compensation and
depreciation associated with the maintenance of the PC411 Service. The Company's
contract with Acxiom for the listing data provides for payment based on a
specified percentage of revenues that the Company generates from the
distributing the data, with minimum annual payments. The Company has been only
required to pay the minimum quarterly payments. Cost of revenues for the three
months and nine months ended September 30, 1998 were $86,360 and $269,800,
respectively, as compared to $25,309 and $96,833 for the same periods in the
prior year. The increase is due primarily to the increased costs in the
maintenance of the PC411 Service.
RESEARCH AND DEVELOPMENT. Research and development expenses consist primarily of
employee compensation associated with the design, programming, and testing of
the PC411 Service. Research and development expenses for the three months and
nine months ended September 30, 1998 were $31,867 and $120,291, respectively, as
compared to $100,690 and $125,329 for the same periods in the prior year. The
decrease in research and development for the three month period was primarily
attributable the development of PC411 FOR WINDOWS VERSION 3.0 in the third
quarter of 1997 and the curtailment of the re-engineering of PC411 FOR WINDOWS
VERSION 3.0 in the third quarter of 1998.
14
<PAGE> 15
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
SALES AND MARKETING EXPENSES. Sales and marketing expenses consist primarily of
direct mail, public relations, print advertising, and trade shows. Sales and
marketing expenses for the PC411 Service for the three and nine months ended
September 30, 1998 were $45,526 and $365,781, respectively, as compared to
$76,076 and $134,252 for the same periods in the prior year. The Company
initiated several sales and marketing programs in the third quarter of 1997 in
an effort to expand distribution of PC411 FOR WINDOWS VERSION 3.0. The Company
also incurred expenses in the initiation of a renewal program for current
subscribers to the PC411 Service in the first and second quarters of 1998. The
Company curtailed its sales and marketing expense related to the PC411 Service
significantly in the third quarter of 1998, which resulted in significantly
lower expenses from the comparable quarter in 1997.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for the
PC411 Service consisted primarily of expenses for administration, office
operations, and general management activities, including legal, accounting, and
other professional fees. General and administrative expenses for the PC411
Service were $140,975 and $525,914 for the three months and nine months ended
September 30, 1998, respectively, as compared to $199,889 and $481,689 for the
same periods in the prior year. The decrease for the three-month period is the
result of the Company's initiative to reduce administrative expenses associated
with the PC411 Service in the third quarter of 1998.
CDS
CDS' results for the nine months ended September 30, 1998 are for the
period from the date of acquisition (May 8, 1998) through September 30, 1998.
REVENUES. CDS had leasing revenues of $1,369 for the three and nine months ended
September 30, 1998. CDS did not realize any advertising revenues for the three
and nine months ended September 30, 1998.
COST OF SALES. Cost of sales for CDS consists primarily of warehouse expenses
and shipping of machines held for lease. CDS depreciates its machines held for
lease over five years once the asset is placed in service.
SALES AND MARKETING EXPENSES. Sales and marketing expenses for CDS were $88,012
for the three and nine months ended September 30, 1998. The expenses consisted
principally of personnel costs and expenses associated with trade shows.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses for
CDS were $221,061 and $307,034 for the three and nine months ended September 30,
1998. The CDS expenses consisted principally of payroll, amortization of
intangible assets, consulting and office expenses.
CORPORATE AND OTHER
Expenses associated with corporate activities were $18,294 and $118,397 for the
three months and nine months ended September 30, 1998, respectively, as compared
to $41,139 and $53,985 for the same periods in the prior year. The expenses were
primarily associated with costs necessary to maintain a public company and costs
incurred in searching for potential merger and acquisition candidates.
15
<PAGE> 16
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
OTHER INCOME
OTHER INCOME (EXPENSE). Interest expense was $0 and $94,002 for the three months
and nine months ended September 30, 1997, respectively. The interest expense was
attributed entirely to the loan from New Valley Corporation ("NVC"), the
principal shareholder of the Company. Included in interest expense was $35,000
and $70,000 for each respective period in imputed interest attributable to stock
options granted to Direct Assist Holding Inc. ("DAH"), a wholly-owned subsidiary
of NVC, on January 29, 1997. Interest and other income was $36,946 and $129,266
for the three months and nine months ended September 30, 1998, compared to
$72,935 and $108,408 for the three and nine months ended September 30, 1998. The
increase for the nine-month period is principally related to interest on the
funds received on May 22, 1997 from the Company's initial public offering
("IPO").
LIQUIDITY AND CAPITAL RESOURCES
The Company has not been able to generate sufficient cash from operations and,
as a consequence, financing has been required to fund ongoing operations. The
Company has financed its operations to date primarily through the sale of its
Preferred Stock to DAH, secured short-term borrowings from NVC and the proceeds
of the IPO. Three of the Company's directors and its interim President and its
Chief Financial Officer are or have been executive officers of NVC.
On May 21, 1997, the Company sold 1,322,500 units (including 172,500 units from
the exercise of the underwriter's over-allotment option) in the IPO, each unit
consisting of one share of Common Stock and one Redeemable Class A Common Stock
Purchase Warrant to purchase one share of Common Stock. The units were sold for
$5.75 each and the Company received, after expenses of the IPO, approximately
$5.9 million in net proceeds. After the repayment of the indebtedness to NVC,
cumulative Preferred Stock dividends in the amount of $171,953 and an $80,000
consulting fee to the underwriter of the IPO, approximately $5.4 million
remained for the completion of the introduction of the PC411 Service over the
Internet, to expand marketing, sales and advertising, to develop or acquire new
services or databases, and for general corporate purposes. Cash used in
operations for the nine months ended September 30, 1998 and 1997 was $1,876,728
and $637,395, respectively.
Cash provided from investing activities for the nine months ended September 30,
1998 was $3,275,129, compared with cash used in investing activities of
$4,778,934 during the nine months ended September 30, 1997. The primary source
of cash provided from investing activities in 1998 was the maturity of certain
short-term investments and subsequent conversion to cash-investment accounts in
1998. Cash used in investing activities for the 1997 period resulted primarily
from the investment of proceeds from the IPO into the aforementioned short-term
investments. Capital expenditures for the nine months ended September 30, 1998
and 1997 were $118,737 and $30,072, respectively. The expenditures in 1998 were
primarily for CDS' office furniture and computers. The expenditures for 1997
were primarily for computer equipment. The Company also incurred $104,250 of
costs, principally legal and other fees, in connection with the CDS acquisition.
The Company will amortize these costs over an estimated useful life of five
years.
16
<PAGE> 17
PC411, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Cash provided from financing activities for the nine months ended September 30,
1997 consisted of $5,635,982, which was primarily associated with the Company's
IPO. On May 22, 1997, the Company issued to NVC warrants in satisfaction of
$250,000 of indebtedness owed to NVC. The balance of the indebtedness to NVC,
$447,064, including accrued interest, was paid from the net proceeds from the
IPO. The Company also paid preferred stock dividends in arrears of $171,953 to
NVC.
In connection with the DAMI transaction, the Company agreed, under certain
circumstances, to fund up to $200,000 of an $800,000 line of credit to be
provided to DAMI by various of its stockholders.
The Company expects that cash used in operating activities could increase in the
future. The timing of the Company's future capital requirements, however, cannot
be accurately predicted. The Company's capital requirements depend upon numerous
factors, principally the acceptance and use of CDS's product and the Company's
ability to generate revenue. If capital requirements vary materially from those
currently planned, the Company may require additional financing, including, but
not limited to the sale of equity or debt securities. The Company has no
commitments for any additional financing, and there can be no assurance that any
such commitments can be obtained. Any additional equity financing may be
dilutive to the Company's existing stockholders, and debt financing, if
available, may involve pledging some or all of the Company's assets and may
contain restrictive covenants with respect to raising future capital and other
financial and operational matters.
The Company believes that the net proceeds from the IPO will be sufficient to
meet the Company's operations and capital requirements for the next 12 months,
although there can be no assurance in this regard. Although there can be no
assurance, management believes that the Company will be able to continue as a
going concern for the next 12 months.
The Company or its affiliates, including NVC, may, from time to time, based upon
present market conditions, purchase shares of the Company's Common Stock in the
open market or in privately negotiated transactions.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Company and its representatives may from time to time make oral or written
"forward-looking statements" within the meaning of the Private Securities Reform
Act of 1995 (the "Reform Act"), including any statements that may be contained
in the foregoing "Management's Discussion and Analysis of Financial Condition
and Results of Operations", in this report and in other filings with the
Securities and Exchange Commission and in its reports to stockholders, which
represent the Company's expectations or beliefs with respect to future events
and financial performance. These forward-looking statements are subject to
certain risks and uncertainties and, in connection with the "safe-harbor"
provisions of the Reform Act, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statements made by or on behalf of the Company.
17
<PAGE> 18
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
The Company's plans and objectives are based, in part, on assumptions involving
the market acceptance of its services, continued growth and expansion of the
Internet, the Company's ability to market successfully the CDS product as a more
convenient and reliable alternative to current comparable and widely used
inventory control systems and that there will be no unanticipated material
adverse change in the Company's business or regulatory developments. Assumptions
relating to the foregoing involve judgments with respect to, among other things,
future economic, competitive, regulatory and market conditions and future
business decisions, all of which are difficult or impossible to predict
accurately and many of which are beyond the control of the Company.
Results actually achieved may differ materially from expected results included
in these statements as a result of these or other factors particularly in light
of the Company's early stage operations. Due to such uncertainties and risks,
readers are cautioned not to place undue reliance on such forward-looking
statements, which speak only as of the date on which such statements are made.
The Company does not undertake to update any forward-looking statement that may
be made from time to time on behalf of the Company.
18
<PAGE> 19
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
Reference is made to information entitled "Contingencies" in Note 5 to
the Financial Statements of PC411, Inc. included elsewhere in this
report on Form 10-QSB.
Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On May 21, 1997, the Company completed an initial public offering
("IPO") of 1,322,500 units (including 172,500 units from the exercise
of the underwriter's over-allotment option), each unit consisting of
one share of Common Stock and one Warrant. The units were sold for
$5.75 each and the Company received, after expenses of the IPO,
approximately $5.9 million in net proceeds.
On August 14, 1997, the Company filed its initial report of sales of
securities and use of proceeds therefrom on Form SR. Form SR has been
discontinued and the Company will continue to report the following
information in the Company's quarterly and annual filings until the
proceeds have been fully used.
1. The offering commenced May 14, 1997 and all registered securities
were sold.
2. The managing underwriter was Biltmore Securities, Inc.
3. Title of Securities:
a. Units - Each Unit consists of one share of Common
Stock and one Warrant.
b. Common Stock - Common Stock included in Units,
par value $.01.
c. Warrants - Each Warrant is convertible into
one share of Common Stock at an exercise price of
$6.10.
d. Common stock issuable upon conversion of the
Warrants ("Other Common Stock").
e. Underwriter's Options - The Underwriter's Options
are convertible into Units at an exercise price
of $9.49 per Unit.
19
<PAGE> 20
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PART II. OTHER INFORMATION
4. The Amount and Aggregate Offering Price of Securities Registered
and Sold to Date For the Account of the Issuer:
<TABLE>
<CAPTION>
AGGREGATE PRICE OF
AMOUNT OFFERING AMOUNT
TITLE OF SECURITY REGISTERED REGISTERED AMOUNT SOLD
- ---------------------- -------------------- ---------------------- --------------
<S> <C> <C> <C>
Units 1,322,500 $7,604,375 1,322,000
Common Stock 1,322,500 -- --
Warrants 1,322,500 -- --
Other Common Stock 1,322,500 $8,067,250 --
Underwriter's Options 73,600 $1,147,424 --
</TABLE>
5. Expenses Incurred in Connection with Issuance of Securities:
Underwriting discounts and commissions $760,438
Expenses paid to underwriters $228,131
Other expenses (estimated) $730,880
(All expenses were direct or indirect to others)
6. Net offering proceeds after the total expenses above were $5,885,000.
7. Amount of net offering proceeds used for each of the purposes listed
below:
Amounts paid to affiliates of the Company:
Repayment of Indebtedness; preferred stock dividends $ 619,016
Amounts paid to others:
Temporary investments:
Money-market cash accounts $ 2,127,174
Commercial paper $ 100,000
Purchase of machines held for lease $ 470,638
Purchase of equipment $ 153,600
Employee compensation - estimated $ 983,494
Costs associated with acquisition of CDS $ 104,250
Other working capital - estimated $ 1,326,828
20
<PAGE> 21
PC411, INC.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
NASDAQ SMALLCAP MARKET LISTING
The Company's common stock, par value $.01 per share (the "Common
Stock"), and Redeemable Class A Common Stock Purchase Warrants (the "Warrants")
are traded in the over-the-counter market and are quoted through the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") on the
SmallCap Market System under the symbols PCFR and PCFRW, respectively. The
Company has recently been advised by Nasdaq that its securities will be delisted
on December 16, 1998 unless prior to that date the Company's common stock
achieves a market value of the public float greater than $1,000,000 for ten
consecutive trading days.
DAMI TRANSACTION
On November 5, 1998, PC411, Inc. (the "Company") contributed the
non-cash assets and certain liabilities of its on-line electronic delivery
information service (the "PC411 Service") to Digital Asset Management, Inc.
("DAMI"). See Part I - Item 2 - "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Overview". DAMI is a newly
formed corporation organized by Dean Eaker, the former President, Chief
Executive Officer and a director of the Company, and Edward Fleiss, the former
Vice President and Chief Technology Officer of the Company, to continue to
operate and develop the PC411 Service. The Company received preferred stock
representing an initial 42.5% interest in DAMI in exchange for the contribution
of the PC411 Service. Acxiom Corporation ("Acxiom") purchased preferred stock
representing a 42.5% interest in DAMI for $1,250,000 and will initially
designate a majority of the Board of Directors of DAMI. DAMI's management,
including Messrs. Eaker and Fleiss, will hold an initial 15% interest in DAMI
with options to increase their ownership position to 50% upon satisfaction of
operational and financial benchmarks over a three-year period.
The Company has agreed, under certain conditions, to fund up to
$200,000 of an $800,000 working capital line to be provided to DAMI by Acxiom,
the Company and Dean R. Eaker.
Effective with the closing of the DAMI transaction, Dean R. Eaker and
Edward A. Fleiss resigned their positions with the Company and entered into an
agreement with Company terminating their employment agreements. The Board of
Directors of the Company has elected Richard J. Lampen, a director of PC411, as
interim President and Chief Executive Officer, and J. Bryant Kirkland III, Vice
President and Chief Financial Officer of PC411, as a director. Messrs. Lampen
and Kirkland also serve as executive officers of New Valley Corporation, the
Company's principal stockholder. The Company's principal executive offices have
been relocated to Miami, Florida. The Company will continue to be engaged in the
marketing of an inventory control system for tobacco products through its
wholly-owned subsidiary CDS, and in the delivery of the PC411 Service through
its interest in DAMI.
21
<PAGE> 22
PC411, INC.
PART II. OTHER INFORMATION
The contribution of the PC411 Service to DAMI was effected pursuant to
a Stock Purchase Agreement (the "Purchase Agreement"), dated as of October 31,
1998, by and among DAMI, Acxiom and the Company. The sale was negotiated on an
arm's-length basis between the executive officers and directors of the Company,
other than Messrs. Eaker and Fleiss, and Acxiom. Except as noted above, there is
no material relationship between DAMI and the Company or any of its affiliates,
any director or officer of the Company, or any affiliate or associate of any
such director or officer.
The foregoing summary of the contribution of the PC411 Service to DAMI
is qualified in its entirety by reference to the text of the Purchase Agreement
and related agreements, which are attached hereto as exhibits and are
incorporated herein by reference.
PRO FORMA FINANCIAL INFORMATION
On November 5, 1998, the Company consummated the contribution of the
PC411 Service to DAMI. The Unaudited Pro Forma Consolidated Statements of
Operations for the year ended December 31, 1997 and for the nine months ended
September 30, 1998 present the results of operations of the Company assuming the
contribution of the PC411 Service to DAMI had been consummated as of the
beginning of the periods presented.
The Unaudited Pro Forma Consolidated Balance Sheet as of September 30,
1998 reflects the assets, liabilities and capitalization of the Company after
giving effect to the elimination of the assets and liabilities relating to the
PC411 Service and the acquisition of preferred stock in DAMI.
The pro forma information does not purport to be indicative of the
results of operations or the financial position which would have actually been
obtained if the contribution of the PC411 Service to DAMI had been consummated
as of the beginning of the periods presented or at September 30, 1998. In
addition, the pro forma financial information does not purport to be indicative
of results of operations or financial position which may be obtained in the
future.
The pro forma financial information should be read in conjunction with
the Company's historical Consolidated Financial Statements and Notes thereto
contained herein and in the Company's 1997 Annual Report on Form 10-KSB and the
Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998 and June
30, 1998.
22
<PAGE> 23
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, 1998
----------------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
------------------ ------------------- ------------------------
<S> <C> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents............................... $2,337,558 $ 2,337,558
Investments............................................. -- --
Restricted assets....................................... 100,000 100,000
Accounts receivable..................................... 2,842 $ (1,385) (1) 1,457
Accrued interest receivable............................. 7,402 7,402
Prepaid expenses and other current assets............... 26,954 -- 26,954
---------- --------- -----------
Total current assets............................... 2,474,756 (1,385) 2,473,371
Machines held for lease, net of depreciation................ 469,394 469,394
Property and equipment, net................................. 206,435 (100,980) (1) 105,455
Investment in DAMI.......................................... -- 553,651 553,651
Intangible assets, net...................................... 410,238 -- 410,238
---------- --------- -----------
Total assets....................................... $3,560,823 $ 451,286 (2) $ 4,012,109
========== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable and accrued expenses................... $ 188,888 $ (20,000) (1) $ 168,888
Deferred revenue........................................ 29,657 (29,657) (1) --
---------- --------- -----------
Total current liabilities.......................... 218,545 (49,657) 168,888
---------- --------- -----------
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, Series A $.01 par value.
Authorized 5,000,000 shares; no shares
issued and outstanding............................... --
Common Stock, $.01 par value. Authorized
25,000,000 shares; 3,120,000 shares issued
and outstanding...................................... 31,200 31,200
Additional paid-in capital.............................. 7,747,584 500,943 (2) 8,248,527
Deficit accumulated during the development stage........ (4,436,506) -- (4,436,506)
---------- --------- -----------
Total stockholders' equity......................... 3,342,278 500,943 3,843,221
---------- --------- -----------
Total liabilities and stockholders' equity......... $3,560,823 $ 451,286 $ 4,012,109
========== ========= ===========
</TABLE>
(1) To eliminate assets transferred to and liabilities assumed by DAMI.
(2) To record initial equity investment in PC411's 42.5% ownership interest of
DAMI.
23
<PAGE> 24
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
----------- ----------- ------------
<S> <C> <C> <C>
Revenues.................................. $ 143,132 $ (143,132) (1) $ --
----------- ------------ ------------
Cost and expenses:
Cost of revenues...................... 119,759 (119,759) (1) --
Research and development.............. 168,959 (168,959) (1) --
Sales and marketing................... 192,313 (180,313) (1) 12,000
General and administrative............ 943,883 (760,742) (1) 183,141
----------- ------------ ------------
1,424,914 (1,229,773) (1) 195,141
----------- ------------ ------------
Operating loss................... (1,281,782) 1,086,641 (195,141)
----------- ------------ ------------
Other income (expense):
Interest income....................... 169,428 -- 169,428
Interest expense...................... (94,002) -- (94,002)
Equity loss in DAMI................... -- (461,822) (2) (461,822)
----------- ------------ ------------
75,426 (461,822) (387,396)
----------- ------------ ------------
Loss before income taxes......... (1,206,356) -- (582,537)
Income taxes.............................. 800 -- 800
----------- ------------ ------------
Net Loss......................... (1,207,156) 624,819 (583,337)
Dividends on preferred shares............. (132,679) -- (132,679)
----------- ------------ ------------
Net loss applicable to common stock....... $(1,339,835) $ 624,819 $ (716,016)
=========== ============ ============
Net loss per share (basic and diluted).... $ (0.53) $ 0.25 $ (0.28)
=========== ============ ============
Shares used in computing net loss
per share............................. 2,542,524 2,542,524
=========== ============
</TABLE>
(1) To eliminate results from operations related to the PC411 Service.
