<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 26, 1999.
REGISTRATION NO. 333-________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Pacific Softworks, Inc.
(Name of small business issuer in its charter)
California 8980 77-0390628
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification No.)
or Organization) Code Number)
703 Rancho Conejo Boulevard
Newbury Park, California 91320
(805) 499-7722
(Address and Telephone Number of Principal Executive Offices
and Address of Principal Place of Business or Intended
Principal Place of Business)
Glenn P. Russell
President and Chief Executive Officer
Pacific Softworks, Inc.
703 Rancho Conejo Boulevard
Newbury Park, California 91320
(805) 499-7722
(Name, Address and Telephone Number of Agent For Service)
With Copies To:
<TABLE>
<S> <C>
Aaron A. Grunfeld, Esq. Robert W. Walter, Esq.
Resch Polster Alpert & Berger LLP Berliner Zisser Walter & Gallegos, P.C.
10390 Santa Monica Boulevard, Fourth Floor 1700 Lincoln Street, Suite 4700
Los Angeles, California 90025 Denver, Colorado 80203
(310) 277-8300 (303) 830-1700
</TABLE>
Approximate date of commencement of proposed sale to the public: As soon
as practicable following the date on which this Registration Statement becomes
effective.
<PAGE> 2
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act of 1933, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
Title of Each Maximum Maximum
Class Of Amount Offering Aggregate Amount Of
Securities To Be To Be Price Offering Registration
Registered Registered(1) Per Unit(2) Price Fee
---------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Units, each comprising one share of
common stock and one warrant(3)(4) 920,000 $ 5.25 $ 4,830,000 $1,342.74
(a) Common stock 920,000 -- -- --
(b) Warrants to purchase common
stock 920,000 -- -- --
(c) Common Stock 920,000 $ 7.50 $ 6,900,000 $1,918.20
Representative's option for the
purchase of units 1 Warrant $ 100 $ 1.00
Units, underlying representative's
option each comprising one share of
common stock and one warrant(4)(5) 80,000 $ 6.30 $ 504,000 $ 140.11
(a) Common stock 80,000 -- -- --
(b) Warrants to purchase common
stock 80,000 -- -- --
(c) Common stock 80,000 $ 7.50 $ 600,000 $ 166.80
Units, each comprising one share of
common stock and one warrant(4)(6) 80,000 $ 5.25 $ 420,000 $ 116.76
(a) Common stock 80,000 -- -- --
(b) Warrants to purchase common
stock 80,000 -- -- --
(c) Common stock 80,000 $ 7.50 $ 600,000 $ 166.80
Common stock(7) 200,000 $ 5.25 $ 1,050,000 $ 291.90
Total $14,904,100 $4,144.31
</TABLE>
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<PAGE> 3
(1) Assumes the underwriters' over-allotment option is exercised in full.
(2) Estimated pursuant to Rule 457(o) under the Securities Act solely for
the purpose of calculation of the registration fee.
(3) Includes 920,000 shares of common stock issuable upon exercise of the
warrants.
(4) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, an indeterminate number of additional shares of common stock
are registered hereunder in the event that provisions preventing
dilution are triggered, as provided in the warrants. No additional
registration fee has been paid for these shares of common stock.
(5) Shares of common stock and warrants to purchase common stock included in
the units issuable on exercise of the representative's option for the
purchase of units.
(6) Shares of common stock and warrants to purchase common stock issuable on
exercise of warrants to acquire 80,000 units and also includes 80,000
shares of common stock issuable upon exercise of the warrants.
(7) Shares of common stock registered on behalf of certain registering
stockholders.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment that specifically states that this registration
statement shall thereafter become effective in accordance with section 8(a) of
the Securities Act of 1933, as amended, or until the registration statement
shall become effective on such date as the Securities and Exchange Commission,
acting pursuant to such section 8(a), may determine.
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<PAGE> 4
EXPLANATORY NOTE
This registration statement contains two prospectuses.
The first prospectus forming a part of this registration statement is to be used
in connection with the underwritten public offering of 920,000 units (including
120,000 units subject to the underwriters' over-allotment option) (each unit
consisting of one share of common stock and one warrant). The first prospectus
immediately follows this explanatory note.
The second prospectus forming a part of this registration statement is
to be used in connection with the resale by certain nonaffiliated stockholders
and consultants to Pacific Softworks of (i) up to 80,000 units issuable upon
exercise of certain warrants to purchase units and (ii) up to 200,000 shares of
common stock. The second prospectus will consist of (i) the cover page and
inside cover page immediately following the first prospectus, (ii) pages 1
through 57 (other than the section entitled "Underwriting") and pages F-1
through F-15 of the first prospectus, (iii) pages SS-1 through SS-3, (iv) page
SS-2 which will appear in place of the section entitled "Underwriting," and (v)
the back cover page, which immediately follows the inside back cover page of the
first prospectus.
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<PAGE> 5
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission or any applicable state securities
commission becomes effective. This preliminary prospectus is not an offer to
sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Subject to completion, dated March __,1999
PROSPECTUS
800,000 UNITS
[PACIFIC SOFTWORKS, INC. LOGO]
800,000 SHARES OF COMMON STOCK
AND
800,000 WARRANTS
This is our initial public offering of securities. We expect that the
initial public offering price per unit will be between $5.00 and $5.50. Each
unit consists of one share of common stock and one warrant. The common stock and
warrants will trade separately. There has been no public market for any of our
securities before this offering. The public offering price may not reflect the
market price of our securities after the offering.
Each warrant allows its holder to purchase for a period of 24 months one
share of common stock at a price of $7.50. We reserve the right to redeem all
outstanding warrants under certain circumstances.
We expect to list the common stock and warrants on the Nasdaq SmallCap
Market under the symbols "PASW" and "PASWW."
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The underwriters have a 45-day option to purchase an additional 120,000
units from Pacific Softworks.
<TABLE>
<CAPTION>
Without With
Per Unit Over-Allotment Over-Allotment
<S> <C> <C> <C>
Price to public $ $ $
Underwriting discounts $ $ $
Pacific Softworks' proceeds $ $ $
</TABLE>
The underwriters are offering the units subject to various conditions
and are severally underwriting the units. The underwriters expect to deliver the
units against payment in Los Angeles, California on ____________, 1999.
SPENCER EDWARDS, INC.
____________, 1999
<PAGE> 6
TABLE OF CONTENTS
<TABLE>
<S> <C>
Prospectus Summary.............................................................. 2
Risk Factors.................................................................... 6
Where You Can Find Additional Information.......................................17
Use Of Proceeds.................................................................18
Dividend Policy.................................................................19
Capitalization..................................................................19
Dilution........................................................................20
Selected Consolidated Financial Data............................................21
Management's Discussion And Analysis Of Financial Condition
And Results Of Operations.....................................................21
Business........................................................................28
Management......................................................................42
Certain Transactions............................................................47
Principal Stockholders..........................................................48
Description Of Securities.......................................................48
Underwriting....................................................................53
Legal Matters...................................................................55
Experts.........................................................................56
</TABLE>
Except where noted otherwise, all information in this prospectus, including
share and per share information, assumes no exercise of the underwriters'
over-allotment option.
Until _____, 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in the units, common stock and warrants, whether or not
participating in this distribution, may be required to deliver a prospectus.
This is in addition to the obligations of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
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<PAGE> 7
PROSPECTUS SUMMARY
We have prepared this summary to assist you in your review of this
document. This summary highlights only selected information contained elsewhere
in this prospectus. Before making an investment in the securities of Pacific
Softworks you should read this entire prospectus and the financial statements
and notes, all of which should be consulted when reading this summary.
PACIFIC SOFTWORKS, INC.
OUR BUSINESS
Pacific Softworks develops and licenses Internet and Web related
software and software development tools. Our products enable Internet and Web
based communications, based on a set of rules known as protocols, and are
embedded into systems and "information appliances" developed or manufactured by
others. Information appliances are Internet connected versions of everyday
products such as telephones, televisions, fax machines and other digitally based
devices.
Rapid advances are enabling wired and wireless information appliances to
assume many of the tasks now handled by personal computers ("PCs"). We believe
that Web browsing enabled by embedded software in information appliances used by
businesses and individuals will be a major market. International Data Corp.
estimates that 94% of Internet access is now made through PCs. By 2002, that
percentage is expected to decrease to 64% and the number of information
appliances sold is expected to exceed the number of PCs sold.
We intend to evolve and refine our business to track the growth of
embedded software in information appliances that incorporate Internet and Web
communications capabilities. As information appliances proliferate, we
anticipate that our opportunities for long term revenue growth will also
increase.
Our Internet and Web related software development tools offer
significant benefits to our customers including:
o Accelerated product development and market entry,
o Portability across multiple hardware and software system environments,
and
o Comprehensive embedded solutions that enable information appliances to
connect with the Internet and use the Web.
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<PAGE> 8
Information appliance manufacturers and software developers have
included our products within the following applications and information
appliances:
<TABLE>
<CAPTION>
Applications Information Appliances
- ------------ ----------------------
<S> <C>
o Office automation o Internet fax, copiers, laser printers, scanners
o Medical o Patient monitors, imaging systems
o Multimedia o DVD players, projectors, digital cameras
o Industrial controls o Vending machines, traffic controls, scoring systems,
security controls
o Networking o Routers, switches, network controls, cable modems
o Set-top boxes o Set-top boxes, Internet TV
o Wireless o Telephones, personal digital assistants, pagers,
electronic organizers
o Navigation systems o Navigational controls, air traffic controls
o Defense and aerospace o Engine controls, smart weapons
o Satellite o Satellite positioning, uplink and downlink of streaming
video
</TABLE>
We have developed a new proprietary Internet browser for use within
independent, "non-Windows(R)" information appliances. We expect to begin
marketing this browser, under the "FUSION WebPilot Micro Browser(TM)" name, by
the middle of this year. Our browser may be effectively placed in use without an
operating system and does not require substantial amounts of memory. We believe
that our browser may prove particularly attractive to manufacturers of
information appliances who would rather give their products a proprietary or
subjective "look and feel" than to be restricted by a browser which requires or
depends on the "look and feel" of commercially available operating systems such
as Windows(R).
OUR CUSTOMERS
Since incorporation in 1992, Pacific Softworks has licensed its products
to over 400 companies around the world, including: Alcatel, AT&T, America
OnLine, Canon, Canal+, Cisco, Cocom, Bell Labs, Data General, Concurrent
Technologies, Ericsson, General Instruments, Hughes, Honeywell, Hewlett Packard,
Intel, Motorola, Newbridge, Nortel, Psion, Philips, Samsung, Siemens, ST
Microsystems, Tandberg, Unisys, and VLSI.
OUR STRATEGY
Our objective is to be a leading provider of embedded software that
enables information appliances and other devices to connect with and communicate
through the Internet and Web. To attain our objective and to increase revenue,
we intend to:
o Increase sales and marketing activities,
o Expand our existing collaborative relationships to capitalize on
our new micro-browser and other technologies designed for
information appliances,
o Create new collaborative relationships with key information
appliance manufacturers,
o Maintain research and development of new Internet-based products
that enable reliable and secure communication and transport of
data over the Internet, and
o Continue to provide additional functions and features to our
existing and upgraded software and communication products.
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<PAGE> 9
OUR REVENUE MODEL
We have historically licensed our source code for a one time fee.
Depending on the products and their use, this one-time fee typically ranged from
$10,000 to $40,000. As we implement our growth strategies we anticipate that our
revenue model will evolve into one based primarily on royalties measured against
our customers' units of production.
GENERAL
"Pacific Softworks," "FUSION," "WebPilot," "FastTrack," "WebWatch,"
"FusOS," "AirMail," "SimpleMail" and "FusionWizard" are all trademarks of
Pacific Softworks. All other trade names, trademarks and service marks appearing
in this prospectus are the property of their respective holders.
Our executive offices are located at 703 Rancho Conejo Boulevard,
Newbury Park, California 91320 and our telephone number is (805) 499-7722. Our
Web site address is www.pacificsw.com. Information contained on our Web site
does not constitute part of this prospectus.
THE OFFERING
Units offered: 800,000, each consisting of one share of common stock and
one warrant.
Warrant attributes: Each warrant entitles the holder to purchase one share of
common stock for $7.50 for the 24 months ending _________,
subject to our rights to redeem warrants in certain events.
Common stock to be
outstanding after
the offering: 4,100,000 shares.
Use of proceeds: We estimate that we will receive net proceeds of about
$3,500,000. We expect to use net proceeds to hire more
engineering, marketing and support personnel and for
working capital. See "Use of Proceeds."
Risk factors: For a discussion of certain risks you should consider
before investing in units, see "Risk Factors."
Dividend policy: Pacific Softworks does not intend to pay dividends.
Proposed Nasdaq
Small Cap Market
symbols: Common Stock: PASW
Warrants: PASWW
In addition to 4,100,000 shares of common stock outstanding after the
offering, Pacific Softworks may issue 800,000 shares of common stock on exercise
of the warrants and 345,000 shares of common stock on exercise of currently
outstanding options and warrants.
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<PAGE> 10
SUMMARY CONSOLIDATED FINANCIAL DATA
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1998
------- -------
(In thousands except per
share data)
<S> <C> <C>
Net revenue ................................ $ 3,310 $ 2,787
Gross profit ............................... 3,193 2,687
Selling, general and administrative ........ 2,110 1,936
Research and development ................... 834 852
Depreciation and amortization .............. 64 59
Former officer's consulting and
administrative expense .................. 314 314
Loss from operations ....................... (129) (474)
Net loss ................................... $ (129) $ (474)
------- -------
Net loss per share, basic and diluted ...... $ (0.04) $ (0.14)
======= =======
</TABLE>
The following table indicates a summary of our balance sheet as of December 31,
1998. The column labeled "pro forma as adjusted" reflects:
o Net proceeds we received from the sale of 100,000 shares of
common stock at $5.00 per share in February 1999, and
o Our receipt of estimated net proceeds from the sale of 800,000
units at an assumed initial public offering price of $5.25 per
unit, after deducting underwriting discounts and estimated
expenses.
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31, 1998
--------------------
Pro Forma
Actual As Adjusted
------ -----------
(in thousands)
<S> <C> <C>
Cash and cash equivalents........................ $224 $4,210
Working capital ................................. 222 4,208
Total assets .................................... 643 4,629
Total stockholders' equity....................... 207 4,193
</TABLE>
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<PAGE> 11
RISK FACTORS
Investment in our securities involves a high degree of risk. In addition
to the other information in this prospectus, you should carefully read and
consider the following risk factors before purchasing our securities. The risks
and uncertainties described below are not the only ones facing us. Additional
risks and uncertainties of which we are unaware or which we currently deem
immaterial also may become important factors that may adversely affect us.
If any of the following risks actually occur, our business, financial
condition or operating results could be materially and adversely affected. In
this case, the trading price of our securities could decline, and you may lose
all or a part of your investment.
WE HAVE REPORTED LOSSES FOR OUR LAST TWO YEARS AND HAVE EXPERIENCED FLUCTUATING
OPERATING RESULTS.
We reported losses of $129,000 and $474,000 for the years ending
December 31, 1997 and 1998. These losses include about $314,000 paid during each
of those years for former officer's consulting and administrative expense. As of
March 15, 1999 we will pay that former officer $180,000, in equal monthly
installments through September 1999. We can provide no assurance that we will be
profitable in the future. From time to time we have experienced material
period-to-period fluctuations in revenue and operating results. We anticipate
that these periodic fluctuations in revenue and operating results will occur in
the future. We attribute these fluctuations to a variety of business conditions
that include:
o the volume and timing of orders received during the
quarter,
o the timing and acceptance of new products and product
enhancements by us and our competitors,
o unanticipated sales and buyouts of run-time licenses,
o stages of product life cycles,
o purchasing patterns of customers and distributors,
o market acceptance of products sold by our customers, and
o competitive conditions in our industry.
We operate in rapidly evolving markets for our Internet products and
services. Our future operating results may fluctuate as a result of these and
other competitive conditions.
As a result of the factors described above we believe that quarterly
revenue and operating results are likely to vary significantly in the future and
that quarter to quarter comparisons of our operating results may not be
meaningful. You should therefore not rely on the results of one quarter as an
indication of future performance.
WE RELY ON OUR CORE SUITE OF PRODUCTS AND NEW PRODUCTS.
Revenue from licenses of our suite of Internet and Web products and
sales of our services accounted for all of our revenue in the year ended
December 31, 1998. Our research and development expenditures for 1997 and 1998
resulted in several new products. We introduced FastTrack(TM) in November 1998
and expect to market our FUSION WebPilot Micro Browser(TM) by
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<PAGE> 12
mid 1999. Our future results depend heavily on continued market acceptance of
our products in existing and new markets.
Historically we have charged a one-time fee for a source code license
and have occasionally also charged royalties for each copy of our software
embedded in our customers' products. Our recently formulated strategy for new
products is to seek flexible up-front fees with ongoing royalties measured
against our customers' units of production or run times. Any increase in the
portion of revenue attributable to royalties will depend on our successful
negotiation of royalty agreements and on the successful commercialization by our
customers of their underlying products.
THE INTENSE COMPETITION IN OUR MARKETS MAY LEAD TO REDUCED REVENUE AND INCREASED
LOSSES.
The markets for our products are intensely competitive, and are likely
to become even more competitive. Increased competition could result in:
o pricing pressures, resulting in reduced margins,
o decreased volume resulting in reduced revenue, or
o the failure of our products to achieve or maintain market
acceptance.
Any of these occurrences could have a material adverse effect on our
business, financial condition and operating results. Each of our products faces
intense competition from multiple competing vendors. Our principal competitors
include Wind River Systems, Inc., Integrated Systems, Inc., Mentor Graphics,
Inc., Microware Systems Corporation and Microsoft Corporation. Many of our
current and potential competitors have:
o longer operating histories,
o greater name recognition,
o access to larger customer bases, or
o substantially greater resources than we have.
As a result, our principal competitors may respond more quickly than we
can to new or changing opportunities and technologies. For all of the foregoing
reasons, we may be unable to compete successfully against our current and future
competitors.
OUR SUCCESS DEPENDS ON INCREASING MARKET AWARENESS OF OUR BRAND.
If we fail to promote our brand successfully or if we incur significant
expenses promoting and maintaining our FUSION brand names, we may experience a
material adverse effect on our business, financial condition and operating
results. Due in part to the still emerging nature of the market for Internet and
embedded software products and the substantial resources available to many of
our competitors, we may have a time limited opportunity to achieve and maintain
market share. We believe that developing and maintaining awareness of the FUSION
brand names will be critical to achieving widespread acceptance of our products.
Furthermore, the importance of brand recognition will increase as competition in
the market for our products increases. Successfully promoting and positioning
our brand will depend largely on the effectiveness of our marketing efforts and
our ability to develop reliable and useful products at competitive prices. As
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<PAGE> 13
a result, we may need to increase our financial commitment to creating and
maintaining brand awareness among potential customers.
WE WILL ENCOUNTER RISKS ASSOCIATED WITH NEW AND CHANGING MARKETS.
We are continuously engaged in product development for new or changing
markets. We have invested significant time and effort to develop our software
product line. We continue to expend substantial time and financial resources to
develop embedded operating software and development tools for Internet
applications. The commercial Internet market is still in an early stage, is
rapidly changing and is characterized by an increasing number of new entrants
with competitive products. Our products must be ported to an increasing number
of new Internet protocols. We are not certain about which of these competing
protocols will achieve market acceptance. If the protocols upon which our
Internet products are based ultimately fail to be widely adopted, our business,
financial condition and operating results may be materially and adversely
affected.
WE MAY NOT BE ABLE TO DEVELOP ACCEPTABLE NEW PRODUCTS OR ENHANCEMENTS TO OUR
EXISTING PRODUCTS AT THE RATE REQUIRED BY OUR RAPIDLY CHANGING MARKET.
Our future success depends upon our ability to address the rapidly
changing needs of our customers by developing and introducing high quality
products, product enhancements and services on a timely basis and by keeping
pace with technological developments and emerging industry standards. The market
for our products is rapidly evolving. Failure to develop and release enhanced or
new products, or delays or quality problems in doing so, could have a material
adverse effect on our business, financial condition and operating results.
As is common in new and rapidly evolving industries, demand and market
acceptance for recently introduced products are subject to high levels of
uncertainty and risk. Furthermore, new products can quickly render obsolete
products that were only recently in high demand. The market for our existing
products may not be sustainable at its current level. We launched several new
products in calendar 1998 and January 1999. We have additional new product
launches, as well as upgrades to our existing products, planned for 1999. The
market for our recently introduced and planned products may not develop or grow.
If the market for these products does not develop or grow we will experience a
material adverse effect on our business, financial condition and operating
results.
FAILURE TO EXPAND OUR SALES OPERATIONS AND CHANNELS OF DISTRIBUTION WOULD LIMIT
OUR GROWTH.
In order to maintain and increase our current and future market share
and revenue, we will need to expand our direct and indirect sales operations and
channels of distribution. Failure to do so could have a material adverse effect
on our business, financial condition and operating results. We need to expand
our relationships with domestic and international original equipment
manufacturers of information appliances, and other partners, to build our sales.
We must also continue to expand and maintain strategic relationships with key
hardware and software vendors, distribution partners, and customers. In
addition, to maintain and increase our revenue, we must increase the number of
products that each of our customers licenses. This will require expanded and
sophisticated sales efforts. In order to achieve increased revenue, we plan to
hire additional product engineering, sales and marketing personnel. Any new
hires will require training and may take six months or more to achieve full
productivity. We may not be able to hire enough qualified individuals when
needed, or at all, and we may not be able to increase distribution through any
other methods. This could adversely affect our ability to grow our business.
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<PAGE> 14
THE LOSS OF OUR PRESIDENT OR OTHER KEY PERSONNEL COULD ADVERSELY AFFECT OUR
BUSINESS AND DECREASE THE VALUE OF YOUR INVESTMENT.
Our success depends largely upon the continued services of our executive
officers and other key management and development personnel. The loss of the
services of one or more of our executive officers, engineering personnel, or
other key employees could have a material adverse effect on our business,
financial condition and operating results. In particular, we rely on Glenn P.
Russell, president and chief executive officer, Mark Sewell, senior vice
president, and Sandra J. Garcia, vice president. Glenn P. Russell, Mark Sewell
and Sandra J. Garcia do not have employment agreements with Pacific Softworks
and, therefore, could terminate their employment with us at any time without
penalty. We do not maintain key person life insurance policies on any of our
employees.
IF WE ARE UNABLE TO HIRE QUALIFIED TECHNICAL PERSONNEL, WE MAY NOT BE ABLE TO
GROW OUR BUSINESS.
Our future success depends on our ability to attract and retain other
highly qualified personnel. We attempt to hire engineers with high levels of
experience in designing and developing networking software and Internet-related
products. There is a limited number of these qualified engineers in our
geographic area, resulting in intense competition for the services of these
engineers. If we are not successful in attracting or retaining qualified
personnel we may experience a material adverse effect on our business, financial
condition and operating results.
THE STRAIN THAT INCREASED GROWTH PLACES UPON OUR SYSTEMS AND MANAGEMENT
RESOURCES MAY ADVERSELY AFFECT OUR BUSINESS AND DECREASE THE VALUE OF YOUR
INVESTMENT.
Any failure to properly manage our growth could have a material adverse
effect on our business, financial condition and operating results. To manage
growth, we must implement and improve additional and existing administrative
systems, procedures, and controls on a timely basis. We will also need to expand
our finance, administrative, and operations staff. We may not be able to
complete the improvements to our systems, procedures, and controls necessary to
support our future operations in a timely manner. We also may not successfully
identify, manage, and exploit existing and potential market opportunities. In
connection with our anticipated expansion, we plan to increase operating
expenses and personnel resources to:
o expand our sales and marketing operations,
o develop new distribution channels,
o fund greater levels of research and development,
o broaden professional services and support, and
o improve operational and financial systems.
Failure of our revenue to increase along with these expenses during any fiscal
period could have a material adverse impact on our financial results for that
period.
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<PAGE> 15
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY.
We regard substantial elements of our Internet and embedded software
products as proprietary and attempt to protect them by relying on:
o copyright,
o trade secret and trademark laws,
o nondisclosure, and
o other contractual restrictions on copying, distribution and
technical measures.
Any steps we take to protect our intellectual property may be inadequate, time
consuming, and expensive.
Furthermore, despite our efforts, we may be unable to prevent third
parties from infringing upon or misappropriating our intellectual property. Any
such infringement or misappropriation could have a material adverse effect on
our business, financial condition and operating results.
We currently have no issued patents. We believe that one or more
features of our software technology are unique and patentable. We expect to
devote a portion of the proceeds from this offering to seek patent protection
for these features. We have no patent applications pending. New patent
applications may not result in issued patents and may not provide us with any
competitive advantages, or may be challenged by third parties. Legal standards
relating to the validity and enforceability of intellectual property rights in
Internet-related industries are uncertain and still evolving.
The future viability or value of any of our intellectual property rights
is uncertain. Effective trademark, copyright, and trade secret protection may
not be available in every country in which our products are distributed or made
available through the Internet. Furthermore, our competitors may independently
develop similar technology that adversely affects the value of our intellectual
property.
OTHERS MAY BRING INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS AGAINST US.
In addition to the technology we have developed internally, we use code
libraries developed and maintained by third parties and have acquired or
licensed technologies from other companies. Our internally developed technology,
the code libraries, or the technology we acquired or licensed may infringe on a
third party's intellectual property rights. These third parties may bring claims
against us alleging infringement of their intellectual property rights. If we
infringe or others bring claims against us alleging infringement, our business,
financial condition and operating results could be materially and adversely
affected.
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<PAGE> 16
In recent years, there has been significant litigation in the United
States involving patents and other intellectual property rights. We are not
currently involved in any intellectual property or other material litigation. We
may, however, be a party to litigation in the future to protect our intellectual
property or as a result of an alleged infringement of the intellectual property
of others. These claims and any resulting litigation could subject us to
significant liability for damages and invalidation of our proprietary rights.
Litigation, regardless of its success, would likely be time-consuming and
expensive to prosecute or defend and would divert management attention from our
business. Any potential intellectual property litigation could also force us to
do one or more of the following:
o cease selling, incorporating, or using products or services that
incorporate the challenged intellectual property,
o obtain from the holder of the infringed intellectual property right
a license to sell or use the relevant technology, which license may
not be available on reasonable terms, or at all, and
o redesign those products or services that incorporate such
technology.
Any of these events could have a material adverse effect on our
business, financial condition and operating results.
EVOLVING REGULATION OF THE INTERNET MAY AFFECT US ADVERSELY.
As Internet commerce continues to evolve, increasing regulation by
federal, state, or foreign agencies becomes more likely. Any regulation imposing
fees for Internet use could result in a decline in the use of the Internet and
the viability of Internet commerce. Regulation is probable in the areas of user
privacy, pricing, content, and quality of products and services. Taxation of
Internet use, or other charges imposed by government agencies or by private
organizations for accessing the Internet, may also be imposed. Laws and
regulations applying to the solicitation, collection, or processing of personal
or consumer information could affect our activities. Regulation affecting our
customers could have a material adverse effect on our business, financial
condition and operating results.
PRODUCT DEFECTS COULD LEAD TO THE LOSS OF CUSTOMERS AND TO PRODUCT LIABILITY
CLAIMS THAT WOULD REQUIRE CONSIDERABLE EFFORT AND EXPENSE TO DEFEND.
Our products provide functions that are often critical to the
performance of information appliances. The occurrence of errors or failures in
our products could result in adverse publicity, loss of or delay in market
acceptance, or claims by customers against us, any of which could have a
material adverse effect on our business, financial condition and operating
results.
Our end-user licenses contain provisions that limit our exposure to
product liability claims, but these provisions may not be enforceable in all
jurisdictions. Additionally, we maintain limited product liability insurance.
To the extent our contractual limitations are unenforceable or such claims are
not covered by insurance, a successful product liability claim could have a
material adverse effect on our business, financial condition and operating
results.
Although we have not experienced any product liability or economic loss
claims, our products and product enhancements are very complex and may from time
to time contain errors or result in failures that we did not detect or
anticipate. The computer hardware environment is characterized by a wide variety
of non-standard configurations that make pre-release testing for
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<PAGE> 17
programming or compatibility errors very difficult and time consuming. Despite
our testing, errors may be discovered in new products or enhancements that we
deliver to customers.
SOME OF OUR PRODUCTS MAY NOT BE YEAR 2000 COMPLIANT, WHICH COULD RESULT IN
CUSTOMER DISSATISFACTION OR CLAIMS AGAINST US.
Failure of our products to be year 2000 compliant could result in
significant decreases in market acceptance of our products and legal liability
for defective software, either of which would have a material adverse effect on
our business, financial condition and operating results. We believe that all
current versions of our products are year 2000 compliant when configured and
used in accord with our specifications. However, we have not tested our products
in every possible computer or product environment, and therefore there may
remain a risk that our products may not be fully year 2000 compliant.
If our suppliers, vendors and industry collaborators fail to correct
their year 2000 problems, that failure could result in an interruption in, or a
failure of, our normal business activities or operations. That failure could
have a material adverse effect on our business, financial condition and
operating results. The uncertainty of the year 2000 readiness of third-party
suppliers and vendors makes us unable to determine at this time whether the
consequences of any year 2000 failures will have a material effect on our
business, financial condition and operating results. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Issues."
OUR SUCCESS DEPENDS ON CONTINUED USE AND EXPANSION OF THE INTERNET.
Continued expansion in the sales of our Internet based embedded software
products will depend upon the adoption of the Internet as a widely used medium
for commerce and communication. If the Internet does not continue to become a
widespread communications medium and commercial marketplace, demand for our
products could be significantly reduced, which could have a material adverse
effect on our business, financial condition and operating results.
The Internet may prove not to be a viable commercial marketplace because
of inadequate development of the necessary infrastructure or timely development
of complementary products such as high speed modems. The Internet infrastructure
may not be able to support the demands placed on it by continued rapid growth.
The Internet also could lose its viability as a result of delays in the
development or adoption of new standards and protocols to address issues such as
Internet:
o activity,
o security,
o reliability,
o cost,
o ease of use,
o accessibility, and
o quality of service.
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<PAGE> 18
OUR SALES MAY DECLINE IF WE ARE UNABLE TO ADAPT OUR PRODUCTS TO CHANGES IN
INTERNET TECHNOLOGY.
Even if the infrastructure, standards, or protocols of the Internet, and
complementary services, products, or facilities are developed, we may be
required to make significant expenditures to adapt our products to changing or
emerging technologies. We may not be successful in either developing Internet
software or timely introducing it to the market. Any of these technology changes
could have a material adverse effect on our business, financial condition and
operating results.
WE WILL BE SUBJECT TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS.
For the years ended December 31, 1997 and 1998, we derived approximately
52% and 58%, of our total revenue from sales outside of North America. We expect
that international sales will continue to be a significant percentage of our
total revenue in the foreseeable future. We expect to make substantial
investments to expand our international operations and to increase our direct
sales force in Europe and Asia. We can provide no assurance that these
investments will result in profitable increases in our international sales.
International operations are subject to various risks, including:
o foreign government regulation,
o more prevalent software piracy,
o longer payment cycles,
o unexpected changes in regulatory requirements, tariffs, import and
export restrictions and other barriers and restrictions,
o greater difficulty in accounts receivable collection,
o potentially adverse tax consequences including restrictions on
repatriation of earnings,
o the burdens of complying with a variety of foreign laws,
o difficulties in staffing and managing foreign operations,
o political and economic instability,
o changes in diplomatic and trade relationships,
o possible recessionary environments in economies outside the United
States, and
o other factors beyond our control.
These and other factors may have a material adverse effect on our
international sales and, consequently, our business, operating results and
financial condition. An increase in the relative value of the dollar against
local currencies could reduce our revenue in dollar terms or make our products
more expensive and, therefore, potentially less competitive in foreign markets.
We rely on outside distributors for sales of our products in certain
foreign countries. We are dependent on the ability of those distributors to
promote and support our products and, in some instances, to translate them into
foreign languages. Our international distributors generally offer products of
several different companies, including in some cases products that are
competitive with ours. Our distributors are not subject to any minimum purchase
or resale requirements. Any changes in the relationships which we have with our
international distributors may have a material adverse effect on our business,
financial condition and operating results.
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<PAGE> 19
WE DEPEND ON A SMALL NUMBER OF LARGE ORDERS.
Although no customer has accounted for 10% or more of total revenue in
any fiscal year, we derive a significant portion of our software license revenue
in each quarter from a small number of relatively large orders. While we believe
that the loss of any particular customer is not likely to have a material
adverse effect on our business, our operating results could be materially
adversely affected if we were unable to complete one or more substantial license
sales in any future period.
We derive a substantial portion of our revenue from the sale of products
with related implementation services. In these cases, revenue recognition policy
requires substantial completion of the implementation of the product before
software license revenue can be recognized. Any end of quarter delays in product
implementation could materially adversely affect operating results for that
quarter. As a result, small delays in customer orders or product implementations
can cause license revenue and operating results for any particular period to
vary significantly.
ACQUISITIONS MAY PRESENT RISKS TO OUR BUSINESS.
Although we have not done so in the past we may make acquisitions of, or
investments in, other companies, products, technologies or Internet-related
services. If we make any acquisitions, we will be required to assimilate the
operations, products and personnel of the acquired businesses and train and
retain key personnel from the acquired businesses. We may be unable to maintain
uniform procedures and policies if we fail in these efforts. Similarly,
acquisitions may cause disruptions in our operations and divert management's
attention from day-to-day operations. This could impair our relationships with
our current employees, customers and strategic partners.
We may have to incur debt or issue equity securities to pay for any
future acquisitions. The issuance of equity securities for any acquisition could
be substantially dilutive to our stockholders. In addition, our profitability
may suffer because of acquisition-related costs or amortization costs for
acquired goodwill and other intangible assets. If we are unable successfully to
address any of these issues, our business could be materially affected.
WE MAY APPLY THE PROCEEDS OF THIS OFFERING AND THE PROCEEDS FROM EXERCISE OF
WARRANTS TO USES THAT DO NOT INCREASE OUR PROFITS OR MARKET VALUE.
The net proceeds from the sale of the securities we are offering will be
used for hiring additional engineering, marketing and management personnel and
will be added to our general working capital. We may also obtain up to
$6,000,000 from exercise of warrants. The proceeds from any exercise of warrants
will be added to our general working capital. Our management will have
considerable discretion in the application of the net proceeds added to our
general working capital, and you will not have the opportunity, as part of your
investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds may be used for corporate purposes that do not
increase our profitability or market value.
WE MAY HAVE FUTURE CAPITAL NEEDS AND IT IS UNCERTAIN IF WE CAN OBTAIN ADDITIONAL
FINANCING.
We expect that the net proceeds from this offering, cash on hand, cash
equivalents and commercial credit facilities will be adequate to meet our
working capital and capital expenditure
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<PAGE> 20
needs for about the next 18 months. After that, we may require additional funds
for product development, market support and additional expansion.
We can provide no assurance that the warrants will be exercised. We
cannot be certain that additional financing will be obtained on favorable terms,
if at all. If we cannot raise needed funds on acceptable terms, we may be unable
to:
o develop or enhance products,
o take advantage of future opportunities, or
o respond to competitive pressures or unanticipated capital
requirements.
The occurrence of any of these events could have a material adverse effect on
Pacific Softworks. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."
FUTURE NON-PUBLIC SALES OF OUR SECURITIES MAY BE ON TERMS MORE FAVORABLE THAN
THOSE OF THIS OFFERING.
In order to raise additional working capital, Pacific Softworks could
make a limited number of offers and sales of its common stock or other
securities to qualified investors in transactions that are exempt from
registration under the securities laws. These purchasers may acquire Pacific
Softworks' securities on terms more favorable than offered to you. The price may
not relate to any ascertainable criterion of value, including the prevailing
market price. Pacific Softworks may make sales of its securities at a lower
price than that of the units.
BECAUSE OWNERSHIP IS CONCENTRATED, YOU AND OTHER INVESTORS WILL HAVE MINIMAL
INFLUENCE ON stockholder DECISIONS.
Our officers and directors will beneficially own 74.3% of the
outstanding common stock after this offering. If all the warrants are exercised,
our officers and directors will own 62.4% of the outstanding common stock. Our
officers and directors will be able to exercise control over all matters
requiring stockholder approval, and you and other investors will have minimal
influence over the election of directors or other stockholder actions. As a
result, these officers and directors could approve or cause Pacific Softworks to
take actions of which you disapprove or that are contrary to your interests. Our
controlling stockholders will have the ability to elect a majority of our
directors. This ability to exercise control over all matters requiring
stockholder approval could prevent or significantly delay another company from
acquiring or merging with us. See "Management" and "Principal Stockholders."
ISSUANCE OF OUR AUTHORIZED PREFERRED STOCK MAY DISCOURAGE A CHANGE IN CONTROL
AND REDUCE THE MARKET PRICE OF OUR COMMON STOCK.