(2) To record 42.5% interest in DAMI's operations.
24
<PAGE> 25
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30, 1998
-----------------------------------------------
Pro Forma
Historical Adjustments Pro Forma
----------- ----------- -----------
<S> <C> <C> <C>
Revenues $ 71,977 $ (70,608) (1) $ 1,369
Cost and expenses:
Cost of revenues 298,662 (269,800) (1) --
Research and development 149,540 (120,291) (1) 28,862
Sales and marketing 453,792 (365,781) (1) 88,011
General and administrative 922,097 (525,914) (1) 396,183
----------- ----------- -----------
1,824,051 (1,281,786) 542,305
----------- ----------- -----------
Operating loss (1,752,074) (1,211,178) (540,896)
----------- ----------- -----------
Other income (expense):
Interest and other income 129,266 129,266
Interest expense -- -- --
Equity loss in DAMI -- (514,751) (2) (514,751)
----------- ----------- -----------
129,266 (514,751) (388,485)
----------- ----------- -----------
Loss before income taxes (1,622,808) 696,427 (929,381)
Income taxes -- -- --
----------- ----------- -----------
Net loss applicable to common stock $(1,622,808) $ 696,427 $ (929,381)
=========== =========== ===========
Net loss per share (basic and diluted) $ (.53) $ .23 $ (.30)
=========== =========== ===========
Shares used in computing net loss per
share 3,050,215 3,050,215
=========== ===========
</TABLE>
(1) To eliminate results from operations related to the PC411 Service.
(2) To record 42.5% interest in DAMI's operations.
25
<PAGE> 26
PC411, INC.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS
2.1 Stock Purchase Agreement, dated as of October 31, 1998, by and
between DAMI, Acxiom and the Company.
10.1 Voting Agreement, dated as of October 31, 1998, by and between
DAMI, Acxiom, the Company and the other stockholders of DAMI.
10.2 Shareholders Agreement, dated as of October 31, 1998, by and
between DAMI, Acxiom, the Company and the other stockholders
of DAMI.
10.3 Bridge Loan and Security Agreement, dated as of October 31,
1998, by and among DAMI, Acxiom, the Company and Dean R.
Eaker.
27.0 Financial Data Schedule (for SEC use only).
(b) REPORTS ON FORM 8-K
None
26
<PAGE> 27
PC411, INC.
(A DEVELOPMENT STAGE COMPANY)
SIGNATURE
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.
PC411, INC.
(Registrant)
Date: November 13, 1998 By: /s/ J. Bryant Kirkland III
---------------------------
J. Bryant Kirkland III
Vice President, Treasurer
and Chief Financial Officer
(Duly Authorized Officer and
Chief Accounting Officer)
27
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
AMONG
DIGITAL ASSET MANAGEMENT, INC.,
a Delaware corporation,
ACXIOM CORPORATION,
a Delaware corporation,
and
PC411, INC.,
a Delaware corporation
Dated as of October 31, 1998
<PAGE> 2
INDEX TO STOCK PURCHASE AGREEMENT
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. PURCHASE AND SALE OF SHARES............................................................................-1-
(a) PURCHASE OF PREFERRED STOCK BY ACXIOM.........................................................-1-
(b) ACQUISITION OF PREFERRED STOCK BY PC411.......................................................-1-
2. ACQUIRED ASSETS; EXCLUDED ASSETS; ASSUMED LIABILITIES; AND EXCLUDED LIABILITIES........................-2-
(a) ACQUIRED ASSETS...............................................................................-2-
(b) EXCLUDED ASSETS...............................................................................-3-
(c) ASSUMED LIABILITIES...........................................................................-3-
(d) EXCLUDED LIABILITIES..........................................................................-4-
(e) PC411'S PAYMENT AND PERFORMANCE OF THE EXCLUDED LIABILITIES...................................-5-
(f) NAME CHANGE...................................................................................-5-
(g) FURTHER ASSURANCES............................................................................-5-
3. TAX MATTERS............................................................................................-5-
4. RECEIVABLE PAYMENTS....................................................................................-6-
5. ENDORSEMENT OF CHECKS..................................................................................-6-
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..........................................................-6-
(a) ORGANIZATION, GOOD STANDING, AND QUALIFICATION................................................-6-
(b) AUTHORIZATION.................................................................................-6-
(c) NON-CONTRAVENTION.............................................................................-7-
(d) CAPITALIZATION................................................................................-7-
(e) NO SUBSIDIARIES...............................................................................-7-
(f) DUE AUTHORIZATION OF SHARES...................................................................-7-
(g) CONVERTIBLE SECURITIES, OPTIONS, WARRANTS, RESERVED SHARES....................................-8-
(h) LITIGATION....................................................................................-8-
(i) GOVERNMENTAL LICENSES AND PERMITS.............................................................-8-
(j) FULL DISCLOSURE...............................................................................-8-
(k) FINDER........................................................................................-8-
(l) EMPLOYEE BENEFIT PLANS........................................................................-8-
(m) INSURANCE.....................................................................................-9-
(n) POWERS OF ATTORNEY............................................................................-9-
(o) GUARANTIES....................................................................................-9-
(p) OFFICERS AND DIRECTORS; BANK ACCOUNTS.........................................................-9-
(q) SECURITIES LAW EXEMPTION......................................................................-9-
(r) COMPLIANCE WITH LAWS..........................................................................-9-
</TABLE>
-ii-
<PAGE> 3
<TABLE>
<S> <C> <C>
7. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS.......................................................-10-
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION................................................-10-
(b) AUTHORIZATION................................................................................-10-
(c) NO CONFLICTS.................................................................................-10-
(d) BINDING EFFECT...............................................................................-10-
(e) INVESTMENT INTENT............................................................................-10-
(f) ACCESS TO DATA...............................................................................-11-
(g) FINDER.......................................................................................-11-
(h) FULL DISCLOSURE..............................................................................-11-
7A. REPRESENTATIONS AND WARRANTIES OF PC411...............................................................-11-
(a) ASSETS AND PROPERTIES........................................................................-11-
(b) CONDITION OF ASSETS AND PROPERTIES...........................................................-11-
(c) LEGAL PROCEEDINGS, ETC.......................................................................-12-
8. COVENANTS OF THE COMPANY..............................................................................-12-
9. PRESS RELEASES........................................................................................-12-
10. CLOSING...............................................................................................-12-
(a) DELIVERIES BY THE COMPANY....................................................................-12-
(b) DELIVERIES BY THE INVESTORS..................................................................-13-
(c) OTHER DELIVERIES.............................................................................-13-
(d) LOAN DOCUMENTS...............................................................................-14-
11. INDEMNIFICATION.......................................................................................-14-
(a) INDEMNIFICATION BY THE COMPANY...............................................................-14-
(b) INDEMNIFICATION BY THE INVESTORS.............................................................-14-
(c) NOTICE AND DEFENSE...........................................................................-14-
12. SURVIVAL..............................................................................................-15-
13. EXPENSES..............................................................................................-15-
14. MISCELLANEOUS.........................................................................................-16-
(a) BINDING EFFECT AND BENEFIT; ASSIGNMENT.......................................................-16-
(b) FURTHER ASSURANCES...........................................................................-16-
(c) MODIFICATION.................................................................................-16-
(d) HEADINGS AND CAPTIONS........................................................................-16-
(e) NOTICE.......................................................................................-16-
(f) SEVERABILITY.................................................................................-18-
(g) WAIVER.......................................................................................-18-
</TABLE>
-iii-
<PAGE> 4
<TABLE>
<S> <C> <C>
(h) GENDER AND NUMBER............................................................................-18-
(i) ENTIRE AGREEMENT.............................................................................-18-
(j) GOVERNING LAW................................................................................-18-
(k) INCORPORATION BY REFERENCE...................................................................-18-
(l) COUNTERPARTS.................................................................................-18-
(m) AUTHORITY....................................................................................-18-
</TABLE>
-iv-
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement ("Agreement") is executed and delivered
effective as of October 31, 1998 (the "Closing Date"), by and among DIGITAL
ASSET MANAGEMENT, INC. (the "Company"), a Delaware corporation; ACXIOM
CORPORATION ("Acxiom"), a Delaware corporation and PC411, INC. ("PC411"), a
Delaware corporation. Each of Acxiom and PC411 is sometimes referred to herein
as an Investor or, collectively as the Investors.
RECITALS:
WHEREAS, the Company has been formed for the purpose of effecting the
transactions contemplated hereby; and
WHEREAS, on the terms and conditions set forth herein, Acxiom desires
to purchase 1,250 shares of the Company's voting convertible preferred stock,
par value $0.01 per share (the "Preferred Stock") for $1,250,000 in cash; and
WHEREAS, on the terms and conditions set forth herein, PC411 desires to
acquire 1,250 shares of the Preferred Stock in exchange for the Acquired Assets
(as defined below) subject to the Assumed Liabilities (as defined below).
NOW, THEREFORE, in exchange for the representations, warranties,
promises, covenants and consideration contained herein, and other good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
parties hereto, intending to be legally bound, agree as follows:
1. PURCHASE AND SALE OF SHARES.
(a) PURCHASE OF PREFERRED STOCK BY ACXIOM. Simultaneous with the
execution and delivery of this Agreement, and upon the terms and subject to the
conditions contained herein, the Company is selling, assigning, transferring and
delivering to Acxiom and Acxiom is purchasing and accepting 1,250 shares of
Preferred Stock for an aggregate purchase price of $1,250,000 (the "Acxiom
Purchase Price"). The Company hereby acknowledges receipt of the Acxiom Purchase
Price by wire transfer of immediately available funds to an account or accounts
designated by the Company by written wire transfer instructions previously
delivered to Acxiom.
(b) ACQUISITION OF PREFERRED STOCK BY PC411. Simultaneous with the
execution and delivery of this Agreement, and upon the terms and conditions
contained herein, the Company is issuing, selling, assigning, transferring and
delivering to PC411 and PC411 is purchasing, acquiring and accepting 1,250
shares of Preferred Stock in exchange for all of PC411's right, title and
interest in and to the Acquired Assets subject to the Assumed Liabilities.
-1-
<PAGE> 6
2. ACQUIRED ASSETS; EXCLUDED ASSETS; ASSUMED LIABILITIES; AND EXCLUDED
LIABILITIES.
(a) ACQUIRED ASSETS. The term "Acquired Assets" shall mean all of
PC411's right, and title and interest in and to all of the non-cash assets
relating to its on-line data distribution service business (the "Business")
including, without limitation, the following but excluding the Excluded Assets
(as defined in Section 2(b) below):
(i) PC411's corporate name, "PC411, Inc.", the company name
and/or trade names "PC411", "PC411 for Windows 3.0", "PC411 for Windows CE" and
all variations thereof, including the registered service mark for "PC411";
provided, however, that PC411 shall be entitled to continue to use the name
"PC411, Inc." as its corporate name until the next annual meeting of PC411's
stockholders (to be held as soon as reasonably practicable) at which time the
name will be amended so as not to include the words "PC411";
(ii) all of PC411's rights under contracts relating to the
Business (the "Contracts") as set forth on Schedule 2(a)(ii), including, without
limitation, the Data License Agreement with Acxiom (the "Acxiom License") and
all bundling and OEM arrangements (collectively, the "Bundling Agreements");
(iii) all of PC411's accounts receivable, inventories and
prepaid expenses relating to the Business as more particularly set forth on
Schedule 2(a)(iii) hereto:
(iv) all of PC411's property, plant and equipment relating to
the Business, including machinery, leasehold improvements and office furniture,
as more particularly set forth on Schedule 2(a)(iv) hereto;
(v) all of PC411's hardware and software relating to the
Business;
(vi) all of PC411's subscriber contracts relating to the
Business;
(vii) all of PC411's customer lists, licenses, permits,
registrations, books and records relating to the Business, including business
development plans, advertising materials, catalogues, correspondence, mailing
lists, sales and promotional materials and other records used in or required to
engage in the Business as previously conducted by PC411;
(viii) all rights to PC411's website and domain name as more
particularly set forth on Schedule 2(a)(viii) hereto;
(ix) all copyrights, patents, trade secrets and know-how
related to the Business and all rights to software and other intellectual
property in development and related research as more particularly set forth on
Schedule 2(a)(ix) hereto;
-2-
<PAGE> 7
(x) all of PC411's rights in registered and common law
trademarks, service marks and trade names used in connection with the Business
as more particularly set forth on Schedule 2(a)(x) hereto;
(xi) all rights to service agreements and insurance policies
relating to the Business as well as rights to proceeds thereunder; and
(xii) all goodwill of PC411 relating to the Business.
(b) EXCLUDED ASSETS. The Acquired Assets shall not include any of the
following (the "Excluded Assets"):
(i) all of PC411's cash and cash equivalents;
(ii) all of PC411's marketable securities and other
investments in financial assets and cash pledged as collateral for a letter of
credit collateralizing a contract to purchase equipment and credit card
facilities;
(iii) all of PC411's bank and brokerage accounts;
(iv) all of PC411's accrued interest receivable;
(v) all of PC411's pay and other advances or loans to the
persons listed on Schedule 2(b)(v) hereto;
(vi) all of PC411's assets not used in connection with the
Business, including, without limitation, assets used by PC411 or PC411's
subsidiary, Controlled Distribution Systems, Inc., for the marketing of an
inventory control system for tobacco products; and
(vii) all of PC411's right, title and interest in and to Suite
411 at the premises located at 9800 S. La Cienega Boulevard, Inglewood,
California (the "Premises") pursuant to the lease agreement, dated July 25, 1995
between PC411, as tenant, and Trizec Properties, Inc., as Landlord (the
"Lease").
(c) ASSUMED LIABILITIES. Upon the Closing, the Company shall assume and
agree to timely and fully pay, perform and discharge the following obligations
and liabilities of PC411 (the "Assumed Liabilities"):
(i) all liabilities, duties and obligations under the
Contracts (other than the Acxiom License but including the Bundling Agreements)
arising on or after the Closing Date;
-3-
<PAGE> 8
(ii) all liabilities, duties and obligations arising under and
all accounts payable and accrued expenses relating to any amounts due under the
Acxiom License;
(iii) all obligations of PC411 to provide the PC411 service to
subscribers, including all services relating to deferred revenue and other
obligations or liabilities related thereto arising on or after the Closing Date;
(iv) any other liabilities arising under the Bundling
Agreements prior to the Closing Date to the extent such liabilities do not
exceed $10,000 in the aggregate;
(v) all liabilities and obligations for rent and additional
rent under the Lease allocable to the period beginning on the date hereof and
ending on November 30, 1998; and
(vi) all other liabilities relating to the Business arising
prior to the Closing Date (other than transfer and sales taxes arising in
connection with the transfer of the Acquired Assets to the Company) to the
extent such liabilities do not exceed $10,000 in the aggregate.
(d) EXCLUDED LIABILITIES. Notwithstanding anything contained herein to
the contrary, the Company shall not assume the following liabilities or
obligations of PC411 (the "Excluded Liabilities"):
(i) any liability or obligation of PC411, including legal,
accounting or other fees or expenses, arising out of the transactions
contemplated hereby;
(ii) any taxes arising out of the conduct of the Business
prior to the Closing Date and any transfer and sales taxes arising in connection
with the transfer of the Acquired Assets to the Company;
(iii) any liability relating to the action entitled DELGADO V.
PC411, INC., ET AL.;
(iv) all wages, consulting fees or other employee benefits
(other than vacation pay) payable to employees, officers, consultants or
directors for the period prior to the Closing Date;
(v) any indebtedness of PC411 for borrowed money, including
without limitation, any indebtedness arising under any note, debenture, bond,
equipment trust agreement, letter of credit agreement, loan agreement, lease or
other contract or commitment for the borrowing or lending of money relating to
the Business or PC411 or arrangement for a line of credit, or any guarantees, in
any manner, whether directly or indirectly, of any indebtedness, dividend or
other obligation of any other person or entity;
(vi) any liability or similar claim for injury to person or
property, regardless of when made or asserted, which is imposed or asserted to
be imposed by operation of law, including
-4-
<PAGE> 9
without limitation any claims seeking recovery for consequential damage, loss of
revenue or income;
(vii) any liability or obligation under or in connection with
any of the Excluded Assets;
(viii) any liabilities or obligations arising out of any
breach by PC411 of any provision of any agreement, contract, commitment or
lease, including but not limited to liabilities or obligations arising out of
PC411's failure to perform any agreement, contract, commitment or lease in
accordance with its terms prior to the Closing Date except to the extent such
liability or obligation is an Assumed Liability;
(ix) all liabilities and obligations arising under the Lease
other than all liabilities and obligations for rent and additional rent under
the Lease allocable to the period beginning on the date hereof and ending on
November 30, 1998; and
(x) any obligation or liability which is not expressly assumed
by the Company pursuant to Section 2(c).
(e) PC411'S PAYMENT AND PERFORMANCE OF THE EXCLUDED LIABILITIES. PC411
agrees to pay and perform and discharge the Excluded Liabilities within 45 days
of the due date of such liabilities except for those being contested in good
faith. This provision shall survive closing of the transactions contemplated
hereby.
(f) NAME CHANGE. Within 30 days of the Closing Date, PC411 shall file
with the Securities and Exchange Commission preliminary proxy materials
including a proposal to amend its Certificate of Incorporation to change its
name.
(g) FURTHER ASSURANCES. PC411 shall from time to time after the
Closing, at the Company's reasonable request, execute, acknowledge and deliver
to the Company such other instruments of conveyance and transfer and take such
other actions to execute and deliver such other documents, certifications and
further assurances as the Company may reasonably require in order to vest more
effectively in the Company, or to put the Company more fully in possession of,
any of the Acquired Assets, or to better enable the Company to complete, perform
or discharge any of the Assumed Liabilities. Each party hereto will cooperate
with the other party hereto and take other actions that may be reasonably
requested from time to time by the other party as reasonably necessary to carry
out, evidence and confirm the intended purposes of this Agreement.
3. TAX MATTERS. Upon consummation of the transactions described herein, the
Investors will control the Company within the meaning of section 351 of the
Internal Revenue Code of 1986, as amended (the "Code"). It is the intent of the
parties hereto that the transactions described herein constitute and qualify as
a tax-free transaction pursuant to section 351 of the Code (a "Section 351
Transaction"). Each of the Company, Acxiom and PC411 covenant and agree that
they will report
-5-
<PAGE> 10
the transactions described herein for federal, state and local income tax
purposes as a Section 351 Transaction and will timely and properly file all
returns, forms, statements and agreements as may be required by the Internal
Revenue Service and any appropriate state agencies on such basis and will
cooperate with and provide information to the other parties in a timely manner
so that the parties can satisfy their tax reporting obligations. PC411 shall pay
all state and local sales and other transfer taxes, if any, due in connection
with the transfer by PC411 of the Acquired Assets to the Company and the
assumption by the Company of the Assumed Liabilities, whether imposed by law on
PC411 or the Company, and PC411 shall indemnify and hold harmless the Company
with respect to the payment of all such taxes and any other amounts due as a
result of the failure by PC411 to file any reports which it is required to file
in connection therewith. The provisions of this Section 3 shall survive the
closing of the transactions described herein.