The issuance of preferred stock may have the effect of delaying,
deferring, or preventing a change in control. Any such issuance may materially
and adversely affect the market price of the common stock and the voting rights
of the holders of common stock. The issuance of preferred stock may also result
in the loss of the voting control of holders of common stock to the holders of
preferred stock. See "Description of Securities -- Preferred Stock."
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<PAGE> 21
TRADING IN OUR COMMON STOCK AND WARRANTS MAY BE LIMITED.
A public market for our common stock and our warrants has not existed
prior to this offering. Although this offering will result in a trading market
for our common stock and warrants, we do not know how liquid that market might
be. The initial public offering price for the units will be determined through
negotiations between the underwriters and us. If you purchase units, you may not
be able to resell these securities at or above the initial public offering
price. See "Underwriting."
THE MARKET PRICES FOR OUR SECURITIES, LIKE THOSE OF OTHER TECHNOLOGY ISSUES, MAY
BE VOLATILE.
The value of your investment in Pacific Softworks could decline from the
impact of any of the following factors:
o changes in market valuations of Internet software companies,
o variations in our actual and anticipated operating results,
o changes in our earnings estimates by analysts,
o our failure to meet analysts' performance expectations, and
o lack of liquidity.
The stock markets have, in general, and with respect to Internet
companies in particular, recently experienced stock price and volume volatility
that has affected companies' stock prices. The stock markets may continue to
experience volatility that may adversely affect the market price of our
securities.
Stock prices for many companies in the technology and emerging growth
sector have experienced wide fluctuations that have often been unrelated to the
operating performance of those companies. Fluctuations such as these may affect
the market prices of our common stock and warrants.
YOU WILL INCUR IMMEDIATE SUBSTANTIAL DILUTION BY PURCHASING SECURITIES IN THIS
OFFERING.
The initial public offering price applicable to the common stock
included in a unit is expected to be substantially higher than the book value
per share of the common stock before the offering. By purchasing securities in
this offering you will incur immediate substantial dilution. See "Dilution." You
may incur additional dilution in the event that certain options to officers and
to a consultant are exercised. See "Management" and "Description of Securities -
Options to Consultant."
OUR WARRANTS ARE SUBJECT TO APPLICABLE SECURITIES LAWS AS WELL AS REDEMPTION.
You will own one warrant for each unit that you purchase. You may
purchase one share of common stock through the exercise of one warrant on
payment of the $7.50 exercise price. You may only exercise your warrants if a
registration statement relating to the common stock underlying the warrants is
then in effect and we have complied with applicable state securities laws. We
may be unsuccessful in maintaining a current registration statement covering the
common stock underlying the warrants. You may be unable to exercise the warrants
for this or other reasons. Your warrants may also be redeemed by us under
certain circumstances. Your warrants may be exercised during the notice period
prior to the date of redemption. If you do not
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<PAGE> 22
exercise your warrants prior to the redemption date, you will only be entitled
to receive the redemption price of $0.05 per warrant.
OUR STOCK AND WARRANT PRICES MAY BE AFFECTED BY SHARES ELIGIBLE FOR FUTURE SALE.
The market prices of the common stock and the warrants could decrease as
a result of large numbers of shares of common stock being available for sale
after the offering. These sales could also make it more difficult for us to
raise funds through future offerings. The 3,300,000 shares of common stock
outstanding before the offering are subject to certain resale restrictions under
federal securities laws. Holders of these shares have agreed that they will not
sell these securities without the consent of the representative of the
underwriters for 13 months after the date of this prospectus. See "Description
of Securities - Shares Eligible for Future Sale."
SIGNIFICANT FLUCTUATION IN THE MARKET PRICE OF OUR COMMON STOCK AND WARRANTS
COULD RESULT IN SECURITIES CLASS ACTION CLAIMS AGAINST US.
Securities class action claims have been brought against issuing
companies in the past where there has been volatility in the market price of a
company's securities. Litigation could be very costly and divert our
management's attention and resources. Any adverse determination in litigation
could also subject us to significant liabilities. Any or all of these events
could have a material adverse effect on our business, financial condition and
operating results.
YOU SHOULD NOT RELY ON OUR FORWARD-LOOKING STATEMENTS.
This prospectus contains forward-looking statements that involve risks
and uncertainties. Discussions containing forward-looking statements may be
found in the material set forth under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," and "Business" as well as within this prospectus generally. In
addition, when used in this prospectus, the words "believes," "intends,"
"plans," "anticipates," "expects," and similar expressions are intended to
identify forward-looking statements. Forward-looking statements are subject to a
number of risks and uncertainties. Actual results could differ materially from
those described in the forward-looking statements as a result of the risk
factors set forth in this section and the information provided in this
prospectus generally. We do not intend to update any forward-looking statements.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
Pacific Softworks has filed with the Securities and Exchange Commission,
450 Fifth Street, Washington, D.C. 20549, a registration statement on
Form SB-2 under the Securities Act with respect to the securities offered. This
prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules to the registration statement. For
further information concerning Pacific Softworks and the securities offered, we
refer you to the registration statement and the exhibits and schedules filed as
a part of the registration statement.
Statements contained in this prospectus concerning the contents of any
contract or any other document are not necessarily complete. In each instance
where a copy of that contract or document has been filed as an exhibit to the
registration statement, we refer you to the copy of the contract or document
that has been filed. Each statement is qualified in all respects by reference to
that exhibit. The registration statement, including its exhibits and schedules,
may be inspected without charge at the SEC's principal office in Washington, D.C
and at the SEC's regional offices at Northwest Atrium Center, 500 West Madison
Street, Suite 1400, Chicago,
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<PAGE> 23
Illinois 60661-2511 and 7 World Trade Center, New York, New York 10048. Copies
of all or any part of those documents may be obtained from the SEC's office
after payment of the SEC's prescribed fees. The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding companies that file electronically with the SEC at www.sec.gov.
Pacific Softworks intends to provide its stockholders with annual
reports containing consolidated financial statements audited by an independent
public accounting firm and quarterly reports containing unaudited consolidated
financial data for the first three quarters of each year.
USE OF PROCEEDS
Based on an assumed public offering price of $5.25 per unit, we expect
that net proceeds from the sale of the 800,000 units sold in this offering will
be approximately $3,486,000, or $4,034,100 if the underwriters' over-allotment
option is exercised in full.
We intend to use net proceeds to hire additional personnel as discussed
below and for working capital and general corporate purposes. We also intend to
use up to $50,000 of proceeds for patent and trademark applications, including
filing fees and expenses of intellectual property counsel.
We intend to fill the following positions within the 18 month period
following the completion of this offering:
<TABLE>
<CAPTION>
Number of Annual
Description of position Additions Compensation
----------------------- --------- ------------
<S> <C> <C>
Engineering - Core Products...... 6 $ 580,000
Engineering - Web Products....... 7 770,000
Marketing and Sales.............. 3 355,000
Product Managers................. 2 300,000
Business Development............. 1 150,000
Administrative................... 1 90,000
-----------
Total $ 2,245,000
===========
</TABLE>
We may acquire or invest in complimentary businesses, technologies,
services or products and a portion of the net proceeds currently allocated to
working capital may be used for such acquisitions or investments. However, we
currently have no understandings, commitments or agreements for any material
acquisition or investment.
The foregoing represents our best estimate of the uses of the net
proceeds to be received in this offering, based on current planning and business
conditions. However, we reserve the right to change these uses when and if
market conditions or unexpected changes in operating conditions occur.
The amounts expended for each use may vary significantly depending upon
a number of factors including, but not limited to, amounts we spend to develop
and introduce new products and the amount of cash generated by our operations.
We believe that our existing capital resources and the net proceeds of this
offering will be sufficient to maintain current and planned operations for a
period of at least 18 months from the date of this prospectus. Net proceeds not
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<PAGE> 24
immediately required for the purposes described above will be invested
principally in investment grade, interest-bearing securities.
DIVIDEND POLICY
Pacific Softworks has never declared or paid any cash dividends on its
common stock or other securities and does not anticipate paying cash dividends
in the foreseeable future. Our line of credit currently prohibits the payment of
dividends. A share purchase agreement with a former stockholder also prohibits
us from paying certain dividends until all obligations owed to him under the
agreement are retired. See "Certain Transactions Share Purchase Agreement -
Minority stockholder."
CAPITALIZATION
The following table sets forth our capitalization as of December 31,
1998:
o on a historical basis,
o on a pro forma actual basis taking into account the sale in February
1999 of 100,000 shares of common stock at $5.00 per share as if that
sale was completed in December 1998, and
o on a pro forma as adjusted basis, giving effect to the sale of
800,000 units at an assumed initial public offering price of $5.25
per unit, after deducting underwriting discounts and estimated
offering expenses.
You should read this table together with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the financial statements
and notes thereto appearing elsewhere in this prospectus. See also "Use of
Proceeds."
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------
(in thousands)
Pro Forma Pro Forma
Actual Actual as Adjusted
------ ------ -----------
<S> <C> <C> <C>
Stockholders' equity:
Preferred stock, $0.01 par value;
10,000,000 shares authorized; none issued
and outstanding ........................... $ -- $ -- $ --
Common Stock, $0.001 par value;
50,000,000 shares authorized; 3,200,000
shares issued and outstanding; 3,300,000
shares, pro forma actual; 4,100,000 shares,
pro forma as adjusted ..................... 3 3 4
Additional paid-in capital ................ 175 675 4,160
Retained earnings ......................... 18 18 18
Cumulative adjustment for currency
translation ............................... 11 11 11
---- ---- ------
Total stockholders' equity ................ 207 707 4,193
---- ---- ------
Total capitalization .............................. $207 $707 $4,193
==== ==== ======
</TABLE>
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<PAGE> 25
The information provided above excludes:
o 800,000 shares of common stock issuable upon exercise of warrants,
o 345,000 shares of common stock issuable upon exercise of outstanding
options and warrants,
o 160,000 shares of common stock issuable upon the exercise of
warrants to acquire units and warrants underlying those units, and
o 80,000 units issuable on exercise of the representative's option.
DILUTION
At December 31, 1998, pro forma net tangible book value was $706,285, or
$0.21 per share. Pro forma net tangible book value per share represents our pro
forma net tangible assets less liabilities divided by the pro forma shares of
common stock outstanding. Pro forma adjustments take into account the sale in
February 1999 of 100,000 shares of common stock at $5.00 per share as if that
sale was completed in December 1998.
After giving effect to our sale of 800,000 units and our receipt of an
estimated $3,486,000 of net proceeds from the offering, based on an assumed
offering price of $5.25 per unit, all of which is attributable to the common
stock and none of which is attributable to the warrants, pro forma adjusted net
tangible book value at December 31, 1998 would have been $1.02 per share. This
represents an immediate increase in pro forma net tangible book value of $0.81
per share to existing stockholders and an immediate dilution of $4.23 per share
of common stock to new investors purchasing units in the offering. The following
table illustrates per share dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share $ 5.25
Pro forma net tangible book value prior to the offering $ 0.21
Increase attributable to new investors 0.81
---------
Adjusted pro forma net tangible book value after the offering 1.02
---------
Dilution per share to new investors in this offering $ 4.23
=========
</TABLE>
The following table sets forth, on a pro forma basis as of December 31,
1998, the number of shares of common stock purchased from Pacific Softworks, the
total consideration paid to Pacific Softworks and the average price per share
paid by existing stockholders and new investors purchasing units in the
offering, before deducting underwriting discounts and estimated offering
expenses:
<TABLE>
<CAPTION>
Average Price
Shares Purchased Total Consideration Per Share
------------ ----------- ------------ ----------- ---------------
Number Percent Amount Percent
---------- ----- ----------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholders......... 3,300,000 80.5% $ 678,000 13.9% $0.21
New investors................. 800,000 19.5% 4,200,000 86.1% $5.25
---------- ----- ----------- -----
Total......................... 4,100,000 100.0% $ 4,878,000 100.0%
========== ===== =========== =====
</TABLE>
The information for existing stockholders in the table above includes
100,000 shares sold in February 1999 at $5.00 per share but excludes shares and
warrants issuable upon exercise of outstanding options or warrants, the
representative's option to purchase units and exercise of the underwriters'
over-allotment option. To the extent that currently outstanding options or
warrants are exercised at prices below $5.25, there will be further dilution to
new investors.
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<PAGE> 26
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is qualified by
reference to and should be read in conjunction with the consolidated financial
statements and notes thereto and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and other financial information
included elsewhere in this prospectus. The consolidated statement of operations
data for the years ended December 31, 1997 and 1998 and the consolidated balance
sheet data at December 31, 1997 and 1998 are derived from and qualified by
reference to, audited consolidated financial statements included elsewhere in
this prospectus.
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1998
------- ------
(in thousands, except per
share data)
<S> <C> <C>
Net revenue .................................. $ 3,310 $ 2,787
-------- --------
Cost of revenue .............................. 117 100
-------- --------
Gross profit ................................. 3,193 2,687
-------- --------
Selling, general and administrative .......... 2,110 1,936
Research and development ..................... 834 852
Depreciation and amortization ................ 64 59
Former officer's consulting and
administrative expense .................... 314 314
-------- --------
Total expenses ............................... 3,323 3,161
-------- --------
Net loss ..................................... (129) (474)
======== ========
Net loss per share, basic and diluted.......... $ (0.04) $ (0.14)
======== ========
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1998
------- ----
(in thousands)
<S> <C> <C>
Cash and cash equivalents ................. $ 625 $224
Working capital ........................... 761 222
Total assets .............................. 1,071 643
Total stockholders' equity ................ 691 207
</TABLE>
See notes 1 and 12 of notes to consolidated financial statements for a
discussion regarding the computation and presentation of basic and diluted net
loss per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction
with "Selected Financial Data" and the consolidated financial statements and
related notes. The following information contains forward-looking statements
that involve risks and uncertainties, such as Pacific Softworks' plans,
objectives, expectations, and intentions. These statements may be identified by
use words such as "believes," "intends," "plans," "anticipates," "expects," and
similar expressions. Pacific Softworks' actual results could differ materially
from those anticipated in
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<PAGE> 27
these forward-looking statements as a result of various factors including, but
not limited to, those discussed below, those stated in "Risk Factors," and
elsewhere in this prospectus.
OVERVIEW
Pacific Softworks develops and licenses a suite of embedded Internet and
Web software products for business and individual customers that seek to add
Internet-based communication capabilities to their information appliances.
In distributing our products, we primarily have licensed source code to
our customers for a one time fee. Manufacturers or developers customize their
information appliances containing our licensed software to serve a particular
need or market.
Our traditional focus and expertise has been on one of the principal
building blocks of the Internet, the underlying information transport protocol
known as TCP/IP. We have subsequently developed additional products that provide
other various essential elements of networked data communication and transport.
We have historically derived the majority of our revenue from the licensing of a
small range of relatively independent protocols that our customers port to their
own software products. We are in the process of completing development of a
range of embedded products, including an embedded Web browser and related
software accessories. These products will provide customer ready solutions for
the information appliance and embedded systems market.
Historically, we had no materially significant post sale commitments
following software delivery. As a result we recognized revenue upon product
shipments to customers. We found that many of our older products were becoming
commodity items, with steady price erosion and competition. We could therefore
not support royalty bearing licenses on these products.
Commencing late in fiscal 1998 with the introduction of our new Internet
and Web application products, we initiated a plan to charge a one-time fee for a
development license and a run-time or per unit production license fee for each
copy of these applications used in the customer's products. We intend to follow
this approach for many of our new products introduced and expected to be sold in
1999. Any increase in the percentage of revenue attributable to run-time and
unit production licenses will depend on our successful negotiation of run-time
license agreements and on the successful commercialization by our customers of
their underlying products.
The typical one-time license fee of our base TCP/IP product has been
between $10,000 and $40,000. Due to competitive pressures and the implementation
of upgraded TCP/IP protocols, we expect this average sale amount for our more
mature products to decrease by 20% or more per year over the next few years. We
expect this decay in pricing and reduced gross profit margins for our mature
TCP/IP product line to be partially offset by several factors:
o increased use and thus increased total licenses of TCP/IP,
o availability of the new FastTrack(TM) solutions, which should
increase our average license fee by $10,000,
o availability of our new TCP/IP version 6, which is expected to
become available within the next 12 to 18 months, and that may
increase our average license to $80,000, and
o availability of our IP security and encryption products before the
end of this fiscal year at prices which we believe will exceed
$80,000 per license.
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We anticipate that the FUSION WebPilot Micro Browser(TM), introduced in
late fiscal 1998, will be priced at approximately $100,000 per unit and above
for the initial license, plus royalties measured against run-time or customer's
units of production. We expect to be licensing and delivering this product by
mid 1999.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the
percentage relationship to net revenue of certain items in our consolidated
statements of operations and comprehensive income:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------- ------------
<S> <C> <C>
Net revenue............................................. 100.00% 100.00%
Cost of revenue......................................... 4.00 3.61
------ ------
Gross profit............................................. 96.00 96.39
------ ------
Selling, general and administrative...................... 63.75 69.45
Research and development................................. 25.20 30.55
Depreciation and amortization............................ 1.94 2.11
Former officer consulting and administrative expense...... 9.50 11.28
------ ------
Total operating expenses.................................. 100.39 113.39
------ ------
Net loss from operations.................................. (4.39) (17.00)
Foreign currency translation adjustment................... 2.00 0.34
------ ------
Comprehensive loss........................................ (2.00)% (17.34)%
====== ======
</TABLE>
NET REVENUE
Revenue decreased approximately 16% from 1997 to 1998. Our revenue
results primarily from fees for licenses of software products, fees for customer
support, training, maintenance and engineering services and royalties. The
decrease in revenue for 1998 was attributable primarily to increased
competition, related discounting on older product categories, delayed
introductions of new products and substantially lower revenue from Japan
stemming from recessionary economic conditions in that country.
The following table sets forth, for the periods indicated, the
percentage of net revenue by principal geographic area to total revenue:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1998
------------- ------------
<S> <C> <C>
United States........................................ 48% 42%
United Kingdom and Europe............................ 35 40
Australia and Asia................................... 15 17
Other................................................ 2 1
--- ---
Total ............................................... 100% 100%
=== ===
</TABLE>
The increase in international sales from 52% to 58% of total sales for
1997 and 1998 is principally due to a decline in domestic sales as a result of
increased competition and related
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price discounting. We expect international sales to continue to represent a
significant portion of net revenue although the percentage may fluctuate from
period to period.
We generally price our foreign licenses in dollars. An increase in the
relative value of the dollar against Japanese and European currencies may reduce
our revenue in dollar terms or could make our products more expensive. As a
result, an increase in the relative value of the dollar against other currencies
may cause our products to be less competitive in foreign markets. To pay
expenses and for other corporate purposes we maintain a small portion of our
funds outside of the United States in local currency. We actively monitor our
foreign currency exchange exposure and to date this exposure has not had a
material impact on the results of operations. To date, we have not utilized
derivative instruments to hedge such exposure.