4. RECEIVABLE PAYMENTS. The Company and PC411 each hereby agree that if either
one of them shall have received a payment where all or a portion of such payment
represents a receivable due to the other party then, and in such event, the
party receiving such payment shall immediately forward to the other party that
portion of such payment which represents the receivable of such other party.
5. ENDORSEMENT OF CHECKS. PC411 hereby agrees that any check received by the
Company on or after the Closing Date as payment on account of any trade account
receivable constituting a part of the Acquired Assets, which check is payable to
PC411, may be endorsed by the Company for its own account, with all such
payments being subject to the provisions of Section 4 hereof.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby represents
and warrants to each Investor as follows:
(a) ORGANIZATION, GOOD STANDING, AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has all requisite corporate power and authority to own
its property and carry on its business as presently conducted and as presently
proposed to be conducted and has all requisite corporate power and authority to
execute and deliver and perform all of its obligations under this Agreement and
the Transaction Documents (as defined below) to which it is a party. A true,
correct and complete copy of the Certificate of Incorporation (the
"Certificate") and the Bylaws of the Company, each in effect as of the date
hereof, have been delivered to each Investor or their respective counsel. Since
it was formed on October 14, 1998, the Company has not engaged in any business
other than in connection with its organization and the transactions contemplated
by this Agreement and the Transaction Documents.
(b) AUTHORIZATION. The execution, delivery and performance by the
Company of its obligations under this Agreement and the Transaction Documents to
which it is a party has been duly authorized by all necessary action on the part
of the Company and will not, either prior to or as a result of the consummation
of the transactions contemplated by this Agreement or any of the Transaction
Documents to which it is a party: (a) violate any law, any order of any court or
-6-
<PAGE> 11
other agency of government, any provision of the Certificate or Bylaws of the
Company, or any contract, indenture, agreement or other instrument to which the
Company is a party, or by which the Company or any of its assets or properties
are bound, or (b) be in conflict with, result in a breach of, or constitute
(after the giving of notice of lapse of time or both) a default under, or result
in the creation or imposition of any lien of any nature whatsoever upon any of
the property or assets of any Company pursuant to any such contract, indenture,
agreement or other instrument except for the liens of the Investors and Dean
Eaker pursuant to the Loan Documents (as hereinafter defined). The Company is
not required to obtain any government approval, consent or authorization from,
or to file any declaration or statement with, any governmental instrumentality
or agency in connection with or as a condition to the execution, delivery or
performance of this Agreement or any of the Transaction Documents other than the
filing of such forms, agreements, documents and instruments as may be required
by applicable federal and state securities laws. A copy of the resolutions
adopted by the members of the Board of Directors of the Company authorizing the
transactions contemplated by this Agreement and the Transaction Documents is
attached hereto as Exhibit A.
(c) NON-CONTRAVENTION. The Company is not in violation or breach of or
in default with respect to, complying with any material provision of any
contract, agreement, instrument, lease, license, arrangement or understanding to
which the Company is a party, and each such contract, agreement, instrument,
lease, license, arrangement and understanding is in full force and effect and is
the legal, valid and binding obligation of the Company enforceable as to the
Company in accordance with its terms (subject to applicable bankruptcy,
insolvency and other laws affecting the enforceability of creditors' rights
generally and to general equitable principles).
(d) CAPITALIZATION. The Company has authorized the issuance of up to
thirty thousand (30,000) shares of capital stock consisting of twenty thousand
(20,000) shares of common stock, par value $0.01 per share (the "Common Stock"),
of which 440 shares are issued and outstanding, and ten thousand (10,000) shares
of the Preferred Stock having the rights, preferences, privileges and
restrictions more specifically set forth in the Certificate. Prior to the
consummation of the transactions described herein, no shares of Preferred Stock
are issued and outstanding. Except as set forth on Schedule 6(d), the Company
has not granted any options or warrants to acquire any shares of its capital
stock and it has not issued any securities convertible into or exchangeable for
shares of its capital stock or options or warrants to acquire shares of its
capital stock.
(e) NO SUBSIDIARIES. The Company does not own any shares of capital
stock or any option or warrants or any other securities which are convertible or
exchangeable into capital stock or options or warrants of any other corporation
and does not have any ownership interest or any other interest which may be
convertible into an ownership interest in any other entity.
(f) DUE AUTHORIZATION OF SHARES. The shares of Preferred Stock to be
issued hereunder and, when issued, the shares of Common Stock into which they
are convertible, have been, or will be upon issuance, duly authorized and, when
issued and paid for as herein provided, will be fully paid and nonassessable,
free and clear of any restrictions on transfer other than any restriction
-7-
<PAGE> 12
under the Securities Act of 1933, as amended (the "Securities Act"), state
securities laws and the Shareholders Agreement signed by and among the parties
hereto and the other stockholders of the Company of even date herewith (the
"Shareholders Agreement").
(g) CONVERTIBLE SECURITIES, OPTIONS, WARRANTS, RESERVED SHARES. Except
for: (i) the conversion privileges of the Preferred Stock; (ii) the Common Stock
reserved for issuance upon conversion of the convertible debt to be issued
pursuant to the Loan and Security Agreement, dated the date hereof, between the
Company and Acxiom; (iii) the 3,090 shares of Common Stock reserved for issuance
under the Company's 1998 Stock Option Plan (the "Plan") of which 2,585 shares
may be issued upon the vesting of options being granted to certain stockholders
of the Company; and (iv) options to purchase an aggregate of 220 shares of
Common Stock pursuant to the Employment Agreements attached hereto as Exhibits
D-1 through D-5, there is no outstanding option, warrant, right or agreement for
the purchase or acquisition from the Company of any shares of its capital stock
or any securities convertible into any shares of the Company's capital stock.
(h) LITIGATION. Except as set forth on Schedule 6(h), there is no
material claim, action, suit, litigation, arbitration, audit, investigation or
other proceeding pending or, to the knowledge of the directors and/or officers
or employees of the Company, threatened against the Company.
(i) GOVERNMENTAL LICENSES AND PERMITS. Schedule 6(i) sets forth a list
of all material governmental licenses and permits maintained by the Company in
connection with the conduct of its business (the "Licenses and Permits"). All
such Licenses and Permits are in full force and effect, and no proceeding is
pending or threatened with respect to the revocation or limitation of such
Licenses and Permits.
(j) FULL DISCLOSURE. No representation or warranty by the Company in
this Agreement contains any untrue statement of a material fact or omits to
state any material fact necessary to make any statement herein not materially
misleading as of the date hereof.
(k) FINDER. There is no firm, corporation, agency or other entity or
person that is entitled to a finder's fee or any type of brokerage commission in
relation to or in connection with the transactions contemplated by this
Agreement as a result of any agreement or understanding with Company or any of
its directors, officers or employees.
(l) EMPLOYEE BENEFIT PLANS.
(i) Schedule 6(l)(i) sets forth a list of each pension,
profit-sharing, deferred compensation, severance pay, stock option, or other
form of retirement or compensation plan, and each health care, vacation,
disability and sick pay plan maintained by the Company for the benefit of its
employees or directors (collectively, the "Benefit Plans"). The Company has made
available to each Investor true and complete copies of each of the Benefit Plan
and all amendments thereto,
-8-
<PAGE> 13
and all trust agreements, insurance contracts, and other material documents in
effect with respect to the Benefit Plans.
(ii) Each of the Benefit Plans has been operated in all
material respects in accordance with its terms and in accordance with applicable
laws and governmental regulations relating thereto, including, but not limited
to, where applicable, the Employee Retirement Income Security Act of 1974
("ERISA") and the Internal Revenue Code of 1986, as amended.
(iii) Neither the Company, nor any of the Plans or any trusts
created thereunder, nor any trustee or administrator thereof, has engaged in a
"prohibited transaction" under applicable provisions of ERISA or the Code which
would cause the Company or the Benefit Plans (or related trust) to become
subject to any material penalty under such applicable ERISA or Code provisions.
(m) INSURANCE. Schedule 6(m)-I contains a list of all general
liability, product liability, fire and casualty, motor vehicle and other
commercial insurance maintained by the Company. Except as set forth on Schedule
6(m)-II, (i) all such insurance policies are in full force and effect and there
are no past due premiums that remain unpaid with respect thereto; (ii) the
Company is in compliance in all material respects with the terms and provisions
thereof; (iii) copies of such insurance policies have been made available by the
Company to each Investor or their respective counsel; and (iv) the Company has
not received a notice of cancellation or nonrenewal with respect to any such
insurance policies maintained by the Company.
(n) POWERS OF ATTORNEY. The Company does not presently have outstanding
any powers of attorney authorizing any third party to act by or on behalf of the
Company.
(o) GUARANTIES. The Company has not guaranteed or otherwise become
obligated with respect to the indebtedness or obligations of any third party
except as set forth on Schedule 6(o) and except for the assumption of the
Assumed Liabilities.
(p) OFFICERS AND DIRECTORS; BANK ACCOUNTS. Schedule 6(p) sets forth a
list of (i) the names and addresses of all directors of the Company immediately
prior to the Closing Date; (ii) the name and addresses of all of the officers of
the Company and their titles; (iii) all safes, vaults and safety deposit boxes
maintained by or on behalf of the Company, and the names of all persons
authorized to have access thereto; and (iv) all bank and brokerage accounts of
the Company and the names of all persons who are authorized signatories with
respect to such accounts.
(q) SECURITIES LAW EXEMPTION. Assuming the accuracy of each Investor's
representations and warranties set forth herein, the issuance of the shares of
Preferred Stock pursuant to this Agreement and the issuance of the shares of the
Company's Common Stock to the other stockholders of the Company, has been made
in compliance with the Securities Act and all applicable state securities laws
and the respective rules and regulations thereunder.
-9-
<PAGE> 14
(r) COMPLIANCE WITH LAWS. The Company is in compliance in all material
respects with laws and regulations applicable to its trade or business as
presently conducted or as proposed to be conducted except that the Company has
not qualified to do business as a foreign corporation in any jurisdiction.
7. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor, for itself
and not with respect to the other Investor, hereby represents and warrants to
the Company as follows:
(a) ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Investor is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation, and it has all requisite corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and the Transaction Documents to which it is a party.
(b) AUTHORIZATION. The execution, delivery and performance of this
Agreement and the Transaction Documents to which it is a party has been duly
authorized by all necessary corporate action.
(c) NO CONFLICTS. Neither the execution, delivery or performance of its
obligations under this Agreement or the Transaction Documents to which it is a
party will result in a breach or default under (or with notice or lapse of time
or both would constitute a breach or default under) its Certificate of
Incorporation, Bylaws or any contract, instrument or other agreement to which it
is a party or is otherwise bound.
(d) BINDING EFFECT. This Agreement has been duly executed and delivered
and constitutes the legal, valid and binding obligation of the Investor
enforceable against the Investor in accordance with its terms subject to
applicable bankruptcy, insolvency and other similar laws affecting the
enforceability of creditors' rights generally and the discretion of the courts
with respect to equitable remedies.
(e) INVESTMENT INTENT. The Investor is acquiring the shares of
Preferred Stock to be issued pursuant hereto for investment for its own account
and not with a view to, or for resale in connection with, any distribution
thereof. The Investor understands that the shares of Preferred Stock to be
issued pursuant hereto and the shares of Common Stock issuable upon conversion
of the Preferred Stock have not been registered for sale under any federal or
state securities laws and that such shares are being offered and sold to the
Investor pursuant to the exemption from registration provided for under Section
4(2) of the Securities Act and that the representations and warranties set forth
in this Section 7(e) are given with the intention that the Company rely on them
for purposes of claiming such exemption; and that the Investor understands that
the Investor must bear the economic risk of the Investor's investment in such
shares for an indefinite period of time as such shares cannot be sold unless
subsequently registered under such laws or unless an exemption from such
registration is available and that the Investor has not been granted any
registration rights. The Investor agrees that the shares of Preferred Stock to
be issued pursuant
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<PAGE> 15
hereto and the shares of Common Stock issuable upon conversion of the Preferred
Stock will not be sold or otherwise transferred for value unless (A) a
registration statement with respect thereto has become effective under the
Securities Act, or (B) there is presented to the Company an opinion of counsel
satisfactory to the Company that such transfer is exempt from the registration
requirements under the Securities Act, and the Investor consents that any
transfer agent may be instructed not to transfer any such shares unless it
receives satisfactory evidence of compliance with the foregoing provisions, and
that there may be endorsed upon any certificate or instrument representing such
shares an appropriate legend calling attention to the foregoing restrictions on
transferability of such shares.
(f) ACCESS TO DATA. The Investor has been informed that the Company has
not engaged in any business other than in connection with its organization and
the transactions contemplated by this Agreement and by the Transaction
Documents. The Investor is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the shares of Preferred Stock
hereunder and the shares of Common Stock issuable upon conversion of the
Preferred Stock. The Investor has discussed the Company and its plans,
operations and financial condition with the Company's officers, has received all
such information as it deems necessary and appropriate to enable it to evaluate
the financial risk inherent in making an investment in the shares of Preferred
Stock and the shares of Common Stock issuable upon conversion of the Preferred
Stock and has received satisfactory and complete information concerning the
business and financial condition of the Company in response to all inquiries in
respect thereof. The Investor acknowledges that no representations are being
made by the Company except those expressly set forth herein and that the
Investor has received copies of and, with the advice and assistance of its legal
counsel, participated in the negotiation of this Agreement and the other
agreements contemplated by this Agreement.
(g) FINDER. There is no firm, corporation, agency or other entity or
person that is entitled to a finder's fee or any type of brokerage commission in
relation to or in connection with the transactions contemplated by this
Agreement as a result of any agreement or understanding with Investor or any of
its directors, officers, employees or shareholders.
(h) FULL DISCLOSURE. No representation or warranty by such Investor in
this Agreement contains any untrue statement of a material fact or omits to
state any material fact necessary to make any statement herein not materially
misleading.
7A. REPRESENTATIONS AND WARRANTIES OF PC411. PC411 hereby represents and
warrants to the Company as follows:
(a) ASSETS AND PROPERTIES. PC411 has valid title to all personal
property included in the Acquired Assets, free and clear of all liens, pledges,
mortgages, security interests, conditional sales contracts and other
encumbrances of any kind or nature, except for the Assumed Liabilities.
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<PAGE> 16
(b) CONDITION OF ASSETS AND PROPERTIES. All equipment and other
tangible personal property included in the Acquired Assets (the "Tangible
Personal Property") are being sold and transferred to Buyer "AS IS"; provided,
however, that notwithstanding the foregoing, PC411 will transfer to the Company
any and all manufacturers' warranties applicable to the Tangible Personal
Property to the extent permitted by the terms of such warranty.
(c) LEGAL PROCEEDINGS, ETC. Except for the matter referred to in
Section 2(d)(iii), there are no claims, actions, suits, proceedings,
arbitrations or investigations, either administrative or judicial, pending or,
to the best of PC411's actual knowledge, threatened by, or against, PC411 or any
of the Purchased Assets, or specifically relating to the transactions
contemplated by this Agreement, at law or in equity or otherwise, before or by
any court or governmental agency or body, domestic or foreign, or before an
arbitrator of any kind. PC411 has not paid or reserved an amount in excess of
$2,500 with respect to any product liability claim for personal injury made or
threatened against PC411.
8. COVENANTS OF THE COMPANY.
(a) Within 20 business days following the Closing Date, the Company
shall take such action, including the filing of all necessary applications and
the payment of all required fees, so that it shall be duly qualified as a
foreign corporation and is in good standing in those states in which it is
conducting business or its assets or employees are located, except where the
failure to be so qualified would not have a material adverse effect on the
Company.
(b) As soon as reasonably practicable after the Closing Date, the
Company shall obtain (i) key man life insurance, with proceeds made payable to
the Company, on Dean Eaker, in an amount not less than five hundred thousand
dollars ($500,000), and on each of Ed Fleiss, Bruce Biegel, Joshua Blumenthal
and Keith Goodman, in the amount of two hundred fifty thousand dollars
($250,000), and (ii) directors and officers liability insurance and general
liability insurance in such amounts as shall be approved by the Company's Board
of Directors.
(c) The Company shall vacate the Premises on or before November 30,
1998. The condition of the Premises at the time they are vacated by the Company
shall be the same as on the date hereof, normal wear and tear excepted.
9. PRESS RELEASES. The parties hereto agree that no public release or
announcement concerning the transactions contemplated hereby shall be issued by
any party without the prior written consent of each Investor and the Company,
except for releases and announcements required to be made by applicable law, in
which case the party required to make the release or announcement shall allow
the other parties reasonable time to comment on such release or announcement in
advance of its issuance.
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<PAGE> 17
10. CLOSING.
(a) DELIVERIES BY THE COMPANY. Simultaneous with the execution and
delivery of this Agreement, the Company is delivering the following to each
Investor:
(i) Stock certificates issued to the respective Investor,
evidencing the shares of Preferred Stock to be issued by the Company hereunder;
(ii) Certificates of good standing with respect to the Company
from the Secretary of State of Delaware dated within ten (10) days of the
Closing Date; and
(iii) Copies of resolutions evidencing appointment of the
following persons as the officers and directors of the Company: Dean Eaker,
President and Director; J. Bryant Kirkland III, Director; Mark Theilken,
Director; Art Kellam, Director; and Adam Gadberry, Director.
(b) DELIVERIES BY THE INVESTORS. Simultaneous with the execution
and delivery of this Agreement
(i) Acxiom is delivering the Acxiom Purchase Price to the
Company in cash by wire transfer or otherwise as provided herein; and
(ii) Acxiom and PC411 shall execute and deliver an agreement,
in the form attached hereto as Exhibit B, terminating the Acxiom License and
releasing PC411 from all of its liabilities and obligations thereunder.
(c) OTHER DELIVERIES. Simultaneous with the execution and delivery of
this Agreement, the Company and the Investors, as the case may be, are executing
and delivering the following documents (the "Transaction Documents"):
(i) The Shareholders Agreement in the form attached hereto as
Exhibit C;
(ii) The Employment Agreements in the forms attached hereto as
Exhibit D-1 through D-5;
(iii) The Voting Agreement in the form attached hereto as
Exhibit E;
(iv) The Bridge Loan and Security Agreement in the form
attached hereto as Exhibit F;
(v) The Loan and Security Agreement in the form attached
hereto as Exhibit G;
(vi) The Multiple Advance Notes in the forms attached hereto
as Exhibit H-1 through H-4;
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<PAGE> 18
(vii) The Convertible Multiple Advance Note in the form
attached hereto as Exhibit I;
(viii) The Termination, Indemnification and Release Agreements
in the forms attached hereto as Exhibits J-1 and J-2;
(ix) The Bill of Sale and an Assignment of Rights and
Assumption of Liabilities and Obligations in the forms attached hereto as
Exhibits K and L, respectively;
(x) The Assignment in the form attached hereto as Exhibit M;
(xi) The Acxiom Services Agreement in the form attached hereto
as Exhibit N; and
(xii) Such other agreements, documents and instruments
required by this Agreement or any of the agreements referred to in this Section
10(c) or as may reasonably be required by an Investor or by the Company.
(d) LOAN DOCUMENTS. The documents referred to in Section 10(c)(iv)
through (vii) are referred to herein as the "Loan Documents".