COST OF REVENUE
Cost of revenue includes direct and indirect costs for the production
and duplication of manuals and media for software products, as well as those
relating to packaging, shipping and delivery of the products to our customers.
Cost of revenue also includes license and other direct purchase costs of
third-party software that we distribute or integrate into our products. Cost of
revenue has remained relatively constant for fiscal 1997 and 1998 at
approximately 4% of net revenue. As a result, gross profit margins for products
have also remained constant at about 96%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expense decreased from $2,110,038 to
$1,936,117 or 8%, from 1997 to 1998. Because of a 16% decrease in net revenue,
these expenses as a percentage of revenue increased from 64% to 69%. The higher
absolute expense in 1997 reflected a non-recurring distribution to the president
and majority stockholder. Pacific Softworks, then a corporation governed under
the provisions of subchapter S of the Internal Revenue Code, made the
non-recurring distribution to its president and majority stockholder to permit
him to pay corporate income taxes payable for 1996. The decrease in expenditures
for 1998 reflected reductions in sales staff and related operating costs in
1998. Our decreases in expenditures were partially offset by increases in
corporate consulting expenditures related to strategic planning and marketing
and an increase in rent following the relocation of our principal executive
offices to our current location in mid 1998.
RESEARCH AND DEVELOPMENT EXPENSE
Research and development expense increased from $834,049 to $851,568, or
2%, from 1997 to 1998. Because of a 16% decrease in net revenue, research and
development expense as a percentage of revenue increased from 25% to 31%. The
increase in research and development expense in 1998 was principally
attributable to an increase in the number of employees and consultants we hired
to assist in the development of the FastTrack(TM) product line and the FUSION
WebPilot Micro Browser(TM). These costs were partially offset by a decrease in
cost of third-party software acquired for the development process.
DEPRECIATION AND AMORTIZATION EXPENSE
Depreciation and amortization expense decreased from $64,195 to $58,850
or 8%, from 1997 to 1998 and remained constant as a percentage of net revenue at
2%. This decrease in
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1998 was attributable to certain capitalized costs of computer software acquired
from third party vendors in 1996 that became fully amortized in early 1998.
FORMER OFFICER'S CONSULTING AND ADMINISTRATIVE EXPENSE
Former officer's consulting and administrative expense remained constant
at $314,286 for 1997 and 1998. This expense increased as a percentage of net
revenue from 9% to 11% as a result of the decrease in net revenue. We incurred
this expense in connection with our buyout of a former officer's employment
agreement in March 1996. At that time, the former officer also entered into a
covenant not to compete and into a consulting agreement with Pacific Softworks.
As of March 15, 1999, the total amount payable to this former officer under
these agreements was $180,000. This sum will be paid in equal monthly
installments through September 1999. See "Certain Transactions - Share Purchase
Agreement - Minority Stockholder."
PROVISION FOR TAXES
Commencing in 1995 we elected to be treated as a subchapter S corporation.
Through 1998 all federal tax liabilities were recognized at the individual
stockholder level. In February 1999 Pacific Softworks terminated the subchapter
S election and became subject to taxation at the corporate level. Our historical
financial statements do not reflect any income tax provision or benefit. Had
Pacific Softworks been subject to taxation as a C corporation, it would have
received pro forma income tax benefits totaling $48,375 and $177,750 in 1997 and
1998, based on a combined federal and state tax rate of 37.5%. We will record
income tax expense (benefit) in future periods at the corporate level.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, we had working capital of $222,477 and cash and
cash equivalents of $224,031. We expect that our cash and financing needs in
1999 will be met by:
o cash on hand,
o cash generated by operations,
o proceeds of $500,000 from a private sale of securities in February
1999,
o a bank line of credit,
o net proceeds of this offering, and
o other capital financing arrangements.
In the event these sources of financing are insufficient or unavailable,
or if we experience an increase in operating cash requirements, we would slow
the rate at which we bring additional FastTrack(TM) products and the FUSION
WebPilot Micro Browser(TM) to market. We would also reduce our related marketing
and development activities.
To date, we have satisfied operating cash requirements principally
through internally generated funds. Our operating activities have generated
(used) net cash of $286,567 and ($419,480) for 1997 and 1998. Cash generated by
or used in operating activities in each period principally reflected the loss
from operations for each period and the related change in working capital
components. Decreased revenue for 1998 contributed to decreases in accounts
receivable, accounts payable and deferred revenue. Our investing activities
during 1998 used net cash of $71,888 for capital expenditures. Our financing
activities during 1998 generated net cash of $94,500. This net cash primarily
resulted from our acquisition of the minority interest in
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<PAGE> 31
our Japanese subsidiary for $5,500, that was offset by $150,000 of short-term
borrowings of which $50,000 was repaid during the period.
We have available a $250,000 bank line of credit, personally guaranteed
by our president and majority stockholder, under which no balance was
outstanding at December 31, 1998. In 1998 we borrowed $100,000, interest free,
from a company affiliated with our president. Pacific Softworks repaid this loan
after December 31, 1998.
SUBSEQUENT EVENT - PRIVATE PLACEMENT
In February 1999 we sold 100,000 shares of restricted common stock to
one investor at a price of $5.00 per share. We also issued 100,000 warrants,
allowing the investor to acquire 100,000 shares of common stock at $6.00 per
share. These warrants expire March 1, 2001. We received net proceeds of $500,000
from this sale.
YEAR 2000 ISSUES
We are aware of the issues associated with the programming code in
existing computer systems as the year 2000 approaches. The "Year 2000" problem
is pervasive and complex, as many computer systems will be affected in some way
by the rollover of the two-digit year value to 00. Systems that do not properly
recognize this information could generate erroneous data or cause a system to
fail. The Year 2000 issue creates risk for us from unforeseen problems in our
own computer systems and from third parties with whom we deal on transactions
worldwide. Failures of our and/or third parties' computer systems could have a
material impact on our ability to conduct business.
We believe that our financial information systems are Year 2000
compliant. We are analyzing the remaining computer systems to identify any
potential Year 2000 issues and will take appropriate corrective action based
on the results of this analysis. Management believes that any remaining costs
related to achieving Year 2000 compliance will not be material.
We have contacted significant suppliers to determine the extent to which
our operations are vulnerable to their failure to solve their own Year 2000
issues. Specific factors that might cause suppliers to be vulnerable to Year
2000 issues include, but are not limited to, the availability and cost of
personnel trained in this area, the ability to locate and correct all relevant
computer codes, and similar uncertainties. We can provide no assurance that the
systems of other companies on which we rely will be converted on a timely basis
and will not have an adverse effect on our financial position or operating
results. The Year 2000 issue also could affect the products that we sell.
Although our products are subject to ongoing analysis and review, we believe
that the current versions of our products are Year 2000 compliant.
INTRODUCTION OF THE EURO
On January 1, 1999, 11 of the 15 member countries of the European Union
established fixed conversion rates between their existing sovereign currencies
and a new currency called the "Euro." These countries agreed to adopt the Euro
as their common legal currency on that date. The Euro trades on currency
exchanges and is available for non-cash transactions. The existing sovereign
currencies will remain legal tender in these countries until January 1, 2002. On
that date the Euro is scheduled to replace the sovereign legal currencies of the
member countries.
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<PAGE> 32
Our European operations are centered in the United Kingdom, which has
not adopted the Euro. We will evaluate the impact the implementation of the Euro
will have on our business operations. We do not expect the Euro to have a
material effect on our competitive position. We can provide no assurance,
however, that the implementation of the Euro will not have a material adverse
affect on our business, financial condition and operating results. In addition,
we cannot accurately predict the impact the Euro will have on currency exchange
rates or our currency exchange risk. We have historically priced our foreign
licenses in dollars and as a result we have had no material need to hedge our
foreign currency exposure. If competitive conditions require us to license our
products in terms of Euro or other currencies, we may engage in currency hedging
to manage this exposure in the future if we think that it is appropriate for us
to do so.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 130 ("FAS 130"). FAS 130
establishes standards for reporting comprehensive income and its components in a
financial statement. Comprehensive income as defined includes all changes in
equity (net assets) during a period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net income, include
foreign currency translation adjustments and unrealized gains/losses on
available-for-sale securities. We adopted the disclosure prescribed by FAS 130
in fiscal 1997.
In June 1997 FASB issued Statement of Financial Accounting Standards No.
131 ("FAS 131"), "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. We have not yet determined the impact, if
any, of adopting this statement. We will adopt the disclosures prescribed by FAS
131 in the year ending December 31, 1999.
In October 1997 and March 1998 the American Institute of Certified
Public Accountants issued Statements of Position 97-2, "Software Revenue
Recognition" ("SOP 97-2") and 98-4, "Deferral of the Effective Date of a
Provision of SOP 97-2, Software Revenue Recognition" ("SOP 98-4"), which we are
currently required to adopt for transactions entered into in the fiscal year
beginning January 1, 1998. SOP 97-2 and SOP 98-4 provide guidance on recognizing
revenue on software transactions and supersede SOP 91-1. We believe that the
adoption of SOP 97-2 and SOP 98-4 will not have a significant impact on our
current licensing or revenue recognition practices. However, should we adopt new
licensing practices or change our existing licensing practices, our revenue
recognition practices may change to comply with the accounting guidance provided
in SOP 97-2 and SOP 98-4.
In April 1998 the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use" ("SOP 98-1"). SOP 98-1 provides
guidance for determining whether computer software is internal-use software as
well as guidance on accounting for the proceeds of computer software originally
developed or obtained for internal use and then subsequently sold to the public.
It also provides guidance on capitalization of the costs incurred for computer
software developed or obtained for internal use. We have not yet determined the
impact, if any, of adopting this statement. We will adopt the disclosures
prescribed by SOP 98-1 in the year ending December 31, 2000.
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<PAGE> 33
BUSINESS
OUR BUSINESS
Pacific Softworks develops and licenses Internet and Web related
software and software development tools. Our products enable Internet and Web
based communications, based on a set of rules known as protocols, and are
embedded into systems and "information appliances" developed or manufactured by
others. Information appliances are Internet connected versions of everyday
products such as telephones, televisions, fax machines and other digitally based
devices.
Rapid advances are enabling wired and wireless information appliances to
assume many of the tasks now handled by personal computers ("PCs"). We believe
that Web browsing enabled by embedded software in information appliances used by
businesses and individuals will be a major market. International Data Corp.
estimates that 94% of Internet access is now made through PCs. By 2002, that
percentage is expected to decrease to 64%. By 2002 the number of information
appliances sold is expected to exceed the number of PCs sold.
We intend to evolve and refine our business to track the growth of
embedded software in information appliances that incorporate Internet and Web
communications capabilities. As information appliances proliferate, we
anticipate that our opportunities for long term revenue growth will also
increase.
Our Internet and Web related software development tools offer
significant benefits to our customers including:
o accelerated product development and market entry,
o portability across multiple hardware and software system
environments, and
o comprehensive embedded solutions that enable information appliances
to connect with the Internet and use the Web.
Information appliance manufacturers and software developers have
included our products within the following applications and information
appliances:
<TABLE>
<CAPTION>
Applications Information Appliances
- ------------ ----------------------
<S> <C>
o Office automation o Internet fax, copiers, laser printers, scanners
o Medical o Patient monitors, imaging systems
o Multimedia o DVD players, projectors, digital cameras
o Industrial controls o Vending machines, traffic controls, scoring systems,
security controls
o Networking o Routers, switches, network controls, cable modems
o Set-top boxes o Set-top boxes, Internet TV
o Wireless o Telephones, personal digital assistants, pagers,
electronic organizers
o Navigation systems o Navigational controls, air traffic controls
o Defense and aerospace o Engine controls, smart weapons
o Satellite o Satellite positioning, uplink and downlink of streaming
video
</TABLE>
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<PAGE> 34
We have developed a new proprietary Internet browser for use within
independent, "non-Windows(R)" information appliances. We expect to begin
marketing this browser, under the "FUSION WebPilot Micro Browser(TM)" name, by
the middle of this year. Our browser may be effectively placed in use without an
operating system and does not require substantial amounts of memory. We believe
that our browser may prove particularly attractive to manufacturers of
information appliances who would rather give their products a proprietary or
subjective "look and feel" than to be restricted by a browser which requires or
depends on the "look and feel" of commercially available operating systems such
as Windows(R).
BACKGROUND
INDUSTRY BACKGROUND - SIGNIFICANT GROWTH OF THE INTERNET.
The Internet has grown in less than a decade from a limited research
tool to a global network consisting of millions of computers and users. The
Internet is expected to continue to grow rapidly. We estimate that the number of
Internet users worldwide will grow from approximately 69 million in 1997 to 320
million in 2002. The U.S. Department of Commerce estimates that Internet traffic
doubles every 100 days. The number of Internet Web sites is also growing
rapidly. The number of Web sites detected by the Netcraft Web Server Survey
increased from approximately 526,000 in November 1996 to approximately 1.6
million in November 1997, and to over 3.5 million in November 1998, reflecting
annual growth exceeding 100%.
Network Solutions, Inc., which estimates that it holds a 75% worldwide
market share in domain name registrations, registered over 1.9 million new
domains in 1998, nearly double those of the previous year. The growth of the
Internet is primarily attributable to its value as a low-cost, open, and readily
accessible platform for communications and commerce.
As a result of these attributes, organizations are increasingly
embracing the Internet as a principal platform for communicating with key
constituents and conducting business. Internally, many organizations have
adopted Internet-based systems to facilitate communications among employees and
to automate internal business processes. Many organizations are adding Web-based
applications to increase sales, cut costs, and improve customer service. These
applications range from Web sites offering electronic brochures, to electronic
acquisition of goods and services, and automated customer service and support.
Organizations are making large investments in these applications to
create meaningful and attractively presented content that informs, entertains,
and communicates. Emerging applications now enable organizations to attract
customers and build customer loyalty by offering dynamic, personalized content.
Web-based applications for suppliers and distributors have also significantly
improved business-to-business procurement, payment systems, and logistics
planning. Entirely new businesses have emerged that have been developed
specifically to exploit the unique characteristics of the Internet and
e-commerce. We estimate that the volume of
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<PAGE> 35
Internet commerce will increase from approximately $12 billion in 1997 to over
$400 billion in 2002.
Advertising revenue has also played an important role in the growth of
the Internet. Attracted by increasing numbers of users, Internet-based
businesses have developed that are supported primarily by advertising revenue.
Traditional businesses have also realized incremental advertising spending from
their Web sites. We estimate that Internet advertising spending will grow from
$1.9 billion in 1998 to $7.7 billion in 2002.
GROWTH OF INTERNET TECHNOLOGY, CONTENT AND INFRASTRUCTURE.
Organizations are supporting their Internet-based systems by investing
heavily in technology, content, and infrastructure. Forrester Research estimates
that spending on software and services for e-commerce alone will exceed $5.6
billion in 1998 and $35 billion by 2002. The creation of Internet content
continues to grow rapidly by any measure. For example, as of May 27, 1998, the
AltaVista search engine had indexed more than 140 million Web pages, an increase
of more than 40 million pages in the first five months of 1998.
The Internet uses Web and specialized servers for different tasks and
forms of communications. For example, specialized servers are used for Web
browsing, email, chat, news groups, file transfers, and audio and video
streaming. A measure of the growth of the Internet infrastructure is the number
of Web and other Internet servers that are installed. These servers respond to
requests for information and manage data. We estimate that the number of Web and
other Internet servers installed will grow from approximately 6.3 million in
1998 to nearly 12 million in the year 2002.
OUR SUITE OF PRODUCTS
TRANSMISSION CONTROL PROTOCOL/INTERNET PROTOCOL.
Transmission Control Protocol/Internet Protocol, which we refer to below
as "TCP/IP," is a suite of communications protocols that have been adopted as a
standard and enable the communications that take place on the Internet. As a
standard, TCP/IP enables Internet users to adopt or acquire pre-made, "off the
shelf" products, such as those of Pacific Softworks, and eliminates the need by
those users to develop a proprietary communications infrastructure on their own.
The TCP/IP stack is a collection of components consisting of various layers of
protocols and programs that operate together to transfer data over the Internet.
These protocols include the Internet Protocol, various messaging and addressing
protocols, and the Transmission Control Protocol.
Embedded systems consist of a microprocessor and related software
incorporated into a product and dedicated to performing a specific set of tasks.
The market for embedded Internet applications continues to grow substantially as
customers deploy TCP/IP based networks. TCP/IP and related technologies are
emerging as the building blocks for next-generation wired and wireless networks.
According to Datapro, total industry sales of TCP/IP products is projected to
grow at a compounded annual growth rate of 11.6% with industry sales rising from
$1.6 billion in 1995 to $2.7 billion in 2000.
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We believe that key elements defining our market today include the
following:
o TCP/IP is a commodity type product that remains a key component of
the Internet. Generic public domain software for TCP/IP is available
at low cost.
o The competitive market for TCP/IP products currently focuses on
selling value-added applications, such as file transfer protocols
(FTPs) designed to send large files over the Internet, email, and
management tools that enhance the embedded protocol stack.
o The market is migrating away from proprietary protocols to Internet
protocols.
o Manufacturers continue to implement Internet and Web embedded
software in a growing number of consumer and industrial information
appliances.
o International market growth will ultimately outpace market growth in
the United States.
o As more powerful microprocessors become available and decrease in
price, embedded systems are being used in a wider range of
applications and are facilitating the development of a new
generation of information appliances. Emerging embedded Internet
applications for interactive entertainment, network computers,
remote management and other uses may offer significant additional
opportunities for embedded systems and information appliances.
o Manufacturers of products using embedded technology must bring
complex applications for embedded systems to market rapidly and
economically. Developing embedded applications has evolved from a
relatively modest programming task to a complex engineering effort.
As more powerful and affordable 32-bit and 64-bit microprocessors
have become available, products based on them have become richer in
features and functions.
o More sophisticated software solutions are required to develop these
more complex applications, frequently including a real-time
operating system, which we refer to elsewhere in this prospectus as
"RTOS," and Internet and Web products that provide developers with
far more features, higher performance and greater productivity than
those necessary or feasible for programming prior generations of
microprocessors. Our flexible software solutions and powerful
development tools allow our customers to create and standardize
complex, embedded software applications quickly and efficiently.
o As embedded applications increase in complexity, the costs
associated with providing software development, support and training
of engineers are rising rapidly. In this environment,
time-to-market, conformance to standards and product reliability
have become critical issues for companies developing information
appliances and other devices which may be connected to the Internet.
We have designed FUSION products with the developer in mind. The FUSION
solution assists system developers by adding compliant Internet protocols and
applications to their products. FUSION products are very flexible and portable.
Our products are not dependent on any particular hardware or software. Our
products are also designed for easy integration.
Our FastTrack(TM) development products provide a pre-built "drop-in
solution" that facilitates quick and easy protocol implementation within the
products of our customers. FUSION FastTrack(TM) solutions provide users with a
complete suite of networking tools to ease the development and porting of new
projects. Our customers do not face the uncertainty of trying to determine what
components will work with FUSION. Our engineers have integrated FastTrack(TM)
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<PAGE> 37
with the processor, operating system, compiler, debugger and development board
to assure a certified drop-in solution that moves a customer's project to more
rapid completion. A user need only add its application and then transfer our
software to the targeted hardware or device.
FUSION FastTrack(TM) products are not dependent on any particular
processor. They have been and are currently being developed for several families
of processors including those of:
o Advanced Micro Devices o LSI Logic
o Advanced Risc Machines o MIPS Technologies
o Analog Devices o Motorola Corporation
o ARC o NEC
o Hitachi o Philips
o Hyperstone o Siemens
o Intel Corporation o ST Microsystems
o International Business Machines Corporation o Texas Instruments
Pacific Softworks' Internet and Web products provide an integrated suite
of critical functions which feature:
o a small sized, fast, efficient, high performance embedded Internet
protocol stack,
o an extensive range of Internet and Web applications,
o custom-built software code, not based on public domain sources,
o mature software code, tested and used in a wide variety of products
by companies including Sony, Motorola, Hewlett-Packard, Intel, IBM,
Lucent, Cisco and VLSI,
o code developed for embedded systems and information appliances with
fine tuning capabilities built into the code to optimize Internet
connectivity for specific applications,
o multiple interface software support for most of the popular
communication chip sets, and
o pre-built ready to add "drop-in solutions" for easy integration of
customer application software across multiple processor platforms.
OUR PRODUCTS
OUR INTERNET AND APPLICATION PRODUCTS
FUSION TCP/IP. This product enables data to be transported over the
Internet. Our product is not dependent on any particular processor, operating
system or compiler. FUSION is high performance, small, tunable, and can be
easily incorporated in a customer's information appliances.
FusOS. This product is our FUSION operating system. Customers may choose
to use FusOS or remove it from our Internet product and replace it with any
commercial operating system of their choice.
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FUSION 6. This product is our major TCP/IP upgrade. We are designing
this application to provide greater security and flexibility in connection with
the next generation Internet Protocol. We expect to introduce this product
within the next 12-18 months.
FUSION IPsec. This product is the FUSION IP security protocol suite
which provides privacy and authentication services at the Internet Protocol
layer. IPsecurity uses advanced encryption algorithm keys and is designed to
provide secure financial and e-commerce transactions from information appliances
over the Internet.
FUSION Mobile IP. We are designing this product for use within wireless
and cellular applications. Internet protocols do not currently operate
efficiently in wireless environments. We are designing Mobile IP to handle
information processing delays and interruptions associated with Internet
protocols in wireless applications.
FUSION Satellite IP. This product adds the power and scalability
required for Internet protocols to work in a slow-start or delayed environment
such as in satellites and set-top boxes. FUSION Satellite IP is designed to
handle communication over satellite links for uplink and downlink modes, and
adapts to the delays inherent in satellite communications.
FUSION RIP, Routing Information Protocol. Widely accepted as a standard
routing protocol, RIP routers send broadcast messages onto a network, and
contain routing information about the network. This information is shared among
all the RIP-capable routers in a network thereby allowing each router to
understand where it exists in a network and where its routes lead. RIP specifies
how routers exchange routing table information. Currently, there are industry
standards which describe the specifications required to implement RIP. The
FUSION RIP protocol is a high-performance portable software engine that
implements IP forwarding and route generation consistent with industry
standards. With RIP, routers periodically exchange entire tables of routing
data. Because this is inefficient, RIP is gradually being replaced by a newer
protocol called Open Shortest Path First Protocol (OSPF).
FUSION OSPF. This product is a portable software engine that fully
implements the Open Shortest Path First Protocol (OSPF) to provide routing. It
has been designed specifically for use in high performance multi-protocol
routers. OSPF defines how routers share routing information. Unlike RIP, which
transfers entire tables of routing data, OSPF transfers only routing information
which has changed since the previous transfer. As a result, use of this protocol
reduces the amount of data to be transmitted and conserves system resources.
FUSION PPP, Point-to-Point Protocol. This product provides a method for
transmitting packets of data known as datagrams over serial point-to-point
links. This application links one device to another over telephone lines and
cable.
FUSION MultiLink PPP. Both FUSION PPP and MultiLink PPP modules are
portable to any processor. MultiLink PPP extends PPP over multiple links or
channels. MultiLink PPP allows users to broadcast data simultaneously to
multiple devices within various environments allowing users to dynamically
combine available links and increase usable aggregate data bandwidth.
FUSION SNMP, Simple Network Management Protocol. SNMP is a set of
protocols that interfaces transparently into FUSION TCP/IP. SNMP helps to manage
and control devices over the Internet.
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FUSION FTP, File Transfer Protocol. This application software allows the
efficient sharing of files, programs or data between devices over the Internet.
FTP also provides a secure way to allow or deny access to specific files or
directories between diverse systems.
FUSION TFTP, Trivial File Transfer Protocol. This is a subset of FTP
that allows the efficient transferring of files between diverse host systems
without the extended features and potential overhead associated with FTP. TFTP
is designed with small size and easy implementation in mind for devices with
minimal memory.
FUSION Telnet. This product is a general, bi-directional oriented
communications application which allows a standard method of interfacing or
connecting terminal devices and terminal-oriented processes to each other. This
application can be used for terminal-to-terminal and/or
application-to-application communications.
FUSION SMTP, Simple Mail Transfer Protocol. This product is a protocol
used for sending email messages between servers. SMTP is generally used to send
messages from a mail client to a mail server. SMTP is independent of any
transmission protocol or operating system and only requires a reliable data
stream. We have designed FUSION SMTP to be small, efficient and easy to
implement in virtually any environment.
FUSION POP3, Post Office Protocol Version 3. This software provides
messaging capability within products or systems that do not have the memory or
other resources to use SMTP or where there is no continuous Internet connection.
POP3 is typically used to access and retrieve email that is being held on a mail
server. Most email applications, sometimes called an email client, use a POP
Protocol. POP3 is independent of any transport protocol or operating system and
is typically implemented over TCP. We have designed FUSION POP3 to be a small,
efficient messaging client that is easy to implement in environments where
memory and system resources are sparse.
FUSION BOOTP, Bootstrap Protocol. This is an Internet protocol that
enables a diskless device to discover its own IP address, the IP address of a
BOOTP server on the network, and a file to be loaded into memory to activate or
boot the device. This application software allows the efficient sharing of
files, programs or data between diverse host systems. BOOTP also provides a
secure way to allow or deny access to specific files or directories between
diverse systems.
FUSION DHCP, Dynamic Host Configuration Protocol. This is a protocol for
assigning dynamic addresses to devices on the Internet. With dynamic addressing,
a device can have a different address every time it connects to the Internet.
DHCP also supports a mix of fixed and dynamic Internet addresses. Dynamic
addressing simplifies network administration because the software keeps track of
the addresses rather than requiring an administrator to manage the task. This
means that a device can be added to the Internet without the difficulties
associated with manually assigning it a unique address. Many Internet service
providers use dynamic addressing for dial-up users.
OUR WEB PRODUCTS
Our FUSION WebPilot Micro Browser(TM) is a completely embedded browser
aimed at applications like set-top boxes, wired and wireless telephones, other
hand-held information appliances, kiosks, and other remote Internet information
appliances. This application has been designed for limited memory environments
and is independent of the operating system, processor or compiler. It is
applicable across multiple platforms.
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Unlike other browsers based on Windows(R), the FUSION WebPilot Micro
Browser(TM) is designed for small space applications. Our browser has also been
designed from scratch for embedded applications. Unlike other browsers, it is
not a modified or simplified version of existing PC code. Pacific Softworks
believes that its product is the only embeddable Web browser that currently can
make this claim. Our product provides full browsing capabilities in an embedded
environment without needing a full PC-type operating system or Microsoft
Windows(R). In addition to browsing capabilities, the FUSION WebPilot Micro
Browser(TM) family of products will include email and e-commerce applications in
the embedded environment.
The FUSION WebPilot Micro Browser(TM) has its own embedded windowing and
graphical support. These features allow users to create custom designs and
custom fonts and icons. We believe that these features are an attribute
particularly important in addressing foreign languages such as Japanese and in
the development of branded presentation screens.
We have designed the FUSION WebPilot Micro Browser(TM) to permit
incorporation of various add-on modules. Our browser will have a functionality
and presentation similar to that of the much larger PC-based browsers such as
Internet Explorer and Netscape but with substantially reduced memory
requirements.
FUSION Embedded Web Server. This application software allows any user on
the Internet easily to manage or monitor any device connected to the Internet.
It provides an easy way to deliver powerful Web-based applications in generally
understood graphical formats. Using FUSION Internet protocols, FUSION Web Server
provides integrated Web services. It provides Web servers with the capability to
look at and manage any Internet connected devices through the Web. Examples of
such uses include:
o video cameras,
o vending machines,
o utility power meters,
o medical equipment, and
o other remote devices.
The FUSION Web Server is compatible with FUSION WebPilot Micro Browser(TM) and
all other standard browsers including Netscape, Mosaic, and Internet Explorer,
on all platforms.
SERVICES AND SUPPORT
Pacific Softworks provides comprehensive customer service and support
which help customers realize the value and potential of our products.
TRAINING CLASSES.
We offer several training courses and workshops for an additional fee.
We provide courses monthly at our executive office in California or in the
United Kingdom. We also provide training courses at customer sites. We tailor
these training courses to meet specific customer needs and schedules.
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TECHNICAL SUPPORT.
Our technical support staff assists customers with problems and
questions in the installation and use of our products. We bundle technical
support with product updates and maintenance on an annual fee basis.
ENGINEERING SERVICES.
We provide a number of services on a fee-for-service basis, including
application-level consulting, customization, and porting to proprietary
semiconductor architectures. We coordinate and perform these services in North
America, Japan and Europe.
INDUSTRY COLLABORATION
Pacific Softworks works with various companies in jointly developing
products for the Internet market for those companies and their customers. We
have described some of our more significant collaborations below. We plan to
continue developing these and other relationships.
INTEL. Under a program called "wired for manageability," Intel has
partnered with Pacific Softworks and has incorporated FUSION Internet software
products into various Intel products.
MOTOROLA. Pacific Softworks and Motorola have collaborated for a number
of years on providing Internet connectivity for most of the Motorola product
families. Pacific Softworks has provided Internet solutions for Motorola
customers. In return members of the Motorola sales force and application
engineers have recommended Pacific Softworks as a solution partner to their
customers.
ST MICROELECTRONICS. ST Microelectronics has worked with Pacific
Softworks in the United States and Europe on incorporating our products with ST
Microsystems set-top box, cable modems and other product designs.
ADVANCED RISC MACHINES ("ARM"). ARM and Pacific Softworks have worked
together to incorporate FUSION products onto the ARM7 development board, a
foundation used for the development of other products. ARM recommends Pacific
Softworks products to its customers.
TEXAS INSTRUMENTS ("TI"). Since late 1998 TI has been evaluating the
FUSION Protocols on its set-top box development board. We are currently
discussing joint development for new TI products. In addition, FUSION Internet
protocols have been incorporated into certain of TI's digital signal processors.
ANALOG DEVICES INC ("ANALOG"). Analog has licensed both our browser and
our email technology for use in conjunction with its SHARC chip set. The license
is royalty bearing. These digital signal processors are targeted at a variety of
communications applications including digital television and video phones. Our
software will be bundled with the chip set that will also form part of Analog's
SHARC development platform design. We expect to work with Analog to meet the
requirements of its customers worldwide and to work on joint developments for
next generation appliance technology.
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TOOLS AND OPERATING SYSTEM COLLABORATION
We currently work or collaborate with the following companies in
developing and expanding our FastTrack(TM) suite of products:
GREENHILLS SOFTWARE. Several of our FastTrack(TM) developer kits are
based on GreenHills' tools suite. These products provide a strong development
environment and are well accepted in the embedded market.
EXPRESS LOGIC. We have worked with Express Logic for two years. We
believe that Express Logic has superior real-time operating systems products for
the embedded market. Most of Pacific Softworks' FastTrack(TM) solutions are
built using this real-time operating system. In addition, with the exception of
Germany and Switzerland, Pacific Softworks distributes Express Logic software
code on a non-exclusive basis worldwide.
DIAB DATA CORPORATION. Pacific Softworks has worked with Diab Data for
over three years on Motorola platforms. Diab Data is a leading supplier of
software tools for Motorola based products.
SOFTWARE DEVELOPMENT SYSTEMS (SDS). Pacific Softworks has collaborated
with SDS to use the SDS compiler for Motorola platforms. Based on informational
available to us, we believe that SDS has over 50% of compiler sales for Motorola
products.
GAIO JAPAN. GAIO is the largest supplier of integrated tools in Japan.
We are currently building our Hitachi FastTrack(TM) products with the complete
tools suite from GAIO. In return we believe we have become the Internet software
supplier of choice for GAIO.
WIDE AREA NETWORK (WAN) COLLABORATION
TELENETWORKS. Telenetworks and Pacific Softworks have recently
co-developed a complete router reference platform with Motorola for the small
office/home office market. This router reference platform is being reviewed by
3COM and other companies. The collaboration is continuing for other wide area
network products. Pacific Softworks is a worldwide value added reseller for
Telenetworks. The combination of our products with those of Telenetworks
provides a complete WAN/LAN solution for the products manufactured by our
customers.
UNISOFT JAPAN. Unisoft is experienced in developing and integrating
Internet and Web protocols for customer applications. In addition it provides
wide area network solutions for the Japanese market. Pacific Softworks and
Unisoft have cooperated on several joint developments involving our FUSION
WebPilot Micro Browser(TM) within automobile navigation systems.
CUSTOMERS
Since incorporation in 1992, Pacific Softworks has licensed its products
to over 400 companies around the world, including: Alcatel, AT&T, America
OnLine, Canon, Canal+, Cisco, Cocom, Bell Labs, Data General, Concurrent
Technologies, Ericsson, General Instruments, Hughes, Honeywell, Hewlett Packard,
Intel, Motorola, Newbridge, Nortel, Psion, Philips, Samsung, Siemens, ST
Microsystems, Tandberg, Unisys, and VLSI.
No single customer accounted for more than 10% of our total revenue in
1997 or 1998.
MARKETING, SALES AND DISTRIBUTION
In North America, Europe and Japan, we market our products and services
primarily through our own direct sales organization, which consists of
salespersons and field application engineers. As of December 31, 1998, Pacific
Softworks had four domestic salespersons and field
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application engineers located in North America, one salesperson and field
application engineer in Europe and three sales and marketing employees in Japan.
Pacific Softworks distributes its products in Japan through a wholly
owned subsidiary, Network Research Corporation Japan (NRCJ). Pacific Softworks
has licensed its products exclusively to NRCJ for distribution in Japan.
Pacific Softworks has appointed international distributors to serve
customers in regions not serviced by our direct sales force. We also collaborate
with semiconductor and software vendors and work closely with a number of system
integrators worldwide. These relationships enable us further to broaden the
geographic and market scope for our products.
Revenue from international sales represented approximately 52% and 58%
of our total revenue in fiscal 1997 and 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and note 11 of notes
to consolidated financial statements for a summary of operations by geographic
region.
Pacific Softworks has experienced, and expects to continue to
experience, significant seasonality of revenue resulting primarily from customer
buying patterns and product development cycles. See "Risk Factors." We have
generally experienced the strongest demand for our products in the fourth
quarter of each fiscal year and the weakest demand in the first quarter of each
fiscal year. Quarterly revenue typically decreased in the first quarter of each
fiscal year from the fourth quarter of the prior fiscal year. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
COMPETITION
The embedded Internet and Web-based software industry is highly
competitive and is characterized by rapidly advancing technology. Pacific
Softworks believes that it competes favorably in its markets on the basis of:
o product capabilities,
o price/performance characteristics,
o product portability,
o ease of use, and
o support services and corporate reputation.
We compete with other independent software vendors, including Wind River
Systems, Inc., Integrated Systems, Inc., Mentor Graphics, Inc. (through its
acquisition of Microtec/Ready Systems), Microware Systems Corporation and
Microsoft Corporation. In addition, hardware or other software vendors could
seek to expand their product offerings by designing and selling products that
directly compete with or adversely affect sales of our products.
Many of our existing and potential competitors have substantially
greater financial, technical, marketing and sales resources than we have. We are
aware of ongoing efforts by competitors to emulate the performance and features
of our products and we can provide no assurance that competitors will not
develop equivalent or superior technology to that of Pacific Softworks.
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Because we have been substantially dependent on our TCP/IP family of
Internet products and services, the effects of competition could be more adverse
on us than would be the case if we had a broader product offering. In addition,
competitive pressures could cause us to reduce the prices of our products, which
would result in reduced profit margins. We cannot assure you that we will be
able to compete effectively against our current and future competitors. If
Pacific Softworks is unable to compete successfully, its business, financial
condition and operating results would be materially adversely affected.
PRODUCT DEVELOPMENT AND ENGINEERING
Pacific Softworks believes that its success will depend in large part on
its ability to:
o maintain and enhance its current product line,
o develop new products,
o maintain technological competitiveness, and
o meet an ever-expanding range of customer requirements.
During 1997 and 1998 we incurred product development and engineering
expenses of $834,049 and $851,568. We intend to increase our commitment to
product development and engineering for 1999. See "Use of Proceeds."
The embedded software industry faces a fragmented market characterized
by ongoing technological developments, evolving industry standards and rapid
changes in customer requirements. Our success depends and will continue to
depend upon our ability to:
o develop and introduce in a timely manner new products that take
advantage of technological advances,
o identify and implement emerging standards,
o continue to improve the capabilities of our development environment
and the scalability and features of the TCP/IP and WebPilot Micro
Browser(TM) products,
o offer our products across a spectrum of microprocessor families used
in the embedded systems market, and
o respond promptly to customers' requirements.
Pacific Softworks has from time to time experienced delays in the
development of new products and the enhancement of existing products. These
delays are commonplace in the software industry. We cannot assure you that we
will be successful in developing and marketing, on a timely basis or at all,
competitive products, product enhancements and new products that respond to
technological change and changes in customer requirements. We also cannot
assure you that our enhanced or new products will adequately address the
changing needs of the marketplace. The inability of Pacific Softworks, due to
resource constraints or technological or other reasons, to develop and introduce
new products or product enhancements in a timely manner could have a material
adverse effect on our business, financial condition or operating results.