11. INDEMNIFICATION.
(a) INDEMNIFICATION BY THE COMPANY.
(i) Subject to the limitations set forth herein, the Company
hereby covenants and agrees to indemnify and hold harmless each Investor from
and against any loss, liability, claim, cost, damage or expense (including
reasonable legal fees and expenses) (collectively, a "Loss") incurred by or
asserted against such Investor as a result of any breach by the Company of any
representation, warranty, covenant or other agreement of the Company contained
herein or in any of the Transaction Documents to which it is a party.
(ii) The Company hereby covenants and agrees to indemnify and
hold harmless PC411 from any Loss arising in connection with the Assumed
Liabilities.
(b) INDEMNIFICATION BY THE INVESTORS.
(i) Each Investor hereby covenants and agrees to indemnify and
hold harmless the Company and the other Investor from and against any Loss
resulting from any breach by such Investor of any representation, warranty,
covenant or other agreement of such Investor contained herein or in any of the
Transaction Documents.
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<PAGE> 19
(ii) PC411 hereby covenants and agrees to indemnify and hold
harmless the Company from any Loss arising in connection with the Excluded
Liabilities.
(c) NOTICE AND DEFENSE. The obligation of the Company and the Investors
hereunder with respect to their respective indemnities hereunder resulting from
any claim or other assertion of liability by third parties (hereinafter
collectively, "Third Party Claim(s)"), shall be subject to the following terms
and conditions:
(i) The party seeking indemnification hereunder (the
"Indemnified Party") shall give written notice of any such Third Party Claim to
the party from whom indemnification is sought hereunder (the "Indemnifying
Party") within ten (10) business days after the Indemnified Party receives
notice thereof; provided, however, the failure to give notice timely shall not
affect the Indemnifying Party's obligation hereunder except to the extent that
such failure prejudices the Indemnifying Party or its ability to defend or
reduce the Loss relating to such Third Party Claim.
(ii) The Indemnifying Party shall have the right to undertake,
with counsel or other representatives of its own choosing and reasonably
acceptable to the Indemnified Party, the defense or settlement of any such Third
Party Claim.
(iii) In the event that the Indemnifying Party shall have the
right to undertake the defense of any Third Party Claim, but shall fail to
notify the Indemnified Party within ten (10) days of receipt of the notice that
it has elected to undertake such defense or settlement, or if at any time the
Indemnifying Party shall otherwise fail to diligently defend or pursue
settlement of such claim, then the Indemnified Party shall have the right to
undertake the defense, compromise or settlement of such claim, with counsel
reasonably acceptable to the Indemnifying Party.
(iv) Neither party shall settle any Third Party Claim without
the prior written consent of the other party, which consent shall not be
unreasonably withheld or delayed. In the event the Indemnifying Party submits to
the Indemnified Party a bona fide settlement offer from the third party claimant
of any Third Party Claim (which settlement offer shall include as an
unconditional term thereof the giving by the claimant or the plaintiff to the
Indemnified Party of a release from all liability in respect of such claim) and
the Indemnified Party refuses to consent to such settlement, then thereafter the
Indemnifying Party's liability to the Indemnified Party for indemnification
hereunder with respect to such Third Party Claim shall not exceed the settlement
amount included in said bona fide settlement offer, and the Indemnified Party
shall either assume the defense of such Third Party Claim or pay the
Indemnifying Party's attorneys fees and other out of pocket costs incurred
thereafter in continuing the defense of such claim.
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<PAGE> 20
(v) Regardless of which party is conducting the defense of any
such Third Party Claim, the other party, with counsel or other representatives
of its own choosing and at its sole cost and expense, shall have the right to
consult with the party conducting the defense of such claim and its counsel or
other representatives concerning such claim and the Indemnifying Party and the
Indemnified Party and their respective counsel or other representatives shall
cooperate with respect to such claim, and the party conducting the defense of
any such claim and its counsel shall in any case keep the other party and its
counsel (if any) fully informed as to the status of any claim and any matters
relating thereto. Each party shall provide to the other party such records,
books, documents and other materials as shall reasonably be necessary for such
party to conduct or evaluate the defense of any Third Party Claim and will
generally cooperate with respect to any matters relating thereto.
12. SURVIVAL. The representations and warranties contained in this Agreement
shall survive the Closing for a period of two (2) years from the Closing Date.
13. EXPENSES. Except as otherwise specifically provided herein, each party
hereto shall pay all of its or his respective expenses relating to this
transaction, including fees and disbursements of their respective counsel,
accountants, brokers, investment bankers and financial advisors, whether or not
the transactions contemplated hereunder are consummated; provided, however, the
Company shall reimburse Dean Eaker a sum not to exceed $70,000 for all legal
fees incurred on his behalf and/or on behalf of the Company prior to the Closing
Date provided the transaction closes; provided further, any legal fees or
expenses in excess of $70,000 incurred by the Company or Dean Eaker individually
prior to the Closing Date with respect to this Agreement or formation of the
Company, including, but not limited to, the negotiation and preparation of
Transaction Documents shall not be paid by the Company but shall be an
individual expense of Dean Eaker's, unless otherwise approved by Acxiom in
writing prior to the Closing Date. The provisions of this Section 13 shall
survive any termination of this Agreement.
14. MISCELLANEOUS.
(a) BINDING EFFECT AND BENEFIT; ASSIGNMENT. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
respective legal representatives, heirs, successors and permitted assigns. This
Agreement shall not be assignable or otherwise transferrable by any party hereto
without the prior written consent of the non-assigning parties.
(b) FURTHER ASSURANCES. The parties agree that from time to time
hereafter, upon request, each of them will execute, acknowledge and deliver such
other instruments and documents and take such further action as may be
reasonably necessary to carry out the intent of this Agreement.
(c) MODIFICATION. No term or provision contained herein may be
modified, amended or waived except by written agreement or consent signed by the
party to be bound thereby.
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<PAGE> 21
(d) HEADINGS AND CAPTIONS. Subject headings and captions are included
for convenience purposes only and shall not affect the interpretation of this
Agreement.
(e) NOTICE. All notices, requests, demands and other communications
permitted or required hereunder shall be in writing, and either (i) delivered in
person, (ii) sent by express mail or other overnight delivery service providing
receipt of delivery, (iii) mailed by certified mail, postage prepaid, return
receipt requested, or (iv) sent by telecopy or other facsimile transmission as
follows:
If to the Company, addressed or delivered in person to:
Digital Asset Management, Inc.
67 Stonehedge Drive South
Greenwich, CT 06831
Attn: Dean Eaker, President
Facsimile: 203-531-4249
with a copy to:
Kronish, Lieb, Weiner & Hellman, LLP
1114 Avenue of the Americas
New York, NY 10036-7798
Attn: Chet F. Lipton, Esq.
Facsimile: 212-479-6275
If to the Investor, addressed or delivered in person to:
Acxiom Corporation
301 Industrial Blvd.
Conway, AR 72033-2000
Attn: Mark Theilken
Facsimile: 501-336-3935
with a copy to:
Friday, Eldredge & Clark
400 W. Capitol, Suite 2000
Little Rock, AR 72201
Attn: Carla G. Spainhour, Esq.
Facsimile: 501-376-2147
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<PAGE> 22
and
PC411, Inc.
100 SE Second Street, 32nd Floor
Miami, FL 33131
Attn: J. Bryant Kirkland, III
Vice President and Chief Financial Officer
Facsimile: 305-579-8022
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, NY 10022
Attn: Joel J. Goldschmidt, Esq.
Facsimile: 212-838-9190
or to such other address as either party may designate by notice.
Any such notice or communication, if given or made by prepaid,
certified mail or by recorded express delivery, shall be deemed to have been
made when actually received, but not later than three (3) business days after
the same was posted or given to such express delivery service and if made
properly by telecopy or other facsimile transmission, such notice or
communication shall be deemed to have been made at the time of dispatch.
(f) SEVERABILITY. If any portion of this Agreement is held invalid,
illegal or unenforceable, such determination shall not impair the enforceability
of the remaining terms and provisions herein.
(g) WAIVER. No waiver of a breach or violation of any provision of this
Agreement shall operate or be construed as a waiver of any subsequent breach or
limit or restrict any right or remedy otherwise available.
(h) GENDER AND NUMBER. Throughout this Agreement, the masculine shall
include the feminine and neuter and the singular shall include the plural and
vice versa as the context requires.
(i) ENTIRE AGREEMENT. This document (together with the exhibits,
schedules and attachments hereto) constitutes the entire Agreement of the
parties and supersedes any and all other prior agreements, oral or written, with
respect to the subject matter contained herein. There are no representations,
warranties, covenants or agreements between the parties hereto with respect to
this transaction except those expressly set forth herein.
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<PAGE> 23
(j) GOVERNING LAW. This Agreement shall be subject to and governed by
the laws of the State of Connecticut.
(k) INCORPORATION BY REFERENCE. All schedules, exhibits and documents
referred to in this Agreement shall be deemed incorporated herein by any
reference thereto as if fully set out.
(l) COUNTERPARTS. This Agreement may be executed in one or more
counterparts (all counterparts together reflecting the signatures of all
parties), each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
(m) AUTHORITY. Each individual signing this Agreement in a
representative capacity acknowledges and represents that he/she is duly
authorized to execute this Agreement in such capacity in the name of, and on
behalf of, the designated corporation, partnership, trust, or other entity.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
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<PAGE> 24
IN WITNESS WHEREOF, the parties hereto have executed this agreement
effective as of the day and year aforesaid.
ACXIOM CORPORATION
By: /s/ Mark Theilken
--------------------------
Mark Theilken, Group Leader
PC411, INC.
By: /s/ J. Bryant Kirkland III
--------------------------
J. Bryant Kirkland III, Vice President and
Chief Financial Officer
DIGITAL ASSET MANAGEMENT, INC.
By: /s/ Dean Eaker
--------------------------
Dean Eaker, President
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<PAGE> 1
EXHIBIT 10.1
VOTING AGREEMENT
This Voting Agreement ("Agreement") is made and entered into the 31 day
of October, 1998 (the "Effective Date") by and between Digital Asset Management,
Inc., a Delaware corporation (the "Company"), the parties listed on Exhibit A
attached hereto (the "Investors") and the parties listed on Exhibit B attached
hereto (the "Stockholders"). The Investors and the Stockholders are sometimes
hereinafter collectively referred to as the "Holders."
RECITALS:
WHEREAS, the Investors are purchasing from the Company shares of its
Preferred Stock, par value $.01 per share ("Preferred Stock"), pursuant to a
Stock Purchase Agreement dated of even date herewith between the Company and the
Investors (the "Purchase Agreement");
WHEREAS, each Stockholder currently owns that number of shares of the
Company's common stock, par value $.01 per share ("Common Stock"), set forth
beside the Stockholder's name on Exhibit B attached hereto; and
WHEREAS, as an inducement to the Investors to purchase the Preferred
Stock pursuant to the Purchase Agreement, the Investors, the Stockholders and
the Company desire to enter into this Agreement to set forth their agreements
and understandings with respect to how the shares of the Company's capital stock
("Capital Stock") held by them will be voted on certain matters.
NOW, THEREFORE, in consideration of the above recitals and the mutual
covenants made herein, the parties hereby agree as follows:
1. SIZE OF BOARD OF DIRECTORS. During the term of this Agreement, each
Holder agrees to vote all shares of Capital Stock now or hereafter directly or
indirectly owned (of record or beneficially) by such Holder to maintain a Board
of Directors of the Company (the "Board"), with an authorized number of members
of the Board being five (5) persons, and to oppose any effort by any party to
change the number of members of the Board.
2. ELECTION OF BOARD OF DIRECTORS.
(a) VOTING AND BOARD COMPOSITION. During the term of this
Agreement, each Holder agrees to vote all shares of Capital Stock now or
hereafter directly or indirectly owned (of record or beneficially) by such
Holder, in such a manner as may be necessary to elect (and maintain in office)
as members of the Board, the following individuals:
(i) One (1) individual designated from time to time
in writing delivered to the Company and signed by Stockholders who at the time
in question hold shares of outstanding Common Stock representing at least a
majority of the voting power of all outstanding shares of Common Stock then held
by all Stockholders (the "Stockholders' Designee"); and
(ii) Three (3) individuals (the "Acxiom Designees")
designated from
<PAGE> 2
time to time in writing delivered to the Company and signed by Acxiom
Corporation ("Acxiom"); and
(iii) One (1) individual (the "PC411 Designee")
designated from time to time in writing delivered to the Company and signed by
PC411, Inc. ("PC411").
(b) The initial Stockholders' Designee shall be Dean Eaker;
the initial Acxiom Designees shall be Mark Theilken, Art Kellam and Adam
Gadberry; and the initial PC411 Designee shall be J. Bryant Kirkland III
(collectively "Board Designee(s)"). Each of the Stockholders' Designee, the
Acxiom Designees and the PC411 Designee are hereinfter referred to as "Designee"
and the party entitled to designate a designee to the Board is hereinafter
referred to as a "Designator."
3. CHANGES IN BOARD DESIGNEES. From time to time during the term of
this Agreement, a Designator may in its sole discretion:
(a) remove from the Board any Board Designee designated by
such Designator; and
(b) designate a new Board Designee for election to the Board
to replace a prior Board Designee who has been removed pursuant to Section 3(a)
or to fill a vacancy occasioned by the resignation or death of such Designator's
Board Designee; provided however, such removal and/or designation of a Board
Designee shall be made in writing signed by the relevant Designator, in which
case such election to remove a Board Designee and/or elect a new Board Designee
will be binding on such Designator. In the event of such a removal and/or
designation of a Board Designee, the Holders shall vote their shares of Capital
Stock as provided in Section 2 to cause:
(i) the removal from the Board of the Board Designee
or Designees so designated for removal by the appropriate Designator; and
(ii) the election to the Board of any new Board
Designee or Designees so designated for election to the Board by the appropriate
Designator.
4. NOTICE. The Company shall promptly give each of the Holders written
notice of any change in the Board and of any proposal by a Designator to remove
or elect a new Board Designee.
5. FURTHER ASSURANCES.
(a) Each of the Holders agrees not to vote any shares of the
Capital Stock, or take any other actions that would in any manner defeat,
impair, be inconsistent with or adversely affect the stated intentions of any of
the parties under Sections 1, 2 or 3 of this Agreement.
2
<PAGE> 3
(b) In addition to any vote otherwise required by law or the
Company's Certificate of Incorporation or Bylaws, (A) the affirmative vote of
both the Acxiom Designees and the PC411 Designee shall be required to take or
agree to take any of the following actions: (i) any change in the primary focus
of the Company's Business Plan, attached hereto as Exhibit C; (ii) a merger,
sale or recapitalization of the Company; or (iii) any amendment to the
Certificate of Incorporation or Bylaws of the Company which would materially
adversely affect the rights of either of the Investors; and (B) the affirmative
vote of the Acxiom Designees shall be required to borrow money pursuant to the
Bridge Loan and Security Agreement or the Acxiom Loan and Security Agreement,
respectively, executed of even date herewith.
6. TRANSFEREES; LEGENDS ON CERTIFICATES.
(a) EFFECT ON TRANSFEREES. Each and every transferee or
assignee of any shares of Capital Stock from any Holder shall be bound by, and
subject to the terms and conditions of this Agreement that are applicable to the
transferor or assignor of such shares to the transferee or assignee, and the
Company shall require that the transferee agrees in writing to be bound by, and
subject to, all terms and conditions of this Agreement as a condition precedent
to the transfer of any shares of Capital Stock subject to this Agreement. For
purposes of this Agreement, any transferee or assignee of an Investor shall,
upon the effective date of such transfer or assignment be deemed an Investor
solely with respect to the shares so transferred or assigned, and any transferee
or assignee of a Stockholder shall, upon the effective date of such transfer, be
deemed a Stockholder solely with respect to the shares so transferred or
assigned.
(b) LEGEND. All Company share certificates now or hereafter
held by the Holders that represent shares of Capital Stock of the Company
subject to this Agreement shall be stamped or otherwise imprinted with the
following legend:
3
<PAGE> 4
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
APPLICABLE STATE SECURITIES LAWS IN RELIANCE UPON THE REPRESENTATION OF
THE REGISTERED HOLDER HEREOF THAT THESE SECURITIES HAVE BEEN PURCHASED
WITH INVESTMENT INTENT AND NOT FOR RESALE OR WITH A VIEW TO
DISTRIBUTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
REGISTRATION OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933, AS AMENDED AND APPLICABLE STATE SECURITIES
LAWS. IN ADDITION, THIS CERTIFICATE IS TRANSFERABLE ONLY UPON
COMPLIANCE WITH THE PROVISIONS OF THE SHAREHOLDERS AGREEMENT AND THE
VOTING AGREEMENT BY AND AMONG THE COMPANY AND ALL ITS STOCKHOLDERS,
COPIES OF WHICH ARE ON FILE AT THE OFFICE OF THE COMPANY. ANY TRANSFER
CONTRARY TO THE ABOVE INSTRUCTIONS IS VOID AB INITIO."
7. ENFORCEMENT OF AGREEMENT. Each of the Holders agrees that any breach
by any of them of this Agreement shall cause the other Holders irreparable harm
which may not be adequately compensated by money damages. Accordingly, in the
event of a breach or a threatened breach by a Holder of any provision of this
Agreement, the Company and each other Holder shall be entitled to the remedies
of specific performance, injunction or other preliminary or equitable relief,
including the right to compel any such breaching Holder, as appropriate, to vote
such Holder's shares of Capital Stock in accordance with the provisions of this
Agreement, in addition to such other rights or remedies as may be available to
the Company or any Holder for any such breach or threatened breach including,
but not limited to, the recovery of money damages.
8. TERM. This Agreement shall commence on the Effective Date and shall
terminate upon the first of the following to occur:
(a) Execution by each Investor and by the Stockholders who
hold a majority of the shares of Capital Stock then held by all of the
Stockholders of a written agreement to terminate this Agreement;
(b) The consummation of the first sale of securities of the
Company to the public pursuant to an effective registration statement filed by
the Company under the Securities Act of 1933, as amended;
(c) The first date on which the outstanding Capital Stock
owned by the Investors (calculating all shares of Preferred Stock then
outstanding as if such shares had been converted into Common Stock) constitutes
less than thirty percent (30%) in the aggregate of the
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<PAGE> 5
number of shares of the Common Stock that would be outstanding shares if the
Preferred Stock were then converted into shares of the Common Stock.
Notwithstanding the foregoing, any Investor owning Capital Stock representing at
least fifteen percent (15%) of the voting power of the Company, shall have the
right to designate one member of the Board. The foregoing sentence shall survive
termination of this Agreement.
(d) Immediately prior to the closing of (i) any consolidation
or merger of the Company with or into any other corporation or corporations in
which the Holders of outstanding shares of Capital Stock immediately before such
consolidation or merger do not, immediately after such consolidation or merger,
retain stock representing the majority of voting power of the surviving
Corporation; (ii) the sale, transfer or assignment of securities of the Company
representing the majority of the voting power of all the Company's outstanding
voting securities by the Holders thereof to an acquiring party in a single
transaction or series of related transactions; or (iii) any other sale, transfer
or assignment of securities of the Company representing over fifty percent (50%)
of the voting power of the Company's then outstanding voting securities by the
holders thereof to an acquiring party other than an affiliate of any Investor.
9. MISCELLANEOUS.
(a) BINDING EFFECT AND BENEFIT; ASSIGNMENT. This Agreement
shall be binding upon, and shall inure to the benefit of, the parties hereto and
their respective legal representatives, heirs, successors and permitted assigns.