From time to time, Pacific Softworks or its competitors may announce new
products, capabilities or technologies that have the potential to replace or
shorten the life cycles of our
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existing products. We cannot assure you that announcements of currently planned
or other new products by us or others will not cause customers to defer
purchasing existing products. Any failure by Pacific Softworks to anticipate or
respond adequately to changing market conditions, or any significant delays in
product development or introduction, could have a material adverse effect on our
business, financial condition and operating results.
As a result of their complexity, software products may contain
undetected errors or compatibility issues, particularly when first introduced or
as new versions are released. Despite testing by us and testing and use by
current and potential customers, it is always possible for errors to be found in
new products after shipments to our customers. The occurrence of these errors
could result in loss of or delay in market acceptance of our products, which
could have a material adverse effect on our business, financial condition and
operating results.
Our products are increasingly used for applications in systems that
interact directly with the general public, particularly applications in
transportation, medical systems and other markets where the failure of the
embedded system could cause substantial property damage or personal injury. This
failure of our products could expose Pacific Softworks to significant product
liability claims. In addition, our products may be used for applications in
mission-critical business systems where the failure of the embedded system could
be linked to substantial economic loss. Although Pacific Softworks has not
experienced any product liability or economic loss claims to date, the sale and
support of our products entail the risk of these claims.
PROPRIETARY RIGHTS
Pacific Softworks' success is heavily dependent upon its proprietary
technology. We rely on a combination of:
o copyright,
o trade secret and trademark laws,
o nondisclosure,
o other contractual restrictions on copying, or distribution, and
o technical measures
to protect our software, documentation and other written materials.
As a part of its confidentiality procedures, Pacific Softworks generally
enters into nondisclosure agreements with its employees and consultants and
limits access to and distribution of its software, documentation and other
proprietary information. End user licenses of Pacific Softworks' software are
frequently in the form of source license agreements, which are signed by
licensees, and which we believe may be enforceable under the laws of many
jurisdictions.
Despite Pacific Softworks' efforts to protect its proprietary rights,
unauthorized third parties may be able to copy our products or to reverse
engineer or obtain and use information that we regard as proprietary. We can
provide you with no assurance that competitors will not independently develop
technologies that are substantially equivalent or superior to ours. Policing
unauthorized use of our products is difficult. Pacific Softworks is unable to
determine the extent to which software piracy of its products exists. Software
piracy, however, can be expected to be a continuing and persistent problem.
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We believe that, due to the rapid pace of innovation within our
industry, factors such as the technological and creative skills of our personnel
are more important to establishing and maintaining a technology leadership
position within the industry than are the various legal protections of our
technology.
As the number of patents, copyrights, trademarks, trade secrets and
other intellectual property rights in our industry increases, products based on
our technology may increasingly become the subject of infringement claims. We
can provide you with no assurance that third parties will not assert
infringement claims against us in the future.
Any of these claims with or without merit could:
o be time consuming,
o result in costly litigation,
o cause product shipment delays, or
o require us to enter into unwanted royalty or licensing agreements.
These royalty or licensing agreements, if required, may not be available on
terms acceptable to us, or at all, which could have a material adverse effect on
our business, financial condition and operating results.
In addition, we may initiate claims or litigation against third parties
for infringement of our proprietary rights or to establish the validity of our
proprietary rights. Litigation to determine the validity of any claims, whether
or not such litigation is determined in favor of Pacific Softworks, could result
in significant expense to Pacific Softworks and divert the efforts of our
technical and management personnel from productive tasks. In the event of an
adverse ruling in any such litigation, we might be required to:
o pay substantial damages,
o discontinue the use and sale of infringing products,
o expend significant resources to develop non-infringing technology,
or
o obtain a license to the infringing technology.
MANUFACTURING AND BACKLOG
Our manufacturing operation consists of assembling, packaging and
shipping the software products and documentation needed to fulfill each order.
We manufacture our source code for sale and duplicate compact disks in our
California facility. We use outside vendors to print documentation and
manufacture packaging materials. We believe that backlog is not a meaningful
indicator of revenue that can be expected in future periods.
EMPLOYEES
As of December 31, 1998, Pacific Softworks employed 21 persons,
including four in sales and marketing, 15 in product development, engineering
and support and two in management, operations, finance and administration. Of
these employees, 17 are located in North America, two are located in Japan and
two are located in Europe. None of our employees is represented by a labor union
or is subject to a collective bargaining agreement. We have never experienced a
work stoppage. We believe that relations with our employees are good.
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PROPERTIES
Our executive offices are located in a leased facility in Newbury Park,
California consisting of approximately 11,500 square feet of office space,
substantially all of which is under a lease expiring September 15, 2000. Our
monthly lease payment is approximately $8,500. In Japan we have subleased space
of approximately 700 square feet at a rate of approximately $1,600 on a month to
month basis. We believe that these facilities are adequate for our current needs
and for expected personnel additions over the next 18 months.
LEGAL PROCEEDINGS
We are not a party to any material legal proceedings.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of Pacific Softworks are:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Glenn P. Russell ............... 44 Chairman, President, Chief Executive and
Chief Financial Officer
Mark Sewell..................... 37 Senior Vice President - Business Development
Sandra J. Garcia ............... 37 Vice President - North American Sales
Robert G. J. Burg II ........... 42 Director
Wayne T. Grau .................. 49 Director
Reuben Sandler, Ph.D. .......... 62 Director
Joseph Lechman ................. 32 Secretary
</TABLE>
Glenn P. Russell. Mr. Russell has been Chairman, President, Chief
Executive and Chief Financial Officer of Pacific Softworks since 1992. Before
1992 he had various sales and marketing positions at IBM, Unisys and Network
Research Corporation, a predecessor of Pacific Softworks. Mr. Russell is also
an officer and director of Luke Systems International, a distributor of
electronic components. Luke Systems International is controlled by Mr.
Russell's spouse. See "Certain Transactions - Transactions with Affiliates."
Mr. Russell devotes substantially all of his time to Pacific Softworks. Mr.
Russell was educated in and is a native of the United Kingdom.
Mark Sewell. Mr. Sewell, a resident of the United Kingdom, has been the
general manager for our European operations since 1996, with responsibility for
European sales and business development. For over two years prior to 1996, he
was the business and support manager for the Asia Pacific region of PictureTel,
Inc. He received his masters degree in electrical and electronic engineering in
1985 from the University of Canterbury.
Sandra J. Garcia. Ms. Garcia joined Pacific Softworks in 1993 as its
regional sales manager and became Vice President - North American Sales in 1996.
Ms. Garcia graduated from Santa Barbara College in 1982.
Robert G. J. Burg II. Mr. Burg has been a director of Pacific Softworks
since January 1999. He has been the president of Profile Sports, a corporate
sports and outing entertainment business, since 1998. Prior to that, he was a
senior vice president and also served as president of Royal Grip, Inc., a
manufacturer and distributor of golf grips and sports headwear. Mr. Burg
received a bachelor of arts degree from the University of Colorado in 1977. He
currently serves on the boards of directors of EMD/Empyrean Diagnostics, Ltd.
and Royal Precision, Inc.
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Wayne T. Grau. Mr. Grau has been a director of Pacific Softworks since
January 1999. He has been the president and chief executive officer of Fielding
Electric, Inc. since 1981. He is currently a member of the Los Angeles Chapter
membership committee of the National Electrical Contractors Association, a
trustee for the Joint Apprenticeship Training Committee and a trustee for the
Los Angeles Electrical Training Trust.
Reuben Sandler, Ph.D. Dr. Sandler has been a director of Pacific
Softworks since January 1999. He has been the president and chief information
officer for MediVox, Inc., a medical software development company, since June
1997. Before that he was an executive vice president for R&D Laboratories, Inc.
and president and chief executive officer for IPA Information Systems, Inc. Dr.
Sandler received a Ph.D. from the University of Chicago in 1961 and is the
author of four books on mathematics. He currently serves on the boards of
directors of MediVox, Inc. and Alliance Medical Corporation and is an advisor to
the board of directors of R&D Laboratories, Inc.
Joseph Lechman. Mr. Lechman has been the secretary of Pacific Softworks
since March 1999. He is a principal in the law firm of Gose & Lechman and has
been practicing law in Ventura County, California since 1991. Mr. Lechman
received his bachelor of arts degree in business administration in 1987 from
California State University at Fullerton. He received his juris doctorate from
Pepperdine University School of Law and was admitted to the State Bar of
California in 1990. Mr. Lechman obtained a master's of law in taxation from the
New York University School of Law in 1991. He focuses his practice primarily on
business law, tax planning, estate planning and real estate law.
BOARD OF DIRECTORS
Directors are elected for a one year term. Each director holds office
until the expiration of his term, until his successor has been duly elected and
qualified or until the earlier of his resignation, removal or death. Each
officer serves at the discretion of the board of directors. There are no family
relationships among any of our directors or officers.
Commencing March 1999, directors receive $200 for attending meetings of
the board of directors. We will also reimburse our directors for actual and
reasonable out of pocket expenses incurred when attending board of directors and
committee meetings. Directors who are not employees are eligible to participate
in the 1998 Equity Incentive Program and received options to purchase 15,000
shares of common stock upon their election to the board of directors. See
"Management - Equity Incentive Program."
COMMITTEES OF THE BOARD OF DIRECTORS
The board of directors maintains a compensation committee and an audit
committee. The compensation committee is composed of Reuben Sandler, chair,
Robert Burg and Wayne Grau. The audit committee is composed of Robert Burg,
chair, Reuben Sandler and Wayne Grau. The compensation committee reviews and
makes recommendations to the board of directors on compensation matters,
including bonuses, of Pacific Softworks' officers and administers the grants
under Pacific Softworks' equity incentive program. The audit committee:
o reviews the scope of the audit procedures employed by our
independent auditors,
o reviews our accounting practices and policies with our independent
auditors,
o recommends to whom reports should be submitted within Pacific
Softworks,
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<PAGE> 49
o reviews with the independent auditors their final audit reports,
o reviews Pacific Softworks' overall accounting and financial controls
with our internal and independent auditors,
o has its members available to the independent auditors for
consultation,
o approves the audit fee charged by the independent auditors,
o reports to the board of directors with respect to the matters
described above, and
o recommends the selection of the independent auditors.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by our chief
executive officer, senior vice president, and vice president for services, or
the named executive officers, rendered during the fiscal years ended December
31, 1998, 1997 and 1996. No other executive officer of Pacific Softworks earned
or was paid compensation of more than $100,000 in the year ended December 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation
Year ended -------------------
Name and Principal Position Dec. 31 Salary Bonus
- --------------------------- ------- ------ --------
<S> <C> <C> <C>
Glenn P. Russell 1998 $ 207,962 $ --
Chairman, President, Chief Executive and 1997 215,384 118,201
Chief Financial Officer 1996 162,501 --
Mark Sewell 1998 134,822 --
Senior Vice President - Business 1997 115,885 --
Development 1996 58,161 --
Sandra J. Garcia 1998 120,442 --
Vice President - North American Sales 1997 154,563 --
1996 175,750 --
</TABLE>
Pacific Softworks paid Glenn P. Russell $118,201 in 1997 in addition to
his salary to permit Mr. Russell to pay 1996 personal tax obligations arising
from Pacific Softworks' S corporation status. In February 1999 Pacific
Softworks terminated the subchapter S election and became subject to taxation at
the corporate level.
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OPTION GRANTS IN 1998:
The following table sets forth each grant of stock options to named
executive officers during the fiscal year ended December 31, 1998:
<TABLE>
<CAPTION>
Number of Shares
Name Underlying Options Exercise Price
---- ------------------ --------------
<S> <C> <C>
Mark Sewell 70,000 $1.25
Sandra J. Garcia 70,000 $1.25
</TABLE>
The expiration date for each of the options described in the table above is June
25, 2008. These options were not granted under, and are separate from, our
equity incentive program. The options may be exercised at any time during their
term.
CHANGE OF CONTROL ARRANGEMENTS
The compensation committee of the board of directors, as plan
administrator of the 1998 Equity Incentive Program, has the authority to provide
for accelerated vesting of outstanding options held by any executive officer or
director or recipient upon certain changes in control of Pacific Softworks.
EQUITY INCENTIVE PROGRAM
Our 1998 equity incentive program was adopted by the board of directors
and approved by stockholders in April 1998. The number of shares of common stock
reserved for issuance under the equity incentive program is 320,000 shares. As
of December 31, 1998, no options were granted under the equity incentive
program. Under the equity incentive program, employees, non-employee members of
the board and consultants may be awarded options to purchase shares of common
stock, stock appreciation rights ("SARs"), restricted shares or stock units
(collectively, the "Awards"). Options may be incentive stock options designed to
satisfy Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code") or nonstatutory stock options designed not to meet those requirements.
If restricted shares or shares issued upon the exercise of options granted under
this plan are forfeited, then these shares will again become available for
awards under the equity incentive program. If stock units, options or SARs
granted under the equity incentive program are forfeited or terminate for any
other reason before being exercised, then the corresponding shares will again
become available for awards under the equity incentive program.
The equity incentive program is administered by the compensation
committee of the board of directors. This committee has complete discretion to:
o determine who should receive any Award,
o determine type, number, vesting requirements and other features and
conditions of an Award,
o interpret the equity incentive program, and
o make all other decisions relating to the operation of the equity
incentive program.
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The exercise price for statutory and incentive stock options granted
under the equity incentive program may not be less than 85% or 100%,
respectively, of the fair market value of the common stock on the option grant
date and may be paid in cash or in outstanding shares of common stock. Holders
may exercise options by using a cashless exercise method, a pledge of shares to
a broker or promissory note. The payment for an award of newly issued restricted
shares will be made in cash, by promissory note or the rendering of services.
The committee has the authority to modify or extend outstanding options
and stock appreciation rights. The committee may also accept the cancellation of
outstanding options or stock appreciation rights in return for a grant of new
options or stock appreciation rights for the same or a different number of
shares at the same or a different exercise price.
If there is a change in control of Pacific Softworks, an Award will
become fully exercisable as to all shares subject to an Award if the Award is
not assumed by the surviving corporation or its parent and the surviving
corporation or its parent does not substitute such Award with another award of
substantially the same terms. In the event of an involuntary termination of
service within 18 months following a change in control, all of the Awards then
outstanding and not vested will then be fully vested.
A change in control includes (i) a merger or consolidation of Pacific
Softworks after which Pacific Softworks' then current stockholders own less than
50% of the surviving corporation, (ii) sale of all or substantially all of the
assets of Pacific Softworks, (iii) a proxy contest that results in replacement
of more than one-third of the directors over a 24-month period, or (iv)
acquisition of 50% or more of our outstanding stock by a person other than a
trustee of Pacific Softworks' equity incentive program or a corporation owned by
the stockholders of Pacific Softworks in substantially the same proportions as
their stock ownership in Pacific Softworks. In the event of a merger or other
reorganization, outstanding options, stock appreciation rights, restricted
shares and stock units will be subject to the agreement of merger or
reorganization, which may provide for the assumption of outstanding awards by
the surviving corporation or its parent, for their continuation by Pacific
Softworks (if Pacific Softworks is the surviving corporation), for accelerated
vesting and for settlement in cash followed by cancellation of outstanding
awards.
The board of directors may amend or terminate the equity incentive
program at any time. Amendments may be subject to stockholder approval to the
extent required by applicable laws. The equity incentive program will continue
in effect unless otherwise terminated by the board of directors.
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CERTAIN TRANSACTIONS
SHARE PURCHASE AGREEMENT - MINORITY stockholder
In March 1996, Pacific Softworks agreed with a former officer, director
and principal stockholder to a buyout of his employment agreement and Glenn P.
Russell agreed to purchase all of that former officer's shares of common stock
of Pacific Softworks. Pacific Softworks and that former officer also entered
into a consulting agreement and that former officer agreed not to compete with
Pacific Softworks. Pacific Softworks paid the former officer $314,286 for each
of 1997 and 1998. At December 31, 1998 the balance of our payments due to this
former officer under these agreements was $236,000. This amount is payable in
equal monthly installments through September 1999. See note 13(c) of notes to
consolidated financial statements. The agreement restricts us from making any
distributions to stockholders, other than those necessary for tax liabilities
resulting from corporate earnings during the time we were an S corporation. We
are also prohibited from paying executive compensation in excess of certain
levels. The obligations under the agreement are secured by substantially all of
the outstanding shares of common stock of Pacific Softworks owned by Glenn P.
Russell and all assets of Pacific Softworks.
TRANSACTIONS WITH AFFILIATE
LOAN FROM AFFILIATE
In December 1998, Luke Systems International, a company controlled by
the spouse of Glenn P. Russell loaned Pacific Softworks $100,000 interest free.
In March 1999, Pacific Softworks repaid the loan.
RENTAL OF PREMISES TO AFFILIATE
Pacific Softworks rents a portion of its premises to a company
affiliated with our chief executive officer. We believe the terms of occupancy
to be favorable to Pacific Softworks. We expect this affiliated company to
relocate to other premises in or around the middle of 1999.
Pacific Softworks believes that the transactions set forth above were
made on terms no less favorable to Pacific Softworks than could have been
obtained from unaffiliated third parties. All future related party transactions
will be approved by a majority of the board of directors, including a majority
of the independent and disinterested outside directors on the board of
directors, and will be made on terms no less favorable to Pacific Softworks than
could be obtained from unaffiliated third parties.
INDEMNIFICATION
Our articles of incorporation limit the liability of our directors for
monetary damages arising from a breach of their fiduciary duty as directors,
except to the extent otherwise required by the California General Corporation
Law. This limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Our bylaws provide that Pacific Softworks shall indemnify its directors
and officers to the fullest extent permitted by California law, including in
circumstances in which indemnification is otherwise discretionary under
California law. Pacific Softworks has also entered into indemnification
agreements with its officers and directors containing provisions that may
require Pacific Softworks, among other things, to indemnify these officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers (other than
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liabilities arising from willful misconduct of a culpable nature), to advance
their expenses incurred as a result of any proceeding against them as to which
they could be indemnified, and to obtain directors' and officers' insurance if
available on reasonable terms.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended, may be permitted to directors, officers and control
persons of Pacific Softworks pursuant to the foregoing provisions, or otherwise,
Pacific Softworks has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Securities Act of
1933, as amended, and is, therefore, unenforceable.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding beneficial
ownership of our common stock as of the date of this prospectus, and as adjusted
to reflect the sale of the units offered by this prospectus, by:
o each person who is known by Pacific Softworks to own beneficially
more than 5% of our outstanding common stock,
o each of our executive officers and directors, and
o all executive officers and directors as a group.