Otherwise, this Agreement is not intended to create any right for the benefit of
any third party, and this Agreement shall not be assignable or otherwise
transferrable by the Holders or the Company without the prior written consent of
the non-assigning parties hereto; provided each Investor may transfer its shares
of Capital Stock to a company controlled by or under common control with such
Investor as long as the transferee agrees in writing to be bound by, and subject
to, all terms and conditions of this Agreement as a condition precedent to the
transfer of any shares of Capital Stock.
(b) FURTHER ASSURANCES. The parties agree that from time to
time hereafter, upon request, each of them will execute, acknowledge and deliver
such other instruments and documents and take such further action as may be
reasonably necessary to carry out the intent of this Agreement.
(c) MODIFICATION. No term or provision contained herein may be
modified, amended or waived except by written agreement or consent signed by the
party to be bound thereby.
(d) HEADINGS AND CAPTIONS. Subject headings and captions are
included for convenience purposes only and shall not affect the interpretation
of this Agreement.
(e) NOTICE. All notices, requests, demands and other
communications permitted or required hereunder shall be in writing, and either
(i) delivered in person, (ii) sent by
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<PAGE> 6
express mail or other overnight delivery service providing receipt of delivery,
(iii) mailed by certified mail, postage prepaid, return receipt requested, or
(iv) sent by telecopy or other facsimile transmission as follows:
If to the Company, addressed or delivered in person to:
Digital Asset Management, Inc.
67 Stonehedge Drive South
Greenwich, CT 06831
Attn: Dean Eaker, President
Fax: 203-531-4249
with a copy to:
Kronish, Lieb, Weiner & Hellman, LLP
1114 Avenue of the Americas
New York, NY 10036-7798
Attn: Chet F. Lipton, Esq.
Fax: 212-479-6275
If to Investors, addressed or delivered in person to:
Acxiom Corporation
301 Industrial Blvd.
Conway, AR 72033-2000
Attn: Mark Theilken, Group Leader
Fax: 501-336-3910
with a copy to:
Friday, Eldredge & Clark
400 W. Capitol, Suite 2000
Little Rock, AR 72201
Attn: Carla G. Spainhour, Esq.
Fax: 501-376-2147
and to:
PC411, Inc.
100 SE Second Street, 32nd Floor
Miami, FL 33131
Attn: J. Bryant Kirkland III
Vice President and Chief Financial Officer
Fax: 305-573-8022
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<PAGE> 7
with a copy to:
Morse, Zelnick, Rose & Lander, LLP
450 Park Avenue
New York, NY 10022
Attn: Joel J. Goldschmidt, Esq.
Fax: 212-838-9190
If to Stockholder(s), addressed or delivered in person to:
Mr. Dean Eaker
Digital Asset Management, Inc.
67 Stonehedge Drive South
Greenwich, CT 06831
Fax: 203-531-4249
Mr. Joshua Blumenthal
534 Monterey Avenue
Pelham, NY 10803
Fax: 914-738-0169
Mr. Edward A. Fleiss
75 Hillwood Drive
Huntington Station, NY 11746
Fax: 516-425-6409
Mr. Keith Goodman
235 Park Street
Lyons, CO 80540
Fax: 303-823-5476
Mr. Bruce Biegel
198 Hillside Avenue
Berkeley Heights, NJ 07922
Fax: 908-665-1925
Mr. Neil Ritter
14 Guilford Lane
Greenwich, CT 06831
Fax: 203-531-4613
or to such other address as either party may designate by notice.
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<PAGE> 8
Any such notice or communication, if given or made by prepaid,
certified mail or by recorded express delivery, shall be deemed to have been
made when actually received, but not later than three (3) business days after
the same was posted or given to such express delivery service and if made
properly by telecopy or other facsimile transmission, such notice or
communication shall be deemed to have been made at the time of dispatch.
(f) SEVERABILITY. If any portion of this Agreement is held
invalid, illegal or unenforceable, such determination shall not impair the
enforceability of the remaining terms and provisions herein.
(g) WAIVER. No waiver of a breach or violation of any
provision of this Agreement shall operate or be construed as a waiver of any
subsequent breach or limit or restrict any right or remedy otherwise available.
(h) GENDER AND NUMBER. Throughout this Agreement, the
masculine shall include the feminine and neuter and the singular shall include
the plural and vice versa as the context requires.
(i) ENTIRE AGREEMENT. This document (together with the
exhibits, schedules and attachments hereto) constitutes the entire Agreement of
the parties and supersedes any and all other prior agreements, oral or written,
with respect to the subject matter contained herein. There are no
representations, warranties, covenants or agreements between the parties hereto
with respect to this transaction except those expressly set forth herein.
(j) GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Delaware.
(k) INCORPORATION BY REFERENCE. All schedules, exhibits and
documents referred to in this Agreement shall be deemed incorporated herein by
any reference thereto as if fully set out.
(l) COUNTERPARTS. This Agreement may be executed in one or
more counterparts (all counterparts together reflecting the signatures of all
parties), each of which shall be deemed to be an original, and all of which
together shall constitute one and the same instrument.
(n) AUTHORITY. Each individual signing this Agreement in a
representative capacity acknowledges and represents that he/she is duly
authorized to execute this Agreement in such capacity in the name of, and on
behalf of, the designated corporation, partnership, trust, or other entity.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed this agreement
effective as of the day and year aforesaid.
Investors:
Acxiom Corporation
By: /s/ Mark Theilken
----------------------------------
Mark Theilken, Group Leader
PC411, Inc.
By: /s/ J. Bryant Kirkland III
----------------------------------
J. Bryant Kirkland III,
Vice President and Chief Financial Officer
Company:
Digital Asset Management, Inc.
By: /s/ Dean Eaker
----------------------------------
Dean Eaker, President
Stockholders:
/s/ Dean Eaker
----------------------------------
Dean Eaker
----------------------------------
Joshua Blumethal
/s/ Edward A. Fleiss
----------------------------------
Edward A. Fleiss
/s/ Keith Goodman
----------------------------------
Keith Goodman
/s/ Bruce Biegel
----------------------------------
Bruce Biegel
/s/ Neil Ritter
----------------------------------
Neil Ritter
9
<PAGE> 1
EXHIBIT 10.2
SHAREHOLDERS AGREEMENT
This Shareholders Agreement ("Agreement") is entered into as of October
31, 1998 by and among Digital Asset Management, Inc. (the "Company"), a Delaware
corporation, those investors in the Company listed on Exhibit A attached hereto
(the "Investors" and each individually referred to as an "Investor") and those
Stockholders of the Company listed on Exhibit B attached hereto (the
"Stockholders" and each individually referred to as a "Stockholder"). The
Investors and the Stockholders are sometimes hereinafter collectively referred
to as the "Holders."
RECITALS:
WHEREAS, each Stockholder currently owns that number of shares of the
Company's common stock, par value $.01 per share (the "Common Stock"), set forth
beside the Stockholder's name on Exhibit B attached hereto; and
WHEREAS, each Investor is purchasing from the Company that number of
shares of the Company's Preferred Stock, par value of $.01 per share ("Preferred
Stock"), shown beside such Investor's name on Exhibit A attached hereto,
pursuant to that certain Stock Purchase Agreement entered into by and between
the Company and the Investors dated of even date herewith (the "Purchase
Agreement");
WHEREAS, to induce the Investors to purchase such shares of the
Preferred Stock from the Company and to enter into the Stock Purchase Agreement,
each Holder has agreed to grant the Company and the other Holders certain rights
of first refusal as set forth herein with respect to the shares of the Company's
stock currently owned or hereinafter acquired by the Holder;
NOW THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto, intending to be legally
bound, agree as follows:
1. COLLATERAL PLEDGE. A Holder may pledge shares of capital stock of
the Company owned by such Holder as collateral security for a loan; provided any
sale, transfer or other disposition of the stock so pledged upon foreclosure or
otherwise shall be subject to the terms and conditions of this Agreement and the
right of first refusal purchase option in favor of the Company and the other
Holders as set forth herein.
<PAGE> 2
2. RESTRICTIONS ON TRANSFER.
(a) Except as provided in Section 1, no shares of capital
stock of the Company, now owned or hereinafter acquired, may be sold, assigned,
conveyed, pledged, hypothecated or otherwise transferred by any Holder,
voluntarily, involuntarily, by operation of law or otherwise (collectively, a
"Disposition"), without the prior written consent of the other Stockholders
holding a majority of the shares of the Common Stock and the Preferred Stock
issued and outstanding.
(b) Except as otherwise provided in Section 1 or 2 (a), prior
to any Disposition of shares of capital stock of the Company by any Holder, the
registered holder of such stock (the "Transferor") shall first provide written
notice of the intended Disposition to the Company and the other Holders (the
"Disposition Notice"). The Disposition Notice shall set forth all of the terms
of the proposed Disposition, including price and payment terms for any sale, the
name and address of the proposed transferee, the number of shares involved in
the proposed Disposition, and the date on which the transaction is to occur,
which date shall not be earlier than forty-five (45) days from the date of the
notice. The date of the Disposition Notice shall hereinafter be referred to as
the "Notice Date."
(c) For a period of thirty (30) days after the Notice Date,
the Company shall have the right of first refusal option to purchase all, but
not less than all, of the shares of capital stock of the Transferor on the same
terms and conditions identified in the Disposition Notice, which option shall
lapse and expire if not exercised in writing within said 30-day period by vote
of the Board of Directors of the Company (without participation by the
Transferor). In the event said option is exercised, the closing shall take place
at the principal office of the Company within thirty (30) days after notice of
the intent to exercise is given; provided however, unless the parties agree
otherwise, the closing in all events shall take place within sixty (60) days of
the Notice Date.
(d) In the event the foregoing option is not exercised by the
Company as provided above, then the shares of stock of the Transferor identified
in the Disposition Notice shall become subject to a second option in favor of
the other Holders to purchase all, but not less than all, of such stock on the
same terms and conditions, which option shall lapse and expire if not exercised
by written notice to the Transferor prior to the forty-fifth (45th) day
following the Notice Date.(1) In the event the other Holders exercise said
option, the closing shall take place at the principal office of the Company
within thirty (30) days after notice of the intent to exercise; provided
however, unless the parties agree otherwise, the Closing in all events shall
take place within seventy-five (75) days of the Notice Date.
- -----------------------
(1) In the event the Company exercises its option and wrongfully fails to
close the transaction as set forth above, the other Holders shall have the right
to exercise the foregoing option for a period of fifteen (15) days after receipt
of written notice of the Company's default.
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<PAGE> 3
(e) In the event more than one other Holder exercises the
foregoing option, each such other Holder shall have the right to purchase a
"proportionate share" of such stock based upon the ratio expressed as a
percentage of (i) the number of shares of capital stock of the Company owned by
the Holder to (ii) the total number of shares of capital stock of the Company
owned by all Holders (other than the Transferor) electing to exercise the option
with the Investor's shares being considered on an as converted basis. If one or
more of the Holders (individually or as a group) fails to purchase all of the
Transferor's stock identified in the Disposition Notice then no purchase shall
be made pursuant to the option unless other non-defaulting Holders agree to
purchase all such shares of stock.
(f) In the event neither the Company nor the other Holders
exercise their respective options as provided above, then the Transferor may
proceed to complete the Disposition to the prospective purchaser or other
transferee identified in the Disposition Notice, but only in accordance with the
terms stated in such notice. If the Transferor shall fail to complete such
Disposition within one hundred twenty (120) days following the Notice Date, and
if the Transferor still intends to complete said Disposition, the Transferor
shall be required to provide another Disposition Notice to the Company and the
other Holders, and the Company and the other Holders shall each have another
right of first refusal option to purchase such shares as provided above, prior
to the consummation of any such intended Disposition. Any purchaser or other
transferee acquiring the offered shares shall be automatically bound by the
terms of this Agreement and shall be required to join in, execute, and deliver a
counterpart of this Agreement as a condition to the issuance by the Company of a
stock certificate in such person's name.
(g) Notwithstanding anything contained herein to the contrary,
each Investor may transfer its shares of stock in the Company, without complying
with Section 2, to a company controlled by or under common control with such
Investor, provided the transferee agrees in writing to be bound by the terms of
this Agreement and the transferring Investor provides written notice of such
transfer to the other Holders within thirty (30) days after such transfer.
3. PARALLEL EXIT RIGHTS. In the event of a proposed Disposition by sale
where the right-of-first refusal periods set forth in Section 2 shall expire
without all shares subject to such right having been accepted, each Holder (with
the Investor's shares considered on an as-converted basis) shall have the right
(a "Parallel Exit Right") to require the selling Holder to reduce the number of
shares to be sold by him or it and have the purchaser purchase from the Holders
electing to exercise a Parallel Exit Right the number of shares derived by
multiplying the total number of shares of Common Stock owned by the Holders
electing the Parallel Exit Rights (with the Investor's shares considered on an
as-converted basis) by a fraction, the numerator of which is the total number of
shares of Common Stock owned by the electing Holder and the denominator of which
is the total number of shares of Common Stock (on an as-converted basis) owned
by all of the electing Holders and the selling Holder. The purchase of the
electing Holders shares shall be on the same terms and conditions, provided each
of the electing Holders gives written notice of their election to the transferor
no later than five (5) days prior to the closing. The provisions of Section 2
shall not apply with respect to any shares which may be
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<PAGE> 4
sold pursuant to the exercise of a Parallel Exit Right.
4. TERMINATION OF EMPLOYMENT. In the event any Stockholder's employment
with the Company terminates, all of such Stockholder/former employee's shares of
stock in the Company shall immediately become subject to an option to purchase
such stock in favor of the Company first, and the other Holders second for a
period of ninety (90) days following such Stockholder/former employee's
termination of employment. Notwithstanding the foregoing, such option shall not
be exercisable with respect to the shares of stock owned by Dean Eaker ("Eaker")
in any of the following circumstances: (a) Eaker is terminated without "cause"
(as defined in Eaker's employment agreement with the Company); or (b) Eaker's
employment with the Company terminates due to a "disability" (as defined in
Eaker's employment agreement with the Company); or (c) Eaker voluntarily leaves
the Company after the contractual term of employment because the Company has not
offered him a new contract on terms (including salary, bonus and benefits) at
least as favorable as those contained in his existing employment contract. If
all the shares of stock of such Stockholder/former employee are not purchased by
the Company, the other Holders shall have the right to purchase such stock as
provided in Section 2. The purchase price and terms of payment shall be
determined pursuant to Sections 8 and 9. In the event of a termination of
employment by reason of death, the provisions of Section 7 shall control.
5. DIVORCE. If a Stockholder shall become a party to a divorce
proceeding and pursuant to any court order or decree in such proceeding all or
any portion of the Stockholder's stock in the Company is awarded to the
Stockholder's former spouse, the stock so awarded shall immediately become
subject to an option to purchase on the part of the Company first, and the other
Holders second, for an aggregate period of ninety (90) days after written notice
of such order or decree is provided to the Company and the other Holders in the
manner provided in Section 2 as in the case of any proposed Disposition. If all
of the shares of stock so awarded are not purchased by the Company, the other
Holders shall have the right to purchase such stock as provided in Section 2.
The purchase price and terms of payment shall be determined pursuant to Sections
8 and 9.
6. BANKRUPTCY OR INSOLVENCY. If in connection with any bankruptcy or
insolvency proceeding involving any Holder, any court order or decree is issued
for the Disposition of any shares of stock of the Company, all of such shares of
stock shall immediately become subject to an option to purchase in favor of the
Company first and the other Holders second, for an aggregate period of ninety
(90) days after written notice of such court order or decree is provided to the
other Holders in the manner provided in Section 2 as in the case of any proposed
Disposition. If all such shares of stock are not purchased by the Company, the
other Stockholders and Investors shall have the right to purchase such stock as
provided in Section 2. The purchase price and term of payment shall be
determined pursuant to Sections 8 and 9.
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<PAGE> 5
7. DEATH. Upon the death of a Stockholder (the "Decedent"), all of the
shares of stock in the Company owned by the Decedent or to which the Decedent or
his personal representative shall be entitled, shall become subject to an option
to purchase on the part of the Company first, and the other Holders second, for
a period of one hundred twenty (120) days following the date of the Decedent's
death. If all of such stock is not purchased and redeemed by the Company, the
other Holders shall have the right to purchase such stock as provided in Section
2. The purchase price and terms of payment shall be determined pursuant to
Sections 8 and 9; PROVIDED, HOWEVER, notwithstanding the provisions of Section 9
to the contrary, if the Company exercises its option to purchase the shares and
the Company receives any proceeds from any policy of insurance on the life of
the Decedent, such proceeds, to the extent of the purchase price, shall be paid
to the Decedent's personal representative as a credit to the purchase price. In
the event neither the Company nor the other Holders elect to exercise the
foregoing option following the death of the Decedent, the Decedent's personal
representative shall have the right to cause the Company to purchase such stock
for the purchase price determined pursuant to Section 8, with the proceeds equal
in value, to the extent required, to any life insurance received by the Company
by reason of the death of the Decedent payable immediately to the Decedent's
estate and the balance, if any, of the purchase price over and above the
proceeds of the life insurance, being payable in twenty-four (24) equal monthly
installments beginning the month after the insurance proceeds are paid. Any such
election by the Decedent's personal representative shall be made in writing not
less than one hundred fifty (150) days following the date of the Decedent's
death.
8. PURCHASE PRICE. The purchase price for any shares of capital stock
of the Company purchased pursuant to this Agreement shall be equal to the
purchase price contained in any bona fide offer to purchase such shares which
the Transferor proposes to accept, as identified in the Disposition Notice, or
in the absence of such bona fide offer or in situations other than proposed
Dispositions involving a sale, the purchase price for such stock shall be equal
to the "fair market value" of such stock. "Fair market value" shall mean and
refer to the price at which the stock would change hands between a willing buyer
and willing seller, neither under any compulsion to buy or sell, and both having
reasonable knowledge of the relevant facts. If the parties involved cannot agree
on the fair market value of the stock, the fair market value shall be determined
by an appraiser mutually acceptable to such parties. In the event the parties
involved are unable to agree on an appraiser, the seller, on the one hand, and
the purchaser, on the other hand, shall each select an appraiser, and such two
appraisers shall first attempt to determine the fair market value by mutual
agreement, but if they are unable to agree, such appraisers shall select a third
appraiser and the fair market value shall be determined by average of the two
closest appraisals. The appraiser shall use one or more valuation methods that
in his professional judgment most appropriately reflect the value of the stock.
Any valuation so determined shall be binding and conclusive absent manifest
error. The cost of such appraisal shall be borne equally by the seller, on the
one hand, and the purchaser, on the other hand.
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<PAGE> 6
9. PAYMENT OF PURCHASE PRICE. In situations involving proposed
Dispositions by sale, the purchase price for any shares of stock purchased
pursuant to this Agreement shall be paid upon the same terms and conditions
(including, as near as possible, security terms) as contained in the bona fide
offer to purchase such shares received by the Transferor and identified in the
Disposition Notice. In the absence of any such bona fide offer, or in situations
other than proposed Dispositions involving a sale, the purchase price shall be
paid in twenty-four (24) equal monthly installments commencing on the closing
date of such sale or transfer unless agreed otherwise by the parties.
10. SECURITY FOR PAYMENT OF PURCHASE PRICE. Whenever the purchase price
for any shares of capital stock purchased pursuant to this Agreement is to be
paid in installments, such shares of capital stock shall be pledged to the
seller as collateral security until full payment of the purchase price, and all
certificates representing such shares of capital stock shall be delivered to the
seller to hold in the capacity of a secured party as collateral for such
indebtedness. The seller/secured party shall have all the rights and remedies of
a secured creditor under the Uniform Commercial Code as adopted under the laws
of the State of Delaware.