Shares of common stock not outstanding but deemed beneficially owned
because an individual has the right to acquire the shares of common stock within
60 days are treated as outstanding only when determining the amount and
percentage of common stock owned by that individual. Each person has sole voting
and investment power with respect to the shares of common stock shown. The
address of each person is 703 Rancho Conejo Boulevard, Newbury Park, California
91320.
<TABLE>
<CAPTION>
Percentage of Shares
Number of Outstanding
Shares ----------------------
Name and Address of Beneficially Prior to Following
Beneficial Owner Owned Offering Offering
---------------- ----- -------- --------
<S> <C> <C> <C>
Glenn P. Russell .............. 3,000,000 90.91% 73.17%
Mark Sewell ................... 70,000 2.01 1.68
Sandra J. Garcia .............. 70,000 2.01 1.68
Robert G. J. Burg II .......... 15,000 * *
Wayne T. Grau ................. 15,000 * *
Reuben Sandler, Ph.D. ......... 15,000 * *
All directors and executive
officers as a group (7 persons) 3,185,000 91.39% 74.33%
</TABLE>
The foregoing table includes shares of common stock issuable upon
exercise of options granted to two officers and to each of our three
non-employee directors. Asterisks in the foregoing table indicate beneficial
ownership of less than 1%.
DESCRIPTION OF SECURITIES
The authorized capital stock of Pacific Softworks consists of 50,000,000
shares of $0.001 par value common stock and 10,000,000 shares of $0.01 par value
preferred stock, which Pacific
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Softworks may issue in one or more series as determined by the board of
directors. There currently are 3,300,000 shares of common stock issued and
outstanding that are held of record by three stockholders.
UNITS
Each unit being offered in this prospectus consists of one share of
common stock and one warrant. The common stock and warrants are separately
transferable. There is currently no trading market for the common stock or
warrants of Pacific Softworks, and we can provide no assurance that a trading
market will develop in the future.
PREFERRED STOCK
Pacific Softworks' board of directors is authorized to issue from time
to time, without stockholder authorization, in one or more designated series,
any or all of the authorized but unissued shares of preferred stock with such
dividend, redemption, conversion, and exchange provisions as may be provided by
the board of directors with regard to such particular series. Any series of
preferred stock may possess voting, dividend, liquidation, and redemption rights
superior to those of the common stock.
The rights of the holders of common stock will be subject to and may be
adversely affected by the rights of the holders of any preferred stock that may
be issued in the future. Issuance of a new series of preferred stock could make
it more difficult for a third party to acquire, or discourage a third party from
acquiring, the outstanding shares of common stock of Pacific Softworks and make
removal of the board of directors more difficult. No shares of preferred stock
are currently issued and outstanding, and Pacific Softworks has no present plans
to issue any shares of preferred stock.
COMMON STOCK
Each holder of record of common stock is entitled to one vote for each
share held on all matters properly submitted to the stockholders for their vote.
Stockholders may cumulate their votes in the election of directors.
Holders of outstanding shares of common stock are entitled to those
dividends declared by the board of directors out of legally available funds and,
in the event of liquidation, dissolution or winding up of the affairs of Pacific
Softworks, holders are entitled to receive, pro rata, the net assets of Pacific
Softworks available to the common stockholders. Holders of outstanding common
stock have no preemptive, conversion or redemption rights. All of the issued and
outstanding shares of common stock are, and all unissued shares of common stock,
when offered and sold will be, duly authorized, validly issued, fully paid and
nonassessable. To the extent that additional shares of common stock may be
issued in the future, the relative interests of the then existing stockholders
may be diluted.
The shares of common stock outstanding before this offering are
restricted securities as that term is defined in Rule 144 under the Securities
Act of 1933, as amended. Those shares cannot be resold without registration or
an exemption from registration.
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WARRANTS
Each warrant entitles the holder to purchase one share of common stock
at an exercise price of $7.50 for a period of 24 months from the date of this
prospectus, subject to Pacific Softworks' redemption rights described below. The
warrants will be issued under the terms of a warrant agreement between Pacific
Softworks and American Securities Transfer & Trust, Incorporated as warrant
agent. Pacific Softworks has authorized and reserved for issuance the shares of
common stock issuable on exercise of the warrants. The warrants are exercisable
to purchase a total of 800,000 shares of common stock of Pacific Softworks. If
the underwriters' over-allotment option relating to the warrants is exercised,
the warrants are exercisable to purchase a total of 920,000 shares of common
stock.
The warrant exercise price and the number of shares of common stock that
may be purchased upon exercise of the warrants are subject to adjustment in the
event of, among other events, a stock dividend on, or a subdivision,
recapitalization or reorganization of, the common stock, or the merger or
consolidation of Pacific Softworks with or into another corporation or business
entity.
Commencing 30 days from the date of this prospectus and until the
expiration of the warrants, Pacific Softworks may redeem outstanding warrants,
in whole but not in part, upon not less than 30 days' notice, at a price of
$0.05 per warrant. This right to redeem outstanding warrants is conditioned upon
the closing bid price of the common stock equaling or exceeding $8.00 per share
for 15 consecutive trading days. We must provide the redemption notice not more
than five business days after conclusion of the 15 consecutive trading days in
which the closing bid price of the common stock equals or exceeds $8.00 per
share.
In the event Pacific Softworks exercises its right to redeem the
warrants, the warrants will be exercisable until the close of business on the
date fixed for redemption in such notice. If any warrant called for redemption
is not exercised by such time, it will cease to be exercisable and the holder
thereof will be entitled only to the redemption price.
Pacific Softworks must have on file a current registration statement
with the SEC pertaining to the common stock underlying the warrants in order for
a holder to exercise the warrants or in order for the warrants to be redeemed by
Pacific Softworks. The shares of common stock underlying the warrants must also
be registered or qualified for sale under the securities laws of the states in
which the warrantholders reside. Pacific Softworks intends to use its best
efforts to keep the registration statement incorporating this prospectus
current, but we can give no assurance that the registration statement (or any
other registration statement filed by Pacific Softworks covering shares of
common stock underlying the warrants) can be kept current. In the event the
registration statement covering the underlying common stock is not kept current,
or if the common stock underlying the warrants is not registered or qualified
for sale in the state in which a warrant holder resides, the warrants may be
deprived of any value.
Pacific Softworks is not required to issue any fractional shares of
common stock upon the exercise of warrants or upon the occurrence of adjustments
pursuant to anti-dilution provisions. Pacific Softworks will pay to holders of
fractional interests an amount equal to the cash value of such fractional
interests based upon the then-current market price of a share of common stock.
Warrants may be exercised upon surrender of the certificate representing
those warrants on or prior to the expiration date (or earlier redemption date)
of such warrants at the offices of the warrant agent with the form of "Election
to Purchase" on the reverse side of the warrant certificate
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completed and executed as indicated, accompanied by payment of the full exercise
price by check payable to the order of Pacific Softworks for the number of
warrants being exercised. Shares of common stock issued upon exercise of
warrants for which payment has been received in accordance with the terms of the
warrants will be fully paid and nonassessable.
The warrants do not confer upon the warrantholder any voting or other
rights of a stockholder of Pacific Softworks. Upon notice to the warrantholders,
Pacific Softworks has the right to reduce the exercise price or extend the
expiration date of the warrants. Although this right is intended to benefit
warrantholders, to the extent Pacific Softworks exercises this right when the
warrants would otherwise be exercisable at a price higher than the prevailing
market price of the common stock, the likelihood of exercise, and the resultant
increase in the number of shares outstanding, may impede or make more costly a
change in control of Pacific Softworks.
ANTI-TAKEOVER PROVISIONS
Pacific Softworks' articles of incorporation and bylaws contain
provisions that may make it more difficult for a third party to acquire, or may
discourage acquisition bids for, Pacific Softworks. The board of directors of
Pacific Softworks is authorized, without action of its stockholders, to issue
authorized but unissued common stock and preferred stock. The existence of
undesignated preferred stock and authorized but unissued common stock enables
Pacific Softworks to discourage or to make it more difficult to obtain control
of Pacific Softworks by means of a merger, tender offer, proxy contest or
otherwise.
TRANSFER AGENT, WARRANT AGENT AND REGISTRAR
Pacific Softworks has retained American Securities Transfer & Trust,
Incorporated to serve as the transfer agent and registrar for the common stock
and warrant agent for the warrants.
SHARES ELIGIBLE FOR FUTURE SALE
On completion of this offering, Pacific Softworks will have 4,100,000
shares of common stock outstanding, assuming no warrants are exercised. If the
underwriters' over-allotment option is exercised in full, 4,220,000 shares of
common stock will be outstanding. Of these shares, 800,000 shares of common
stock sold in this offering and any shares sold by Pacific Softworks upon
exercise of the underwriters' over-allotment option will be freely transferable
by persons other than "affiliates" of Pacific Softworks as that term is defined
under the Securities Act of 1933, as amended, without restriction or further
registration. In addition, 200,000 shares beneficially owned by two persons who
are not employees of Pacific Softworks and up to 160,000 shares issuable upon
exercise of warrants to purchase units, are being registered concurrently with
this offering. These securities will be subject to certain sale restrictions
imposed by the representative for a period of 13 months from the date of this
prospectus. These restrictions may be waived by the representative, although it
has no current intention to do so. See "Description of Securities - Additional
Warrants to Purchase Securities."
The remaining 3,100,000 outstanding shares of common stock are
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of registration unless an exemption from
registration is available, including the exemption contained in Rule 144. All of
these shares become eligible for sale under Rule 144 commencing 90 days after
the date of this prospectus. Under the terms of the underwriting agreement, the
representative has required that the shares of common stock owned by officers,
directors and the
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current stockholders may not be sold until at least 13 months from the date of
this prospectus without its prior written consent.
In general, under Rule 144 as currently in effect, a stockholder who has
beneficially owned shares of common stock for at least one year is entitled to
sell, within any three-month period, a number of "restricted" shares that does
not exceed the greater of 1% of the then outstanding shares of common stock or
the average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about Pacific Softworks. Rule 144(k) provides that a stockholder who
is not deemed to be an "affiliate" and who has beneficially owned shares of
common stock for at least two years is entitled to sell such shares at any time
under Rule 144(k) without regard to the limitations described above. In addition
to the shares of common stock that are currently outstanding, a total of 320,000
shares of common stock have been reserved for issuance upon exercise of options
granted under the equity incentive program.
Pacific Softworks is unable to estimate the number of shares that may be
sold in the future by the existing holders of shares of Pacific Softworks'
common stock or holders of options or warrants that are outstanding or the
effect, if any, that sales of shares of common stock by such persons will have
on the market price of the common stock prevailing from time to time. Sales of
substantial amounts of common stock by such persons could adversely affect the
then prevailing market prices of the common stock and warrants.
Pacific Softworks, its directors, executive officers and other
stockholders have agreed pursuant to the underwriting agreement and other
agreements that they will not sell any common stock without the prior consent of
the representative for a period of 13 months from the date of this prospectus
(the "lockup arrangements"), except that Pacific Softworks may, without this
consent, grant options and issue shares under its equity incentive program. The
representative has no current intention to waive or shorten the lock-up
arrangements.
Pacific Softworks intends to file a registration statement on Form S-8
under the Securities Act to register shares of common stock issued or reserved
for issuance under outstanding options and our equity incentive program within
180 days after the date of this prospectus, thus permitting the resale of these
shares by nonaffiliates in the public market without restriction under the
Securities Act. Pacific Softworks intends to register these shares on Form S-8,
along with common stock underlying options that have not been issued under our
equity incentive program as of the date of this prospectus. See "Underwriting"
for a discussion of certain limitations imposed on the sale of common stock
registered on the Form S-8 until expiration of the 13-month lockup arrangements.
ADDITIONAL WARRANTS TO PURCHASE UNITS
Pacific Softworks also has issued warrants to purchase 40,000 units to
certain members of Resch Polster Alpert & Berger LLP, special counsel to Pacific
Softworks in this offering, and warrants to purchase an additional 40,000 units
to two persons who have provided temporary accounting and administrative
services to Pacific Softworks. Each of these warrants to purchase units may be
exercised at any time over a period of 60 months commencing from the date of
this prospectus at a price of $5.25 per unit. These units are identical to the
units sold in this offering. Pacific Softworks is also registering these units
concurrently with this offering. The representative has required all holders of
these units to not sell, transfer or convey any shares of common stock or
warrants issued upon exercise of these warrants for 13 months after the date of
this prospectus except upon consent of the representative.
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OPTIONS TO CONSULTANT
In June 1998, Pacific Softworks agreed, subject to the conditions
described below, to issue options to a consultant equal in number to 10% of the
then outstanding capital stock of Pacific Softworks. These options will be
issued if the consultant introduces Pacific Softworks to a merger, acquisition
or other transaction which is acceptable to Pacific Softworks before June 1999.
To date, the consultant has not introduced any such transaction to Pacific
Softworks. If issued the options will be exercisable for a period of five years
commencing from June 1998 at an exercise price of $1.20 per share.
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, for which Spencer Edwards, Inc. is acting as the
underwriters' representative, or "representative," have agreed to purchase from
Pacific Softworks the number of units set forth opposite their names, and will
purchase the units at the price to public less underwriting discounts set forth
on the cover page of this prospectus:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF UNITS
------------ ---------------
<S> <C>
Spencer Edwards, Inc........................ 800,000
-------
TOTAL ...................................... 800,000
=======
</TABLE>
The underwriting agreement provides that the underwriters' obligations
are subject to conditions precedent and that the underwriters are committed to
purchase all units offered hereby (other than those covered by the
over-allotment option described below) if the underwriters purchase any of these
securities.
The representative has advised Pacific Softworks that the underwriters
propose to offer the units directly to the public at the price to public set
forth on the cover page of this prospectus, and that they may allow to certain
dealers that are members of the National Association of Securities Dealers,
Inc., concessions not in excess of $__________. After the initial public
distribution of the units is completed, the shares of common stock and warrants
will trade separately and their offering prices may change as a result of market
conditions. No change in these terms will alter the amount of proceeds to be
received by Pacific Softworks as set forth on the cover page of this prospectus.
The representative has also advised Pacific Softworks that the underwriters do
not intend to confirm sales to any accounts over which any of them exercises
discretionary authority.
Pacific Softworks has agreed to pay the representative a nonaccountable
expense allowance of 3% of the aggregate public offering price of the units
offered, including units sold on exercise of the over-allotment option. Pacific
Softworks paid the representative $35,000 before the date of this prospectus as
an advance against this nonaccountable expense allowance. Pacific Softworks has
also agreed to pay all expenses in connection with qualifying the units for sale
under the laws of various states designated by the representative.
Pacific Softworks has granted the underwriters an option, exercisable
for 45 days after the date of this prospectus, to purchase up to 120,000
additional units at the same price as the initial units offered. The
underwriters may purchase the units solely to cover over-allotments, if any, in
connection with the sale of the units offered hereby. If the underwriters fully
exercise their over-
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allotment option, the total public offering price, underwriting discounts and
proceeds to Pacific Softworks will be $4,830,000, $483,000 and $4,347,000,
respectively.
The underwriters may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and may impose penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934, as amended.
Over-allotment involves syndicate sales in excess of the offering size, which
create a syndicate short position. Stabilizing transactions permit bids to
purchase the underlying security so long as the stabilizing bids do not exceed a
specified maximum. Syndicate covering transactions involve purchases of the
securities in the open market after the distribution has been completed in order
to cover syndicate short positions. Penalty bids permit the underwriters to
reclaim a selling concession from a syndicate member when the securities
originally sold by that syndicate member are purchased in a syndicate covering
transaction to cover syndicate short positions. These stabilizing transactions,
syndicate covering transactions and penalty bids may cause the price of the
common stock or warrants to be higher than they would otherwise be in the
absence of these transactions.
Neither Pacific Softworks nor the underwriters make any representation
or prediction as to the direction or magnitude of any effect that the
transactions described above may have on the price of the common stock or
warrants. In addition, neither Pacific Softworks nor any of the underwriters
make any representation that the underwriters will engage in these transactions
or that these transactions, once commenced, will not be discontinued without
notice.
Pacific Softworks' officers, directors and stockholders have agreed not
to offer, sell or otherwise dispose of any shares of common stock or derivative
securities of Pacific Softworks for a period of 13 months after the date of this
prospectus without the prior written consent of the representative. The
representative has agreed that Pacific Softworks may file an S-8 registration
statement 180 days after the date of this prospectus registering common stock
underlying outstanding options and options to be granted under the equity
incentive program. However, sales of common stock so registered:
o may not exceed an aggregate of 25,000 shares until expiration of the
13 month lockup arrangement, and
o may only be made by persons not serving as officers or directors of
Pacific Softworks.
The representative has no present intention to waive or shorten period of the
lockup arrangements.
Pacific Softworks will sell to the representative on completion of the
offering, for a total purchase price of $100, the representative's option for
the purchase of units entitling the representative or its assigns to purchase
one unit for each 10 units sold to the public (excluding the units sold in the
over-allotment option). The representative's option will be exercisable on the
date of this prospectus and will expire five years from that date. For each
warrant included in the units underlying the representative's option, the
representative will be able to purchase one share of common stock at an exercise
price of $7.50 per share during the exercise period of these warrants. The
rights and attributes of these warrants issuable to the representative are
identical to the warrants included in the units sold in the offering. The
exercise price of the representative's option to purchase units is 120% of the
public offering price or $6.30 per unit.
Pacific Softworks will set aside and at all times have available a
sufficient number of securities to be issued upon exercise of the
representative's option. The representative's option and underlying securities
will be restricted from sale, transfer, assignment or hypothecation for a period
of one year after the date of this prospectus, except to officers of the
representative, co-underwriters, selling group members and their officers,
employees or partners. Thereafter, the representative's option and underlying
units will be transferable provided that transfers are made in accordance with
the provisions of the Securities Act of 1933, as amended. Subject to certain
limitations and exclusions, Pacific Softworks has agreed, at the request of the
representative, to register the common stock included in the units and
underlying the warrants included in the units issuable upon exercise of the
representative's option.
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For a period of three years from the date hereof, the representative has
a preferential right to purchase for its account or to sell for the account of
Pacific Softworks (or any successors), or any subsidiaries of Pacific Softworks,
any securities with respect to which any of them may seek to sell, publicly or
privately, for cash other than transactions with a lending institution.