11. RESTRICTIVE LEGENDS. Each certificate representing shares of
capital stock in the Company shall be stamped or otherwise imprinted with the
restrictive legend set forth below, or a legend substantially equivalent
thereto, to be placed upon any certificate(s) or other documents or instruments
evidencing ownership of stock by the Holder:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY OTHER
APPLICABLE STATE SECURITIES LAWS IN RELIANCE UPON THE REPRESENTATION OF
THE REGISTERED HOLDER HEREOF THAT THESE SECURITIES HAVE BEEN PURCHASED
WITH INVESTMENT INTENT AND NOT FOR RESALE OR WITH A VIEW TO
DISTRIBUTION. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED,
SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
REGISTRATION OR THE AVAILABILITY OF EXEMPTION FROM REGISTRATION UNDER
THE SECURITIES ACT OF 1933 AS AMENDED AND APPLICABLE STATE SECURITIES
LAWS. IN ADDITION, THIS CERTIFICATE IS TRANSFERABLE ONLY UPON
COMPLIANCE WITH THE PROVISIONS OF THE SHAREHOLDERS AGREEMENT AND THE
VOTING AGREEMENT BY AND AMONG THE COMPANY AND ALL ITS STOCKHOLDERS,
COPIES OF WHICH ARE ON FILE AT THE OFFICE OF THE COMPANY. ANY TRANSFER
CONTRARY TO THE ABOVE INSTRUCTIONS IS VOID AB INITIO."
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<PAGE> 7
12. ISSUANCE OF ADDITIONAL SHARES BY THE COMPANY. Nothing contained
herein shall restrict or otherwise prohibit the Company from issuing any
additional shares of capital stock or other securities in any manner allowed by
applicable law; provided however, before any additional shares of stock of the
Company are issued in the future, (i) each Holder, whether an Investor or a
Stockholder, shall first be given the opportunity for a period of at least
thirty (30) days to subscribe for and purchase a pro-rata portion of any such
additional shares of stock or other securities proposed to be offered (upon the
same terms and conditions as proposed to be offered to third parties) in order
to maintain their relative percentage ownership, with each Preferred
Stockholder's share to be calculated on an as converted basis, and (ii) any new
shareholder (if not a signatory to this Agreement), shall be required to become
a party to and execute and deliver a counterpart of this Agreement prior to the
issuance of any stock certificate representing such shares. Notwithstanding the
foregoing, the following issuances of capital stock of the Company shall not be
subject to the provisions of this Section 12: (a) the issuance of 1,250 or fewer
shares of Preferred Stock to one or more investors for not less than $1,000 per
share; (b) the issuance of 220 shares of Common stock to Eaker and/or his
designees pursuant to the option contained in Eaker's employment agreement with
the Company; and (c) the issuance of 3,090 shares of Common Stock reserved for
issuance under the Company's 1998 Stock Option Plan, dated as of the date
hereof.
13. ADDITIONAL STOCK HEREAFTER ACQUIRED. The terms of this Agreement
shall be applicable to any additional shares of stock of the Company acquired
hereafter by any Holder.
14. MAJOR DECISIONS. In addition to any voting requirements established
by law, or the Company's Certificate of Incorporation or Bylaws, the prior
written consent of the Stockholders owning a majority of the shares of Common
Stock issued and outstanding at that time and each Investor (provided such
Investor owns shares of the Capital Stock representing at least fifteen percent
(15%) of the voting power of the Company) shall be required in connection with
the following: (i) any change by the Company in the primary focus of the
Company's Business Plan, attached hereto as Exhibit C; (ii) a merger, sale or
recapitalization of the Company; or (iii) any amendment to the Certificate of
Incorporation or the Bylaws of the Company which would materially adversely
affect the rights of either of the Investors.
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<PAGE> 8
15. TERMINATION. This Agreement shall terminate and all rights and
obligations of the parties hereto shall cease (i) upon the written agreement of
all Investors and of the Stockholders who hold a majority of the shares of
capital stock of the Company then held by the Stockholders, (ii) upon the
voluntary dissolution of the Company by vote of the Holders in accordance with
applicable law, (iii) upon the consummation of the first sale of securities of
the Company to the public pursuant to an effective registration statement filed
by the Company under the Securities Act of 1933, as amended, or (iv) immediately
prior to closing of any consolidation or merger of the Company or any sale of
all or substantially all of the Company's assets. In addition, if any Holder
ceases to be a Stockholder or Investor in the Company, such Holder shall
thereafter not have any further rights hereunder, other than (i) the right to
receive full payment of the purchase price for any shares of stock sold by such
Holder pursuant to this Agreement and (ii) rights as a secured creditor as
provided herein until such purchase price is paid in full.
16. MISCELLANEOUS.
(a) FURTHER ASSURANCES. The parties agree that from time to
time hereafter, upon request, each of them will execute, acknowledge and deliver
such other documents and instruments, and take such further action, as may be
reasonably necessary to carry out the intent of this Agreement.
(b) BINDING EFFECT AND BENEFIT. This Agreement shall be
binding upon and inure to the benefit of the parties hereto, and their
respective heirs, executors, administrators, personal representatives,
successors and permitted assigns. Except as otherwise provided herein, the
rights and obligations pursuant to this Agreement are not assignable without the
other Holders' prior written consent. Otherwise, this Agreement is not intended
to create any rights for the benefit of any third party.
(c) MODIFICATION. No term or provision contained herein may be
modified, amended or waived except by written agreement or consent signed by the
party to be bound thereby; provided however, consent of the Stockholders, who
hold a majority of the shares of all the capital stock of the Company then held
by Stockholders, shall constitute the consent of the Stockholders.
(d) SEVERABILITY. If any portion of this Agreement is held
invalid, illegal or unenforceable, such determination shall not impair the
enforceability of the remaining terms and provisions contained herein, provided
the purposes, intent and objects of this Agreement may be attained and achieved
through the enforcement of such remaining terms and provisions.
(e) WAIVER. No waiver of a breach or violation of any term or
provision of this agreement shall operate or be construed as a waiver of any
subsequent breach or limit or restrict any right or remedy otherwise available.
Any waiver must be in writing.
(f) RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies
expressed
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herein are cumulative and not exclusive of any rights and remedies otherwise
available.
(g) GENDER AND NUMBER. Throughout this Agreement, the
masculine shall include the feminine and neuter and the singular shall include
the plural and vice versa as the context requires.
(h) HEADINGS AND CAPTIONS. Subject headings and captions are
included for convenience purposes only and shall not affect the interpretation
of this Agreement.
(i) NOTICE. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing, and either
(i) delivered in person, (ii) sent by express mail or other overnight delivery
service providing receipt of delivery, or (iii) mailed by certified or
registered mail, postage prepaid, return receipt requested as follows:
(A) If to the Company, addressed or delivered in
person to the President of the Company at the principal office of the Company,
with a copy to each member of Board of Directors of the Company at their last
known address appearing in the records of the Company.
(B) If to any Stockholder or Investor, addressed or
delivered in person to such Stockholder or Investor at the Stockholder's or
Investor's last known address appearing in the Company's stock records.
Any party may change such party's address for notice at any time by
written notice to all other parties hereto. Any such notice or communication
shall be deemed to have been made when actually received.
(j) SPECIFIC PERFORMANCE. The parties hereto recognize that
the Company's stock is a unique asset. Accordingly, in the event of a breach of
this Agreement, any non-breaching party shall be entitled to specific
performance of the covenants contained herein, in addition to any other remedy
to which such party may be entitled hereunder, or otherwise at law or in equity.
(k) ENTIRE AGREEMENT. This document constitutes the entire
agreement of the parties and supersedes any and all other prior agreements, oral
or written, with respect to the subject matter contained herein.
(l) GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Delaware.
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IN WITNESS WHEREOF, the parties have executed this agreement effective
as of the day and year aforesaid.
Company:
Digital Asset Management, Inc.
By: /s/ Dean Eaker
-----------------------------
Dean Eaker, President
ATTEST:
- -------------------------
, Secretary
Investors:
Acxiom Corporation
/s/ Mark Theilken
-----------------------------
By: Mark Theilken, Group Leader
PC411, Inc.
/s/ J. Bryant Kirkland III
---------------------------------
By: J. Bryant Kirkland III
Vice President and Chief Financial Officer
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Stockholders:
/s/ Dean Eaker
-----------------------------------
Dean Eaker
-----------------------------------
Joshua Blumenthal
/s/ Edward A. Fleiss
-----------------------------------
Edward A. Fleiss
/s/ Keith Goodman
-----------------------------------
Keith Goodman
/s/ Bruce Beigel
-----------------------------------
Bruce Beigel
/s/ Neil Ritter
-----------------------------------
Neil Ritter
11
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EXHIBIT 10.3
BRIDGE LOAN AND SECURITY AGREEMENT
This BRIDGE LOAN AND SECURITY AGREEMENT ("AGREEMENT") is executed
effective as of October 31, 1998, by and among DIGITAL ASSET MANAGEMENT, INC., a
Delaware corporation whose principal place of business and chief executive
office is located at 67 Stonehedge, Greenwich, CT 06831, Attn: Dean Eaker
("DEBTOR"), ACXIOM CORPORATION, a Delaware corporation whose mailing address is
301 Industrial Boulevard, P. O. Box 2000, Conway, AR 72033-2000, Attn: Mark
Theilken ("ACXIOM"), PC411, INC., a Delaware corporation whose mailing address
is 100 SE Second Street, 32nd Floor, Miami, FL 33131, Attn: J. Bryant Kirkland
III ("PC411"), and DEAN EAKER, an individual citizen and resident of Connecticut
whose mailing address is 67 Stonehedge Drive, Greenwich, CT 06831 ("EAKER").
(Acxiom, PC411, and Eaker shall each hereinafter be referred to individually as
a "SECURED PARTY" and collectively as the "SECURED PARTIES").
W I T N E S S E T H:
WHEREAS, Debtor has requested that Secured Parties provide Debtor with
a line of credit in the aggregate amount of Eight Hundred Thousand Dollars
($800,000.00), bearing interest at the short-term Applicable Federal Rate per
annum, as published by the Internal Revenue Service on the date funds are
advanced pursuant hereto, from the date monies are advanced until the earlier of
when paid or Maturity, to be funded 50% ($400,000.00) by Acxiom, 25%
($200,000.00) by PC411, and 25% ($200,000.00) by Eaker (the "LOAN"), all in
accordance with the terms hereof and of the Promissory Notes (hereinafter
defined);
WHEREAS, Debtor has made certain representations and warranties to each
Secured Party in the Stock Purchase Agreement executed by and among Debtor,
PC411 and Acxiom of even date herewith; and
WHEREAS, to secure payment of the Loan and all other contractual
obligations of Debtor to each Secured Party hereunder, and all renewals,
amendments, modifications, extensions and refinancings thereof, and all future
advances of the Loan, Debtor has agreed to grant to Secured Parties a security
interest in the Collateral (as hereinafter defined).
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, and in exchange for the mutual
promises and covenants contained herein, the parties hereto, intending to be
legally bound, agree as follows:
1. DEFINITIONS. For purposes of this Agreement, the capitalized terms
used herein shall have the following meanings, unless the context otherwise
specifically requires:
(a) "AGENT" shall mean Acxiom, its successors in interest and
assigns, as collateral agent for itself, PC411, and Eaker.
(b) "COLLATERAL" shall mean and refer to all of the Debtor's
property, real and
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personal, tangible and intangible, wherever located including, but not limited
to the following:
(i) all equipment, machinery, furniture, furnishings,
supplies, fixtures, motor vehicles and any and all other tangible personal
property, and all additions, accessions, replacements and substitutions with
respect thereto, presently owned or hereafter acquired by Debtor (hereinafter
collectively referred to as the "EQUIPMENT"), including without limitation the
property described on EXHIBIT A attached hereto and incorporated herein by
reference;
(ii) cash, cash equivalents and marketable
securities;
(iii) all accounts, accounts receivable, contracts
and contract rights, chattel paper, documents, documents of title, instruments,
customer lists, and other forms of obligation and rights to the payment of money
or other property, presently owned or hereafter acquired by Debtor, together
with all books and records pertaining thereto whether recorded on paper,
diskettes or in magnetic or other computer format (hereinafter collectively
referred to as the "ACCOUNTS");
(iv) all of Debtor's inventory, including all goods,
merchandise, materials, components, supplies, work in process, finished goods,
packaging materials, promotional materials and other tangible personal property
presently owned or hereafter acquired by Debtor and held for sale, lease,
consumption or other use in Debtor's business, and all additions, accessions,
replacements and substitutions with respect thereto (hereinafter collectively
referred to as the "INVENTORY");
(v) all copyrights, trademarks, service marks,
tradenames, logos, marketing plans and models, databases, licenses and all other
intellectual property and proprietary rights of Debtor relating to Debtor's
business, and all registrations thereof, and the goodwill associated therewith,
and all additions, enhancements, replacements and substitutions thereto,
presently existing or hereafter acquired or developed, including, without
limitation, the items listed on EXHIBIT B attached hereto and incorporated
herein by reference (hereinafter collectively referred to as "INTELLECTUAL
PROPERTY");
(vi) general intangibles presently owned or hereafter
acquired by Debtor; and
(vii) all the proceeds (including proceeds from
insurance) and products from any of the foregoing items of collateral along with
any warranty, indemnity, guaranty or other rights related thereto.
(c) "DEBTOR" shall mean and refer to DIGITAL ASSET MANAGEMENT,
INC., a Delaware corporation, and its successors in interest.
(d) "EMPLOYMENT AGREEMENT" shall mean that certain Employment
Agreement, dated as of the date hereof, by and between Debtor and Eaker.
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(e) "KEY EMPLOYEES" shall mean Dean Eaker, Ed Fleiss, Joshua
Blumethal, Keith Goodman and Bruce Biegel, each of whom is an individual with an
employment agreement with Debtor and a common stockholder of Debtor.
(f) "PERSON" shall mean and refer to any individual,
corporation, partnership, association, limited liability company, trust, estate
or other entity.
(g) "PROMISSORY NOTES" shall mean and refer to the respective
promissory notes executed by Debtor as maker of even date herewith in the
original aggregate principal amount of $800,000.00, each payable to one of the
Secured Parties as payee, and each payable with interest at the short-term
Applicable Federal Rate per annum, as published by the Internal Revenue Service
on the date funds are advanced, from the date of each principal advance to the
earlier of the date of full payment or maturity, and thereafter if not paid at
the rate of ten percent (10%) per annum, and any amendments, modifications,
extensions, renewals or refinancings thereof.
(h) "SECURED DEBT" shall mean and refer to (i) all amounts
payable to Secured Parties pursuant to the respective Promissory Notes
(including principal and interest), and pursuant to any amendments,
modifications, renewals, extensions or refinancings thereof; (ii) all future
advances from each Secured Party to Debtor; (iii) any liabilities or obligations
of Debtor arising under this Agreement; and (iv) all costs and expenses of
collecting the foregoing, or in preserving, protecting or realizing upon the
Collateral, including attorneys' fees, court costs and other legal expenses.
(i) "SECURED PARTY" shall mean and refer to each of Acxiom,
PC411 and Eaker, and their respective successors in interest, heirs and assigns.
(j) "STOCK PURCHASE AGREEMENT" shall mean that certain Stock
Purchase Agreement dated as of October 31, 1998 by and among Acxiom, PC411 and
Debtor.
(k) "SHAREHOLDERS AGREEMENT" shall mean that certain
Shareholders Agreement executed of even date herewith by and among all of the
common stockholders and preferred stockholders of Debtor, including but not
limited to each of the Secured Parties.
(l) "UCC" shall mean and refer to the Uniform Commercial Code,
as amended, in effect under the laws of the State of Connecticut.
(m) "VOTING AGREEMENT" shall mean that certain Voting
Agreement executed on October 31, 1998 by and among Debtor, Secured Parties and
Key Employees.
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2. CONDITIONS PRECEDENT TO ADVANCES. Each Secured Party agrees and
commits to advance its proportionate share of the Loan to Debtor as set forth
herein and in the Promissory Notes when and for so long as Debtor is in
compliance with each of the following conditions precedent to advances
("CONDITIONS TO ADVANCES"):
(a) Debtor continues to conform to and meet the goals and
objectives of the approved business plan, a copy of which is attached hereto as
Exhibit A (hereinafter the "Business Plan");
(b) No Key Employee of Debtor is in breach under his
respective employment agreement with Debtor;
(c) Unless otherwise agreed to in writing by Secured Party,
all Key Employees of Debtor are still employed by Debtor;
(d) There then exists no material adverse change in the
business or financial condition of Debtor;
(e) There then exists no breach of or default by Debtor under
this Agreement, the Voting Agreement, the Shareholders Agreement, the Stock
Purchase Agreement or any other agreements by and between the parties relating
to this transaction;
(f) Debtor has, with each request for an advance, advised
Acxiom, as agent for the Secured Parties, of the purpose(s) for which the Loan
proceeds are to be used, Acxiom has, in its sole discretion, approved of such
use of Loan proceeds, and the prior proceeds of the Loan have to date been used
for no other purpose than those previously approved by Acxiom;
(g) Debtor has good title to the Collateral free and clear of
all liens and other security interests, and has possession of the Equipment and
other tangible Collateral and holds all Accounts, including books and records
pertaining thereto, Inventory and other Collateral, or evidence of Intellectual
Property and other intangible Collateral at the addresses set forth on Exhibit C
or at such other addresses that Debtor has notified Secured Party in writing;
(h) Debtor's representations and warranties in this Agreement
are true and correct on the date of each request for an advance; and
(i) Debtor has executed and delivered such agreements,
documents and instruments as may be reasonably requested by Secured Parties.
3. ORDER OF LOAN ADVANCEMENT. Each Secured Party shall advance funds as
provided in the Promissory Notes, in the following order of advancement ("ORDER
OF ADVANCEMENT"):
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(a) The initial four hundred thousand dollars ($400,000) shall
be funded equally and simultaneously by Acxiom and PC411, with each party
agreeing to advance fifty percent (50%) of each request for an advance until
such time as both parties have each advanced two hundred thousand dollars
($200,000.00).
(b) After the first $400,000 has been funded as provided in
Section 3(a), the remaining four hundred thousand dollars ($400,000) shall be
funded equally and simultaneously by Acxiom and Eaker, with each party agreeing
to advance fifty percent (50%) of each request for an advance until such time as
both parties have each advanced two hundred thousand dollars ($200,000.00).
Each Secured Party hereby agrees to advance such funds to Debtor
subject to the Conditions to Advances set forth in Section 2 hereof.
4. APPLICATION OF PAYMENTS. All payments on the Loan shall be made and
applied according to and consistently with the Order of Advancement of such
funds, with all payments on the Loan being applied first, 50/50, to funds
advanced by Acxiom and PC411 pursuant to Section 3(a) hereof, and after said
funds have been repaid in full, all payments on the Loan shall be applied,
50/50, to funds advanced by Acxiom and Eaker pursuant to Section 3(b) hereof.
5. GRANT OF SECURITY INTEREST. As security for the full and timely
payment of all of the Loan and the Secured Debt, Debtor hereby assigns and
grants to Acxiom, its successors in interest and assigns, as agent for all
Secured Parties including itself ("AGENT"), a continuing first priority lien and
security interest in and to all of Debtor's right, title and interest in and to
the Collateral; TO HAVE AND TO HOLD unto Agent, forever, or until the full
payment, discharge and satisfaction of all of the Promissory Notes and other
outstanding Secured Debt and termination of this Agreement of record by Agent.
In addition to the rights and remedies set forth herein, Agent shall have all of
the rights and remedies of a secured party under the UCC.
6. REPRESENTATIONS AND WARRANTIES OF DEBTOR. Debtor hereby represents
and warrants to each Secured Party as follows:
(a) ORGANIZATION AND GOOD STANDING. Debtor is a corporation
duly organized, validly existing, and in good standing under the laws of the
State of Delaware with full power and authority to execute, deliver and perform
its agreements and obligations under this Agreement and to own and operate its
properties and to carry on its business as presently conducted and anticipated.
On the date of any advance of funds pursuant to this Agreement, Debtor shall be
duly qualified as a foreign corporation to transact business, and shall be in
good standing in every state or other jurisdiction where the character of its
properties owned and leased, or the nature of its activities makes such
qualification necessary under applicable law.
(b) AUTHORITY. Debtor has the requisite power and authority to
enter into this Agreement and to execute and deliver the Promissory Notes, and
to perform its obligations hereunder and thereunder. The execution, delivery and
performance of this Agreement and the
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respective Promissory Notes by Debtor have been duly authorized by all necessary
action on the part of Debtor and its shareholders, and no other proceedings on
the part of Debtor are necessary to authorize the execution, delivery and
performance of this Agreement or the Promissory Notes or the other agreements or
contracts related hereto.
(c) VALIDITY. This Agreement and the Promissory Notes have
been duly executed and delivered by Debtor and constitute the legal, valid, and
binding obligations of Debtor, enforceable against Debtor in accordance with
their respective terms.
(d) NO VIOLATIONS. Neither the execution, delivery or
performance of this Agreement or the Promissory Notes, nor the compliance by
Debtor with any of the provisions hereof or thereof, (i) violate, conflict with,
or constitute a breach or default under (or an event which, with notice, lapse
of time or both, would constitute a breach or default), or give rise to any
right of termination or acceleration, or result in the creation of any lien,
security interest, charge or encumbrance upon any property of Debtor (other than
in favor of each Secured Party), under Debtor's Certificate of Incorporation,
Bylaws, or other agreement, document, note, mortgage, indenture, deed of trust,
license, agreement or other instrument or obligation to which Debtor is a party
or by which it or any of its property may be bound or subject, or (ii) violate
any judgment, ruling, order, writ, injunction, decree, statute, rule or
regulation applicable to Debtor or any of its property.
(e) NO CONSENT. No notice to, filing with, or authorization,
consent or approval of any governmental agency or other third party is necessary
or required in connection with the execution, delivery or performance of this
Agreement or the respective Promissory Notes by Debtor, other than the filing of
customary UCC financing statements in such states where Debtor's property is
located, and any other filings necessary to perfect the security interest in
Collateral which is not covered by the UCC:
(f) TITLE. Except for the security interest granted to Agent
hereunder, Debtor is the sole owner of the Collateral and has good, valid and
marketable title thereto, free and clear of any and all liens, security
interests, claims, encumbrances and adverse rights or interests whatsoever.
Debtor has not executed any financing statement that remains in effect with
respect to all or any portion of the Collateral save and except the financing
statements executed in favor of Agent in connection with this Agreement.
(g) FIRST PRIORITY SECURITY INTEREST. The security interest
granted to Agent hereunder constitutes a valid and continuing first priority
lien and security interest in the Collateral in favor of Agent.
(h) DEBTOR'S NAME AND ADDRESS. Debtor's current exact name,
and the address of its principal place of business and chief executive office,
are as set forth in the introductory paragraph of this Agreement. Debtor does
not transact business under any other name other than "PC411" or at any other
address. Debtor agrees to give each Secured Party prior written notice of any
change in Debtor's name and/or address or any additional names
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under which Debtor intends to transact business.
(i) POSSESSION AND LOCATION OF THE COLLATERAL. The Collateral
is and shall remain in the exclusive possession and control of Debtor at its
business addresses referenced on Exhibit C, and except for the relocation of the
portion of the Collateral located in California to Connecticut and except in the
ordinary course of business, Debtor shall not transfer possession of or relocate
all or any portion of the Collateral without each Secured Party's prior written
consent, which shall not be unreasonably withheld or delayed.
(j) LITIGATION. There is no litigation, action, suit,
proceeding, claim or investigation pending, or to the knowledge of Debtor
threatened, against Debtor or with respect to all or any portion of the
Collateral.
(k) NO DEFAULTS. Debtor is not in breach or default (and no
event has occurred which with notice, lapse of time or both would constitute a
breach or default) under any note, mortgage, indenture, deed of trust, license,
agreement or other instrument to which Debtor is a party or is otherwise bound
or with respect to any judgment, ruling, order, writ, injunction or decree of
any court or governmental authority applicable to Debtor or its property.
(l) TAX RETURNS. Debtor has timely and properly filed all tax
returns and reports required by applicable law to be filed with the appropriate
governmental agencies and has paid all taxes required to be shown as due and
payable on such returns and reports and has timely paid all tax assessments made
against it by any governmental authority with respect to its assets, properties,
income or business.
(m) BOOKS AND RECORDS. All books, records and documents
relating to the Collateral are and shall continue to be true, correct, complete
and genuine in all material respects, and are and shall be kept and maintained
at the address set forth in the introductory paragraph of this Agreement. Debtor
agrees to give each Secured Party prior written notice of any change in the
address at which Debtor intends to keep and maintain its books and records.
7. DEBTOR'S COVENANTS.
(a) AFFIRMATIVE COVENANTS. Debtor covenants and agrees with
each Secured Party that so long as this Agreement is in effect, Debtor will
perform and observe each of the following covenants:
(i) Debtor will timely pay all amounts due and
payable under the respective Promissory Notes pursuant to the terms thereof.
(ii) Debtor will preserve and maintain the tangible
Collateral in good working order, condition and repair, ordinary wear and tear
excepted, and will replace any worn out or obsolete tangible Collateral with
suitable replacement tangible Collateral of at least equal value and function to
the extent Secured Party deems such Collateral necessary for Debtor to continue
its business.
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(iii) Debtor will provide to each Secured Party from
time to time, upon request, a listing of the Collateral specifying the physical
location and the current condition of each item thereof and permit each Secured
Party to inspect the Collateral upon reasonable notice during normal business
hours.
(iv) Debtor will diligently defend the Collateral
against any and all claims and demands whatsoever which are adverse to the
interest of Debtor or any Secured Party.
(v) Debtor will furnish to each Secured Party from
time to time, upon request, all books and records and other information
concerning the Collateral and will allow each Secured Party or its agents to
inspect and copy, or will furnish each Secured Party with copies of, all such
books and records and other information pertaining to the Collateral.
(vi) Debtor will execute and deliver to Agent,
promptly upon request, appropriate UCC financing statements in customary
recordable form necessary to properly perfect the security interest granted
hereby.
(vii) Upon request of each Secured Party, Debtor will
promptly execute and deliver to Agent, with a copy to each Secured Party, any
and all such further instruments and documents and shall take such further
action requested by each Secured Party as may be necessary or desirable in the
reasonable judgment of each Secured Party to retain, maintain and perfect the
first priority perfected security interest granted herein.
(viii) Debtor will use the Collateral only in
connection with its business, and for no other purpose, without the prior
written consent of each Secured Party.
(ix) Debtor will promptly notify each Secured Party
of any material change in any fact or circumstance warranted or represented by
Debtor in this Agreement or if any Event of Default (as hereinafter defined)
occurs.
(x) Unless otherwise permitted by the Debtor's Board
of Directors in writing, Debtor will insure the tangible Collateral at its
expense, and will maintain with sound and reputable insurance companies
reasonably satisfactory to each Secured Party, insurance policies with respect
to all of such insurable Collateral against risk of fire, storm, theft,
vandalism and other customary insurable casualties in an amount equal to the
full insurable fair market value thereof. Such insurance shall be payable to
Agent and Debtor as their interests may appear, and all policies of insurance
shall provide for prior notice to each Secured Party of any cancellation. Upon
execution of this Agreement, and prior to the expiration date of any such policy
of insurance, Debtor shall furnish to each Secured Party a certificate or other
evidence satisfactory to each Secured Party verifying that the foregoing
insurance is in full force and effect. In case of loss, Agent shall be entitled
to receive the insurance proceeds and apply them according to the Application of
Payments terms set forth in Section 4 above; provided, however,
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if an Event of Default (as hereinafter defined) has not occurred, the insurance
proceeds may be applied by Debtor to the replacement and repair of the
Collateral in a manner reasonably acceptable to each Secured Party. Debtor
hereby authorizes Agent, after an Event of Default has occurred, to act as
Debtor's attorney-in-fact and agent for purposes of settling any claims in
connection with said insurance and to endorse any check or draft in connection
therewith for and on behalf of Debtor for the purpose of protecting the Secured
Parties' security interest in the Collateral and the full and timely payment of
all of the Secured Debt.
(xi) Debtor will promptly pay when due all taxes
assessed on or with respect to the Collateral and will timely and properly file
all tax returns and reports required by applicable law to be filed by Debtor
with the appropriate governmental agency and will pay all taxes required to be
paid by Debtor as and when due, along with all assessments made against Debtor
or the Collateral by any governmental authority.
(xii) Debtor will maintain its existence, in good
standing, in the jurisdiction of its organization, and in each other
jurisdiction in which Debtor is required by applicable law to be qualified as a
foreign corporation.
(xiii) Unless otherwise agreed by each of the Secured
Parties in writing, Debtor will furnish to each Secured Party within thirty (30)
days after the close of each calendar month, copies of Debtor's unaudited profit
and loss statement for the month then ended along with its balance sheet as of
the close of such calendar month, all prepared in accordance with generally
accepted accounting principles, consistently applied. Within sixty (60) days
after the close of each fiscal year, Debtor will furnish each Secured Party with
copies of its audited financial statements, all prepared in accordance with
generally accepted accounting principles consistently applied.
(xvi) Debtor will maintain good and reliable records,
in accordance with prudent business practices, with respect to its Accounts, and
will furnish to each Secured Party, upon request, a reconciliation of all
Accounts, including an aging of the Accounts, and such other information as each
Secured Party may reasonably request. Debtor agrees to stamp, in a form and
manner reasonably satisfactory to each Secured Party, Debtor's Accounts ledger
and other books and records pertaining to the Accounts, with an appropriate
reference to the fact that the Accounts and the proceeds thereof have been
assigned as collateral to Agent.
(b) NEGATIVE COVENANTS. Debtor further covenants and agrees
with each Secured Party that so long as this Agreement is in effect, Debtor will
not, without the prior written consent of each Secured Party:
(i) sell, pledge, lease, license, encumber, transfer,
hypothecate or otherwise dispose of all or any portion of the Collateral, except
for fair value in the ordinary course of business or Collateral which has been
disposed of because it is obsolete or damaged;
(ii) sign or file, or authorize the signing or filing
of, any document or
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instrument creating or perfecting any other security interest or lien in all or
any portion of the Collateral except in favor of Agent as required hereby and
except for the Loan and Security Agreement, dated of the date hereof between
Debtor and Acxiom, and any documents and instruments executed in connection
therewith;
(iii) use or permit the Collateral to be used in any
manner which could create waste or constitute a violation of any applicable
statute, rule, regulation, ordinance or order applicable to Debtor or the
Collateral;
(iv) consummate or enter into any agreement to
consummate any merger or consolidation or acquisition of all or any substantial
part of the assets of any Person;
(v) sell, license, lease or otherwise transfer or
dispose of all or substantially all of its assets;
(vi) except for the endorsement of checks for
collection in the ordinary course of business, incur, assume, guarantee,
endorse, purchase, or otherwise become or remain liable with respect to any
indebtedness, obligation or other liability of any other Person, including
without limitation, any officer or owner of Debtor or any affiliate thereof;
(vii) declare any dividends on, or make any payment
or distribution with respect to any ownership interest in Debtor, or in
connection with the purchase, redemption or other acquisition of any capital or
other ownership interest of Debtor or make any other distribution in respect
thereof, directly or indirectly, in cash or property, except as permitted by the
Bylaws and in a manner which would not individually or in the aggregate likely
impair the ability of Debtor to satisfy in full all of the Secured Debt;
(viii) release or terminate any rights of material
value; or
(ix) otherwise take or omit to take any action which
would cause Debtor to be unable to pay in full the Secured Debt in accordance
with the terms of the Promissory Notes.
8. EVENTS OF DEFAULT. The occurrence of any one or more of the
following shall constitute an "EVENT OF DEFAULT" hereunder:
(a) nonpayment of any portion of the principal or interest
under any of the Promissory Notes within ten (10) days after the due date
thereof;
(b) the occurrence of any other event which would permit a
holder of any Promissory Note to accelerate payment thereof;
(c) the breach by Debtor of any representation, warranty,
covenant or other agreement contained herein or in any certificate, report or
other document delivered by Debtor to
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any Secured Party pursuant to this Agreement and failure to cure same to the
reasonable satisfaction of each Secured Party within ten (10) days after written
notice thereof;
(d) any other material debt or obligation of Debtor becoming
or being declared due and payable prior to the express maturity thereof or not
having have been paid as and when due, unless Debtor is contesting such
liability in good faith by appropriate proceedings;
(e) Debtor (i) suspending or discontinuing its business, (ii)
making an assignment for the benefit of creditors, (iii) generally not paying
its debts as such they become due, (iv) admitting in writing an inability to pay
its debts as they become due, (v) filing a voluntary petition in bankruptcy,
(vi) becoming insolvent, (vii) filing any petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment of its debts or for
liquidation, dissolution or other similar relief, (viii) petitioning or applying
to any court for any receiver, custodian, or trustee for all or substantially
all of its assets or be the subject of any such proceeding filed against it,
(ix) filing an answer admitting or not contesting the material allegations of
any such petition filed against it or any order, judgment, or decree approving
such petition in any such proceeding, (x) seeking, approving, consenting to, or
acquiescing in any such proceeding for the appointment of any such trustee,
receiver, custodian, liquidator or agent for it or any substantial part of its
property or if an order is entered appointing any such trustee, receiver,
custodian, liquidator or agent, or (xi) taking any formal action for the purpose
of effectuating any of the foregoing;
(f) an order for relief being entered under the United States
Bankruptcy laws or if any other decree or order is entered by a court having
jurisdiction (i) adjudging Debtor a bankrupt or insolvent, (ii) approving as
properly filed a petition seeking reorganization, liquidation, arrangement,
adjustment or composition of Debtor or its property under the United States
bankruptcy laws or any other applicable federal or state law, (iii) appointing a
receiver, liquidator, assignee, trustee, custodian, sequestrator (or other
similar official) for the Debtor or for any substantial part of Debtor's
property, or (iv) ordering the winding up or liquidation of the affairs of
Debtor;
(g) any judgment or decree against Debtor remaining unpaid,
unstayed on appeal, undischarged, unbonded or undismissed for a period of ten
(10) days or more; or
(h) any other event or circumstance which causes any Secured
Party to reasonably believe that the prospect for payment of all of the Secured
Debt is impaired and because of which any Secured Party reasonably declares
itself insecure.
11
<PAGE> 12
9. RIGHTS OF SECURED PARTIES AND AGENT UPON THE OCCURRENCE OF AN EVENT
OF DEFAULT.
(a) Upon the occurrence of an Event of Default, and at any
time thereafter, any Secured Party may, at its option, declare the Promissory
Note payable to it and any other then outstanding Secured Debt owed to it
immediately due and payable notwithstanding any of the terms thereof (in which
event all the Promissory Notes shall simultaneously therewith become due and
payable), whereupon Agent may exercise any rights and remedies available to it
or any Secured Party under this Agreement, under the UCC, or otherwise available
at law or in equity, including, without limitation, the right to enter upon any
of the premises of Debtor, with or without process of law, and take immediate
possession of and remove the Collateral or any part thereof and collect and
receive all income, revenues, payments and proceeds therefrom, and to exercise
all of Debtor's rights with respect thereto. Upon the occurrence of an Event of
Default, and at any time thereafter, Debtor shall, upon Agent's request,
assemble the Collateral (and all books, records and documents relating thereto)
and make such items available to Agent at a place designated by Agent which is
reasonably convenient to both parties. Without removal, Agent may render any
Equipment or other tangible Collateral unusable and may dispose of such
Equipment or other tangible Collateral at Debtor's business premises as provided
under the UCC.
(b) Upon the occurrence of an Event of Default, and at any
time thereafter, Agent may, at its option, sell, lease, license or otherwise
dispose of all or any portion of the Collateral (and/or exercise any of Debtor's
rights with respect thereto) in any commercially reasonable manner. Disposition
of the Collateral may be made by any one or more public or private proceedings
upon any one or more contracts. Any such sale or disposition may be made in
whole, in part, in units, or in parcels, and at any time and place reasonably
designated by Agent. Any such sale or disposition may be for cash, upon credit,
or upon such other terms and conditions as Agent may reasonably determine.
(c) Unless the Collateral is perishable or threatens to
decline speedily in value or is of a type customarily sold on a recognized
market, reasonable notification of the time and place of any public sale or
reasonable notification of the time after which any private sale or other
intended disposition is to be made shall be sent by Agent to Debtor unless
Debtor after the occurrence of an Event of Default shall have signed a statement
renouncing or modifying its right to notification of sale. The requirements of a
reasonable notice hereunder shall be met if such notice is mailed by ordinary
mail, postage prepaid, addressed to Debtor at its business address described
herein, at least ten (10) days before the time of such sale or disposition.
(d) The Secured Parties, individually or through their Agent,
shall have the right to buy all or any portion of the Collateral at any public
sale and if the Collateral is of the type customarily sold in a recognized
market or is of a type which is the subject of widely distributed price
quotations, the Secured Parties may purchase all or any part of the Collateral
at any private sale.
12
<PAGE> 13
(e) Debtor acknowledges that when all or any portion of the
Collateral is disposed of by Agent after the occurrence of an Event of Default,
such disposition shall transfer to any purchaser for value all of Debtor's
rights and interests therein and any such purchaser shall take free of all
rights and interests of Debtor in such property.
(f) Upon the occurrence of an Event of Default, and at any
time thereafter, Agent shall have the right to notify persons obligated to
Debtor on any accounts to make payment thereof directly to Agent and Agent may
take control of all the proceeds of the accounts. After the occurrence of an
Event of Default, Debtor will not, without the prior written consent of the
Secured Parties, grant any extension of the time for payment of any of the
accounts receivable, compromise or settle any accounts receivable for less than
the full amount thereof, or release wholly or partly any person liable for the
payment thereof or allow any credit or discount whatsoever thereon.
10. APPLICATION OF PROCEEDS AND DEFICIENCY. The proceeds of any
disposition of all or any portion of the Collateral shall be applied in the
following order:
(a) First, to the payment of all reasonable expenses of
retaking, holding, preparing the Collateral for sale, lease or license, and
selling, leasing, licensing or otherwise disposing of the Collateral, including
without limitation reasonable attorney's fees and other reasonable costs
incurred by Agent in connection therewith;
(b) Second, to the full and complete satisfaction and payment
of the Promissory Notes and all other then outstanding Secured Debt, according
to the Order of Advancement made by the respective Secured Parties;
(c) Third, to the satisfaction of any indebtedness secured by
any subordinate security interest in the Collateral if written notification of
demand therefor is received by Agent before distribution of the proceeds is
completed; and
(d) Fourth, any surplus shall be remitted by Agent to Debtor
within thirty (30) days after payment of all of the foregoing. In the event
there is a surplus and any other person makes a claim to the surplus amount,
Agent may hold said sum (without liability for interest or otherwise) or
institute an interpleader action and deposit said sum with an appropriate court
of competent jurisdiction until such time as the rights in such surplus are
fully and finally determined by a final nonappealable decision of a court of
competent jurisdiction or by agreement of all interested parties.
To the extent the proceeds from the disposition of the Collateral are
insufficient to satisfy items 10(a) and (b) above, Debtor shall remain liable to
each Secured Party for the payment of such deficiency, with interest equal to
the greater of (i) the interest rate on the Promissory Note in question and (ii)
ten percent (10%) per annum.
11. POWER OF ATTORNEY. Debtor hereby makes, constitutes and appoints
Agent as its
13
<PAGE> 14
true and lawful agent and attorney in fact, with full power of substitution, and
in Debtor's name, place and stead after the occurrence of an Event of Default
(i) to collect, pursue collection of, and receive payment for any and all
income, proceeds or payments with respect to any Collateral and to exercise any
and all of Debtor's rights relating thereto; (ii) to endorse the name of Debtor
upon any notes, checks, acceptances, drafts, money orders, instruments or other
documents relating to the Collateral, or the income, proceeds or payments with
respect thereto, (iii) to exercise, waive, sue for, settle, adjust, or
compromise any claims or rights with respect to the Collateral; and (iv) to take
any action in the name and on behalf of Debtor to fulfill any representation,
warranty, covenant or agreement of Debtor contained herein or as may be
necessary or appropriate to carry out the purposes and intent of this Agreement
and to perfect and protect Agent's security interest in the Collateral and its
rights therein. Debtor agrees that neither Agent, any other Secured Party, nor
any of their agents, designees, officers or employees will be liable for any
acts of commission or omission, or for any error of judgment or mistake of facts
or law with respect to the exercise of said power of attorney save and except
fraud, gross misconduct, or a knowing violation of law. The power of attorney
granted herein is coupled with an interest and shall be irrevocable during the
term of this Agreement.
12. DURATION. This Agreement shall continue in full force and effect,
and the security interest granted hereby and the representations, warranties,
covenants and obligations of Debtor hereunder and all the terms, conditions and
provisions hereof shall continue to be fully operative until the latest of (i)
the time when Debtor shall have fully paid and discharged all sums due and
payable pursuant to the Promissory Notes and any other outstanding Secured Debt,
(ii) the receipt of at least $1,250,000 of additional capital through the sale
of the Debtor's Preferred Stock to one or more investors at a price of at least
$1,000 per share, or (iii) Agent shall release the security interests of record
by recording a UCC termination statement in all offices where UCC financing
statements were filed to perfect same. Debtor agrees that to the extent a
payment or payments to Agent or any Secured Party is subsequently invalidated,
set aside or otherwise required to be repaid, the obligation or part thereof
intended to be satisfied, this Agreement and the security interest in the
Collateral granted to Agent hereby, shall be revived and continued in full force
and effect as if said payment had not been made and as if there had been no
termination of this Agreement.
13. MISCELLANEOUS.
(a) ASSIGNMENT. This Agreement and the rights, obligations and
duties of Debtor hereunder shall not be assignable or otherwise transferable by
Debtor.
(b) FEES OF LEGAL COUNSEL. In the event any of the Secured
Parties shall employ legal counsel to protect its rights hereunder or to enforce
any term or provision hereof or to protect its interest in the Collateral, such
attorney's fees and other legal expenses shall become part of the Secured Debt
and shall be payable by Debtor to each Secured Party upon demand, with interest
from the date of demand until paid at the rate of ten percent (10%) per annum.
(c) FURTHER ASSURANCES. Debtor agrees that from time to time
hereafter, upon
14
<PAGE> 15
request, it will execute, acknowledge and deliver such other instruments and
documents and take such further action as may be reasonably necessary to carry
out the intent of this Agreement.
(d) MODIFICATION. No term or provision contained herein may be
modified, amended or waived except by written agreement or consent signed by the
party to be bound thereby.
(e) BINDING EFFECT AND BENEFIT. This Agreement shall inure to
the benefit of, and shall be binding upon, the parties hereto, their successors
in interest and permitted assigns.
(f) HEADINGS AND CAPTIONS. Subject headings and captions are
included for convenience purposes only and shall not affect the interpretation
of this Agreement.
(g) NOTICE. All notices, requests, demands and other
communications permitted or required hereunder shall be in writing, and either
(i) delivered in person, (ii) sent by express mail or other overnight delivery
service providing receipt of delivery, (iii) mailed by certified or registered
mail, postage prepaid, return receipt requested or (iv) sent by facsimile
transmission as follows:
If to Debtor, addressed or delivered in person to:
Digital Asset Management, Inc.
67 Stonehedge Drive
Greenwich, CT 06831
Attn: Dean Eaker, President
Fax: 203-531-4249
With a copy to:
Kronish, Lieb, Weiner & Hellman, LLP
1114 Avenue of the Americas
New York, NY 10036-7798
Attn: Chet F. Lipton, Esq.
Fax: 212-479-6275
If to Agent or any Secured Party, addressed or delivered in
person to:
Acxiom Corporation
301 Industrial Boulevard
P.O. Box 2000
Conway, AR 72033-2000
Attn: Mark Theilken, Group Leader
Fax: 501-336-3910
15
<PAGE> 16
With a copy to:
Friday, Eldredge & Clark
2000 First Commercial Building
400 West Capitol Avenue
Little Rock, Arkansas 72201
Attention: Carla G. Spainhour, Esq.
Fax: 501-376-2147
and
PC411, Inc.
100 SE Second Street, 32nd Floor
Miami, FL 33131
Attn: J. Bryant Kirkland III
Vice President and Chief Financial Officer
Fax: 305-579-8022
With a copy to:
Morse, Zelnick, Rose & Lander
450 Park Ave.
New York, NY 10022-2605
Attn: Joel J. Goldschmidt, Esq.
Fax: 212-838-9190
and
Dean Eaker
67 Stonehedge Drive
Greenwich, CT 06831
Fax: 203-531-4249
With a copy to:
Kronish, Lieb, Weiner & Hellman, LLP
1114 Avenue of the Americas
New York, NY 10036-7798
Attn: Chet F. Lipton, Esq.
Fax: 212-479-6275
or to such other address as any party may designate by like
notice.
16
<PAGE> 17
Any such notice or communication, if given or made by prepaid,
registered or certified mail or by recorded express delivery, shall be deemed to
have been made when actually received, but not later than three (3) business
days after the same was properly posted or given to such express delivery
service, and if made properly by facsimile transmission such notice or
communication shall be deemed to have been made at the time of dispatch.
(h) SEVERABILITY. If any portion of this Agreement is held
invalid, illegal or unenforceable, such determination shall not impair the
enforceability of the remaining terms and provisions herein, which shall remain
effective, and to this end this Agreement is declared to be severable.
(i) TIME FOR PERFORMANCE. Time is of the essence in this
Agreement.
(j) WAIVER. No waiver of a default, breach or other violation
of any provision of this Agreement shall operate or be construed as a waiver of
any subsequent default, breach or other violation or limit or restrict any right
or remedy otherwise available. No delay or omission on the part of Agent or any
Secured Party to exercise any right or power arising by reason of a default
shall impair any such right or power or prevent its exercise at any time during
the continuance of such default.
(k) RIGHTS AND REMEDIES CUMULATIVE. The rights and remedies of
each Secured Party expressed herein are cumulative and not exclusive of any
rights and remedies otherwise available.
(l) GENDER AND PRONOUNS. Throughout this Agreement, the
masculine shall include the feminine and neuter and the singular shall include
the plural and vice versa as the context requires.
(m) ENTIRE AGREEMENT. This Agreement, the Promissory Notes,
and the other agreements and documents herein referenced constitute the entire
agreement of the parties and supersede any and all other prior agreements, oral
or written, with respect to the subject matter contained herein.
(n) GOVERNING LAW. This Agreement shall be subject to and
governed by the laws of the State of Connecticut.
(o) INCORPORATION BY REFERENCE. All exhibits and documents
referred to in this Agreement shall be deemed incorporated herein by any
reference thereto as if fully set out.
(p) COUNTERPARTS. This Agreement may be executed in one or
more counterparts (all counterparts together reflecting the signature of all
parties) each of which shall be deemed an original, and all of which together
shall constitute one and the same instrument.
(q) AUTHORITY. Each individual signing this Agreement in a
representative capacity acknowledges and represents that he/she is duly
authorized to execute this Agreement in
17
<PAGE> 18
such capacity in the name of, and on behalf of, the designated corporation,
partnership, limited liability company, or other entity.
(r) DEBTOR'S FAILURE TO PAY COSTS OR EXPENSES. If Debtor fails
to pay any cost or expense required hereunder to be paid by Debtor, (including,
without limitation, insurance and taxes) any Secured Party may, at its option,
pay such cost or expense on behalf of Debtor, and in such event the amount so
paid by that Secured Party shall become part of that Secured Party's Secured
Debt hereunder and shall be payable by Debtor to that Secured Party upon demand,
with interest at the rate of ten percent (10%) per annum until paid.
14. OPINION OF COUNSEL. As a condition to each Secured Party's
obligation to fund the Loan contemplated hereby, Debtor shall deliver to each
Secured Party opinions from legal counsel in a form substantially similar to
that attached hereto as Exhibits A and B, respectively.
15.1 APPOINTMENT, POWERS AND IMMUNITIES. Each Secured Party
hereby irrevocably appoints and authorizes Agent to act as its agent with
respect to the Collateral, with such powers as are specifically delegated to the
Agent by the terms of this Agreement together with such other powers as are
reasonably incidental thereto. The Agent shall have no duties or
responsibilities or authority except those expressly set forth in this Agreement
and shall not be a trustee for the Secured Parties or otherwise owe a fiduciary
duty to the other Secured Parties. The Agent shall not be responsible to Secured
Parties for any recitals, statements, representations or warranties contained in
this Agreement, the Notes, or any certificate or other document referred to or
provided for in, or received by any of them under, this Agreement or for the
value, validity, effectiveness, genuineness, enforceability or sufficiency of
this Agreement or any other document referred to or provided for herein or for
the collectibility of the Loans or for the validity or effectiveness of any
assignment, mortgage, pledge, security agreement, financing statement, document
or instrument, or for the filing, recording, re-filing, continuing or
re-recording of any document or for any failure by Debtor to perform any of its
agreements, covenants or obligations hereunder. Agent may, employ agents and
attorneys-in-fact and shall not be answerable, except as to money or securities
received by it or its authorized agents in exchange for Collateral, for the
negligence or misconduct of any such agents or attorneys-in-fact selected by it
with reasonable care. Neither Agent nor any of its directors, officers,
employees or agents shall be responsible to Secured Parties for any action taken
or omitted to be taken by it or them hereunder in connection herewith or
therewith, except for its or their own gross negligence or willful misconduct.
18
<PAGE> 19
15.2 RELIANCE BY AGENT. Except to the extent that such
reliance constitutes gross negligence or willful misconduct, Agent shall be
entitled to rely upon any certification, notice or other communication
(including any thereof by telephone, telecopier, telex, telegram or cable)
believed by it to be genuine and correct and to have been signed or sent by or
on behalf of the proper person or persons, and upon advice and statements of
legal counsel, independent accountants and other experts selected by Agent. As
to any matters not expressly provided by this Agreement or the other instruments
and agreements executed in connection with the Loan, Agent shall in all cases be
fully protected in acting, or in refraining from acting, hereunder in accordance
with written instructions signed by the Secured Parties.
15.3 EVENTS OF DEFAULT. Agent shall not be deemed to have
knowledge of the occurrence of a Default or an Event of Default unless Agent has
itself issued a notice, or has received notice from Debtor or a Secured Party
specifying such Default or Event of Default and stating that such notice is a
"Notice of Default". In the event that Agent receives such a notice, Agent shall
provide the Secured Parties with prior written notice of any actions or
omissions proposed to be taken by Agent with respect thereto, unless the giving
of such notice is impracticable for reasons of safety or preservation of
Collateral. The foregoing notwithstanding, Agent and each of the Secured Parties
hereby agrees to share with one another any and all material information
regarding Debtor which may come into the possession of Agent or any Secured
Party from time to time, provided that neither Agent nor the Secured Parties
shall be under any duty or obligation to provide any analysis of any such
information so provided, or to determine therefrom whether a Default or an Event
of Default has occurred.
15.4 WAIVERS; AMENDMENTS; EVENT OF DEFAULT.
(a) Upon the giving or receipt of any Notice of Default
required under Section 15.3 above, Agent, for itself and on behalf of each
Secured Party, shall (subject to the provisions of this Section 15) take such
action or actions, assert such rights, exercise such remedies, or refrain from
taking such actions with respect thereto, as Agent shall deem advisable,
including, without limitation, (i) the institution of suit, and/or the
commencement of foreclosure proceedings in respect of the Collateral or (ii) the
waiving of any Default(s) or Event(s) of Default.
(b) Each of the Secured Parties shall, at all times, act in
good faith to mutually agree upon actions to be taken in respect of the
Collateral. In the event and to the extent that Agent receives conflicting
instructions as to any action to be taken, Agent shall use its good faith
judgment to determine and implement those specific actions requested by Secured
Parties.
(c) Except as otherwise specified in this Section 15, Agent
shall, and shall be permitted in its discretion to, enforce the provisions,
rights and remedies pursuant to this Agreement in a manner consistent herewith
and therewith and in Agent's good faith judgment.
19
<PAGE> 20
(d) Nothing contained in this Section 15 shall be deemed to
grant to Debtor any indulgence or grace period in respect of any of its
covenants or obligations under this Agreement (or any right to expect or receive
any such indulgence or grace period), except as otherwise specifically provided
in other Sections of this Agreement. Nothing contained in this Section 15 shall
be deemed to prohibit or impair Agent, regardless of the lack of any requisite
consents of Secured Parties, from taking action in respect of any of the
Collateral if same are perishable or threaten to decline speedily in value.
15.5 AGENT'S RIGHTS AS A SECURED PARTY. With respect to the
Loan made by it, Agent in its capacity as a Secured Party hereunder shall have
the same rights and powers hereunder as any other Secured Party, and may
exercise the same as though it were not acting as Agent, and the term "Secured
Party" or "Secured Parties" shall, unless the context otherwise indicates,
include the Agent in its individual capacity.
15.6 SUCCESSOR AGENT. Agent (a) may resign at any time by
giving thirty (30) days' written notice thereof to Secured Parties and Debtor,
and (b) shall be deemed to have resigned upon any bankruptcy, insolvency or
receivership of Agent; provided, that any such resignation shall be effective at
the time specified below. Upon any such resignation, PC411 is hereby appointed
successor agent. If PC411 does not wish to serve as successor agent, then Agent
may, on behalf of the Secured Parties, appoint a successor agent, which shall be
a commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and having a combined capital and surplus of at
least $50,000,000. Upon the acceptance of its appointment as a successor agent,
such successor agent shall thereupon succeed to and become vested with all the
rights and duties of Agent, and Agent shall be discharged from its duties and
obligations hereunder. After Agent's resignation hereunder as Agent, the
provisions of this Section 15 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Agent. The provisions of this Section
15.6 shall apply with respect to the successor agents and its successors.
15.7 SEVERAL LIABILITY OF SECURED PARTIES; FAILURE TO LEND.
(a) No Secured Party shall incur or assume any liability or
obligation to Debtor by reason of any other Secured Party failing or refusing to
make Advances or otherwise lend the amounts required by this Agreement; it being
understood and agreed that all obligations of each Secured Party to make the
Loan are several, and not joint and several.
(b) In the event and to the extent that any Secured Party
shall, for any reason or no reason, fail or refuse to make its pro rata portion
of the Advances otherwise required to be made hereunder, then the other Secured
Parties may (but shall not be obligated to) make such Advances on behalf of the
defaulting Secured Party; in which event such non-defaulting Secured Party may
be reimbursed for any such Advances so made on behalf of the defaulting Secured
Party out of the defaulting Secured Party's otherwise applicable share of the
initial proceeds of all payments and collections received from Debtor or out of
the initial net proceeds received from the sale or liquidation of any Collateral
hereunder in the event of a foreclosure thereof.
20
<PAGE> 21
15.8 SHARING AND REMITTANCE OF PAYMENTS AND COLLATERAL.
(a) All collections received by Agent or any Secured Party in
respect of Debtor shall be applied in accordance with this Agreement, and all
collections applied to Advances and/or interest thereon or fees in respect
thereof shall be allocated ratably among the Secured Parties in proportion to
their relative interests in the Loan, but only in the Order of Advancement set
forth in Section 3 hereof and in accordance with the terms of the Notes, by wire
transfer of same-day Federal Reserve Funds for all fees, interest payments and
other amounts payable to the Secured Parties under this Agreement, including
amounts payable in respect of the principal amounts of, and accrued interest on,
the Loan. If requested by Agent, each Secured Party shall, promptly following
receipt of each payment under this Section 15.8(a), confirm its receipt by a
written acknowledgment telecopied to the Agent.
(b) If and to the extent that any payment received by any
Secured Party in respect of the Loan (whether principal, interest or otherwise)
shall be rescinded or must otherwise be returned for any lawful reason, then
each of the Secured Parties who received payment shall, upon notice thereof,
remit its proportionate share of the amount(s) so rescinded or returned.
(c) Except for any prepayments made by Debtor while no other
obligations shall be then due and payable (which prepayments shall be applied to
the Loan in the manner directed by Debtor), and any other payments received at
any time when no other obligations shall be then due and payable (which payments
shall be applied in reduction of the outstanding Advances), all payments
received by Agent or any Secured Party from Debtor shall be applied and
disbursed by Agent to the Secured Party, ratably in proportion to their relative
interests therein, in accordance with the terms of this Agreement the Notes.
The foregoing notwithstanding, Agent shall be entitled, prior to any
application of payments hereunder, to receive reimbursement out of such payments
for any previously unreimbursed reasonable costs and expenses incurred by Agent
pursuant to this Agreement.
(d) To the extent of any payments made by Debtor to Agent,
Debtor shall be entitled to presume that such payments have effectively been
made to Secured Parties under this Agreement, and Debtor shall have no liability
to any Secured Party with respect to any payments misapplied, misappropriated,
or otherwise improperly disbursed or not disbursed by Agent.
21
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the day and year aforesaid.
DEBTOR:
DIGITAL ASSET MANAGEMENT, INC.
By: /s/ Dean Eaker
------------------------------
Dean Eaker, President
SECURED PARTIES:
ACXIOM CORPORATION
By: /s/ Mark Theilken
------------------------------
Mark Theilken, Group Leader
Title:
----------------------------
PC411, INC.
By: /s/ J. Bryant Kirkland III
------------------------------
J. Bryant Kirkland III, Vice President and
Chief Financial Officer
/s/ Dean Eaker
------------------------------
Dean Eaker, Individually
22
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 2,337,558
<SECURITIES> 0
<RECEIVABLES> 2,842
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,474,756
<PP&E> 354,451
<DEPRECIATION> 148,016
<TOTAL-ASSETS> 3,560,823
<CURRENT-LIABILITIES> 218,545
<BONDS> 0
0
0
<COMMON> 29,725
<OTHER-SE> 3,312,553
<TOTAL-LIABILITY-AND-EQUITY> 3,560,823
<SALES> 71,977
<TOTAL-REVENUES> 0
<CGS> 298,622
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,525,429
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,622,808)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,622,808)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,622,808)
<EPS-PRIMARY> (0.53)
<EPS-DILUTED> (0.53)
</TABLE>