Pacific Softworks and the representative have entered into a
non-exclusive agreement which provides that, if the representative arranges for
the purchase or sale of substantially all of the assets of Pacific Softworks, or
for a merger, consolidation or acquisition accepted by Pacific Softworks during
the five-year period commencing on the date of this prospectus, the
representative will receive a fee based on a sliding scale ranging from 5% of
the first $1 million of consideration and decreasing to 3% of consideration in
excess of $2 million.
Pacific Softworks and the representative have entered into an agreement
which provides that for a period of three years from the date of this
prospectus, all public sales of Pacific Softworks' securities by officers,
directors and principal stockholders of Pacific Softworks at the time of this
prospectus shall be effected through or with the representative on an exclusive
basis, provided that the representative offers the best price reasonably
available. In addition, for a period of three years starting two years from the
date of this prospectus, in the case of private transactions in our common
stock, these selling security holders must offer the representative the
exclusive opportunity to purchase or sell the common stock on terms at least as
favorable as the selling security holder can obtain elsewhere.
For a period of five years after the date hereof, the representative has
the right to have an observer attend meetings of Pacific Softworks' board of
directors. This observer will be reimbursed for expenses incurred in attending
any such meeting.
Before this offering, there was no public market for Pacific Softworks'
securities. The public offering price of the units and the exercise price of the
warrants were determined by arms-length negotiation between Pacific Softworks
and the representative. There is no direct relation between the offering price
of the units and the assets, book value or net worth of Pacific Softworks. Among
the factors considered by Pacific Softworks and the representative in pricing
the units and in determining the exercise price of the warrants were the results
of operations, the current financial condition and future prospects of Pacific
Softworks, the experience of management, the amount of ownership to be retained
by present stockholders, the general condition of the economy and the securities
markets and the demand for securities of companies considered comparable to
Pacific Softworks.
In connection with this offering, Pacific Softworks and the underwriters
have agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act of 1933, as amended, and if such
indemnification is unavailable or insufficient, Pacific Softworks and the
underwriters have agreed to damage contribution arrangements based upon relative
benefits received from this offering and relative fault resulting in such
damage.
LEGAL MATTERS
The validity of the securities offered hereby will be passed on for
Pacific Softworks by Resch Polster Alpert & Berger LLP, Los Angeles, California.
Certain members of Resch Polster Alpert & Berger LLP own warrants to acquire a
total of 40,000 units. See "Description of Securities - Additional Warrants to
Purchase Units." Certain legal matters in connection with the offering will be
passed on for the representative by Berliner Zisser Walter & Gallegos, P.C.,
Denver, Colorado.
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EXPERTS
Merdinger, Fruchter, Rosen & Corso, P.C., independent auditors, have
audited the consolidated financial statements of Pacific Softworks for the years
ended December 31, 1996, 1997 and 1998, as set forth in their report, which is
included in this prospectus. Pacific Softworks consolidated financial statements
are included in this prospectus in reliance on their report, given on their
authority as experts in accounting and auditing.
-56-
<PAGE> 62
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Merdinger, Fruchter, Rosen & Corso, P.C., Independent Auditors F-1
Consolidated balance sheets as of December 31, 1997 and 1998 F-2
Consolidated statements of operations for the years ending December 31, 1996, 1997 and 1998 F-3
Consolidated statements of comprehensive income for the years ending December 31, 1996, F-4
1997 and 1998
Consolidated statements of stockholders' equity F-5
Consolidated statements of cash flows for the years ending December 31, 1996, 1997 and 1998 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
-57-
<PAGE> 63
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
We have audited the accompanying consolidated balance sheets of PACIFIC
SOFTWORKS, INC. AND SUBSIDIARY as of December 31, 1998 and 1997, and the related
consolidated statements of operations, comprehensive income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1998. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of PACIFIC
SOFTWORKS, INC. AND SUBSIDIARY as of December 31, 1998 and 1997, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
Los Angeles, California
January 29, 1999, except
for Note 14 as to which the
date is March 15, 1999
- F-1 -
<PAGE> 64
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
<TABLE>
<CAPTION>
ASSETS 1997 1998
---------- --------
<S> <C> <C>
Current assets
Cash $ 624,952 $224,031
Accounts receivable, net of allowance for doubtful
accounts of $36,400 and $86,400 337,690 268,902
Related party receivable -- 43,000
Other receivable 2,125 --
Prepaid expenses 36,112 15,523
---------- --------
Total current assets 1,000,879 551,456
---------- --------
Fixed assets, net of accumulated depreciation and
amortization of $311,204 and $348,761 69,158 82,196
---------- --------
Other assets
Trademark 1,034 1,188
Security deposit -- 8,486
---------- --------
1,034 9,674
---------- --------
Total assets $1,071,071 $643,326
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable and accrued expenses $ 219,027 $180,469
Related party payable -- 103,705
Accrued taxes payable 20,601 21,705
Customer deposits -- 23,100
---------- --------
Total current liabilities 239,628 328,979
---------- --------
Deferred revenue 140,811 106,874
---------- --------
Commitments and contingencies -- --
Minority interest
Stockholders' equity
Preferred stock, $.01 par value; 10,000,000 shares
authorized, no shares issued and outstanding -- --
Common stock, $.001 par value; 50,000,000 shares
authorized, 3,200,000 shares issued and outstanding 3,200 3,200
Additional paid-in capital 174,658 174,658
Retained earnings 492,212 18,452
Cumulative adjustment for currency translation 20,562 11,163
---------- --------
Total stockholders' equity 690,632 207,473
---------- --------
Total liabilities and stockholders' equity $1,071,071 $643,326
========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- F-2 -
<PAGE> 65
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1997 1998
---------- ----------- -----------
<S> <C> <C> <C>
Net revenue:
Sales $3,123,893 $ 2,929,536 $ 2,479,589
Royalties and other 564,217 380,248 307,808
---------- ----------- -----------
Total 3,688,110 3,309,784 2,787,397
Cost of revenue -
Purchases and royalty fees 96,576 116,311 100,336
---------- ----------- -----------
Gross profit 3,591,534 3,193,473 2,687,061
---------- ----------- -----------
Expenses:
Selling, general and administrative 2,257,560 2,110,038 1,936,117
Research and development 632,811 834,049 851,568
Depreciation and amortization 72,415 64,195 58,850
Former officer's consulting and administrative
expense 235,714 314,286 314,286
---------- ----------- -----------
Total expenses 3,198,500 3,322,568 3,160,821
---------- ----------- -----------
Net income (loss) $ 393,034 $ (129,095) $ (473,760)
========== =========== ===========
Net income (loss) per share - Basic and diluted $ 0.12 $ (0.04) $ (0.14)
========== =========== ===========
Weighted average number of shares outstanding 3,340,000 3,340,000 3,340,000
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- F-3 -
<PAGE> 66
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1997 1998
-------- --------- ---------
<S> <C> <C> <C>
Net income (loss) $393,034 $(129,095) $(473,760)
Other comprehensive income (loss) -
Foreign currency translation adjustment 19,219 49,946 (9,399)
-------- --------- ---------
Comprehensive income (loss) $412,253 $ (79,149) $(483,159)
======== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- F-4 -
<PAGE> 67
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Additional Currency Total
-------------------- Paid-in Retained Translation Stockholders'
Shares Amount Capital Earnings Adjustment Equity
--------- ------ -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 3,200,000 $3,200 $174,658 $ 228,273 $(48,603) $ 357,528
Foreign currency translation
adjustment -- -- -- -- 19,219 19,219
Net income -- -- -- 393,034 -- 393,034
--------- ------ -------- --------- -------- ---------
Balance, December 31, 1996 3,200,000 3,200 174,658 621,307 (29,384) 769,781
Foreign currency translation
adjustment -- -- -- -- 49,946 49,946
Net loss -- -- -- (129,095) -- (129,095)
--------- ------ -------- --------- -------- ---------
Balance, December 31, 1997 3,200,000 3,200 174,658 492,212 20,562 690,632
Foreign currency translation
adjustment -- -- -- -- (9,399) (9,399)
Net loss -- -- -- (473,760) -- (473,760)
--------- ------ -------- --------- -------- ---------
Balance, December 31, 1998 3,200,000 $3,200 $174,658 $ 18,452 $ 11,163 $ 207,473
========= ====== ======== ========= ======== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- F-5 -
<PAGE> 68
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 393,034 $(129,095) $(473,760)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 72,415 64,195 58,850
Bad debts -- -- 50,000
(Increase) decrease in assets:
Accounts receivable (247,081) 305,048 18,788
Related party receivable -- -- (43,000)
Other receivables (23,216) 22,152 2,125
Prepaid expenses (16,600) 10,990 20,589
Deposits and trademark 458 392 (8,486)
Increase (decrease) in liabilities:
Accounts payable and accrued expenses 87,710 (44,532) (38,558)
Related party payable -- -- 3,705
Accrued taxes payable 1,867 13,771 1,104
Customer deposits -- -- 23,100
Deferred revenue 63,898 43,646 (33,937)
--------- --------- ---------
Net cash provided by (used in) operating
activities 332,485 286,567 (419,480)
--------- --------- ---------
Cash flows used for investing activities:
Acquisition of fixed assets (14,493) (19,903) (71,888)
--------- --------- ---------
Cash flows from financing activities:
Acquisition of stock in subsidiary (5,743) (5,555) (5,500)
Proceeds of borrowings -- -- 150,000
Repayment of borrowings (200,000) -- (50,000)
--------- --------- ---------
Net cash (used) provided by financing
activities (205,743) (5,555) 94,500
--------- --------- ---------
Effect of exchange rate changes on cash 25,114 55,501 (4,053)
--------- --------- ---------
Net increase (decrease) in cash 137,363 316,610 (400,921)
Cash - Beginning 170,979 308,342 624,952
--------- --------- ---------
Cash - Ending $ 308,342 $ 624,952 $ 224,031
========= ========= =========
Supplemental cash flow information:
Cash paid during the year for -
Interest $ 42 $ -- $ 482
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
- F-6 -
<PAGE> 69
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Pacific Softworks, Inc., incorporated in California in November
1992, develops and licenses Internet and Web related software and
software development tools. Its products enable Internet and Web
based communications, based on a set of rules known as protocols,
and are embedded into systems and "information appliances"
developed or manufactured by others. Information appliances are
Internet connected versions of everyday products such as
telephones, televisions, fax machines and other digitally based
devices. Its operations are conducted principally from its
offices in Southern California, and it maintains sales offices in
England and Japan.
Basis of Consolidation
The consolidated financial statements include the accounts of
Pacific Softworks, Inc. ("PSI") and its wholly owned subsidiary,
Network Research Corp. Japan, Ltd. ("NRC"). Accordingly, all
references herein to PSI or the "Company" include the
consolidated results of its subsidiary. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
In January of 1998, PSI purchased the remaining 21% of NRC stock
held by a third party, to increase its holdings to 100%.
All of NRC's operations and assets are located in the country of
Japan.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased
with original maturities of three months or less to be cash
equivalents.
Revenue Recognition
The Company is engaged primarily as a developer and licensor of
software and generates revenue primarily from the one-time sales
of licensed software. Generally, revenue is recognized upon
shipment of the licensed software. For multiple element license
arrangements, the license fee is allocated to the various
elements based on fair value. When a multiple element arrangement
includes rights to a postcontract customer support, the portion
of the license fee allocated to each function is recognized
ratably over the term of the arrangement.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the 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 revenues and expenses during the reporting
period. Actual results could differ from those estimates.
- F-7 -
<PAGE> 70
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Depreciation and Amortization
Furniture, fixtures and equipment are stated at cost and
depreciated using both the straight-line and double declining
balance methods over their estimated useful lives, generally five
to seven years. Purchased computer software costs have been
amortized over five years.
The costs of maintenance and repairs are charged to expense when
incurred; costs of renewals and betterments are capitalized. Upon
the sales or retirement of property and equipment, the cost and
related accumulated depreciation are eliminated from the
respective accounts and the resulting gain or loss is included in
operations.
Fair Value of Financial Instruments
The Company's financial instruments consist of cash, accounts
receivable, accounts payable and short-term debt. The carrying
amounts of cash, accounts receivable, accounts payable and
short-term debt approximate fair value due to highly liquid
nature of these short-term instruments.
Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the
related carrying amount may not be recoverable. When required,
impairment losses on assets to be held and used are recognized
based on the fair value of the assets and long-lived assets to be
disposed of are reported at the lower of carrying amount of fair
value less cost to sell.
Income Taxes
The Company has been a subchapter S corporation. Income is passed
through to the stockholders who pay personally their share of the
applicable taxes. Therefore, no provision for income taxes is
made at December 31, 1996, 1997 and 1998. (See Note 14).
Translation of Foreign Currency
The Company translates the foreign currency financial statements
of its foreign subsidiary in accordance with the requirements of
Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation". Assets and liabilities are translated at
current exchange rates and related revenues and expenses are
translated at average exchange rates in effect during the period.
Resulting translation adjustments are recorded as a separate
component in stockholders' equity. Foreign currency transaction
gains and losses are included in determining net income.
Concentration of Credit Risk
The Company places its cash in what it believes to be
credit-worthy financial institutions. However, cash balances may
exceed FDIC insured levels at various times during the year.
- F-8 -
<PAGE> 71
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Advertising Costs
Advertising costs, except for costs associated with
direct-response advertising, are charged to operations when
incurred. The costs of direct-response advertising, if any, are
capitalized and amortized over the period during which future
benefits are expected to be received.
Per Share of Common Stock
In February 1997, the Financial Accounting Standards Board issued
a new statement titled "Earnings Per Share" (SFAS No. 128). This
statement is effective for both interim and annual periods ending
after December 15, 1997 and specifies the computation,
presentation, and disclosure requirements for earnings per share
for entities with publicly held common stock or potential common
stock. All prior-period earnings per share data presented has
been restated to conform with the provisions for SFAS No. 128.
Per share amounts have been computed based on the average number
of shares of common stock outstanding during each period. In
connection with the Company's proposed initial public offering
("IPO"), stock options issued for consideration below the IPO per
share price during the twelve months before the filing of the
registration statement are considered to be similar to a stock
dividend or stock split and have been included in the calculation
of shares of common stock outstanding for all periods presented.
Stock Based Compensation
The Company uses the intrinsic value method of accounting for
stock-based compensation in accordance with Accounting Principles
Board Opinion No. 25. See Note 10 for proforma disclosure of net
income and earnings per share under the fair value method of
accounting for stock-based compensation as proscribed by
Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123.
Comprehensive Income
In June 1997, the Financial Accounting Standards Board issued a
new statement titled "Reporting Comprehensive Income" (SFAS No.
130). This statement is effective for both interim and annual
periods beginning after December 15, 1997. This statement uses
the term "comprehensive income" to describe the total of all
components of comprehensive income, including net income. This
statement uses the term "other comprehensive net income" to refer
to revenues, expenses, gains or losses that under generally
accepted accounting principles are included in comprehensive
income, but excluded from net income.
- F-9 -
<PAGE> 72
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 2 - FIXED ASSETS
Fixed assets at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Furniture, fixtures and equipment $124,764 $144,533 $216,421
Computer software 235,829 235,829 214,536
-------- -------- --------
360,593 380,362 430,957
Less: accumulated depreciation and
amortization 247,143 311,204 348,761
-------- -------- --------
Fixed assets - net $113,450 $ 69,158 $ 82,196
======== ======== ========
Depreciation expense recorded in
the statement of operations $ 25,647 $ 19,348 $ 30,243
======== ======== ========
Unamortized computer software costs $ 71,514 $ 28,607 $ --
======== ======== ========
Amortization of computer software costs $ 46,768 $ 42,907 $ 28,607
======== ======== ========
</TABLE>
NOTE 3 - DEFERRED REVENUE
The Company provides technical support for its products, usually
over a twelve-month term. Revenue is recognized as earned on a
straight-line basis
NOTE 4 - RELATED PARTY TRANSACTIONS
a) As of December 31, 1998, the Company has advanced funds to its
principal stockholder in the amount of $43,000. The advances bear
no interest and are repayable upon demand. (See Note 14).
b) As of December 31, 1998, the Company has received advances from a
company controlled by the spouse of the principal stockholder of
PSI. The advances totaled $103,705. The advances bear no interest
and are repayable upon demand. (See Note 14).
c) The company mentioned in item (b) above also occupies space in
premises leased by PSI. The Company believes that the terms of
occupancy are no less favorable than those that could be obtained
from unaffiliated third parties. This party is expected to
relocate during the first half of 1999.
d) The principal stockholder of the Company has personally
guaranteed any advances made to the Company pursuant to a line of
credit provided by Bank of America. Total availability under the
line is $250,000. No advances were outstanding as of December 31,
1998.
- F-10 -
<PAGE> 73
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 5 - CAPITAL STOCK
a) The Company is authorized to issue 10,000,000 shares of Preferred
Stock, par value $.01. Preferred shares may be issued from time
to time in one or more series. The number of shares in each
series and the designation of each series to be issued shall be
determined from time to time by the board of directors of the
Company.
b) On January 30, 1998, the Company increased the number of shares
of common stock it is authorized to issue from 1,000,000 shares
to 50,000,000 shares. In June of 1998, the Company effected a
stock split and subsequently effected a reverse stock split. The
net result of these two stock transactions was an effective
6.27205 shares for one stock split, increasing the outstanding
shares from 510,200 to 3,200,000.
All references in the accompanying financial statements to the
number of shares of common stock and per-share amounts for 1996,
1997 and 1998 have been restated to reflect the effective stock
split.
NOTE 6 - STOCK PLAN
On April 17, 1998, the Company adopted the 1998 Equity Incentive
Program (the "Plan"). The Plan provides for the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii)
Non-Statutory Stock Options, (iii) Stock Appreciation Rights,
(iv) Stock Bonuses, and (v) Rights to acquire Restricted Stock.
Persons eligible to receive Stock Awards are the employees,
directors and consultants of the Company and its Affiliates, as
defined. Incentive Stock Options may be granted only to
employees. Stock awards other than Incentive Stock Options may be
granted to all eligible persons.
The maximum term of any options granted is ten years. Vesting
requirements may vary, and will be determined by the board of
directors.
The number of shares reserved for issuance under the Plan is
320,000 shares. (See Note 10).
NOTE 7 - ADVERTISING COSTS
Advertising costs incurred and recorded as expense in the
statement of operations were $222,051, $263,912 and $213,670 for
the years ended December 31, 1996, 1997 and 1998, respectively.
NOTE 8 - INTEREST COSTS
Interest costs incurred were $42, ($43) and $6,004 in 1996, 1997
and 1998, respectively, all of which were charged to operations.
- F-11 -
<PAGE> 74
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 9 - INCOME TAXES AND S CORPORATION STOCKHOLDER DISTRIBUTIONS
a) S Corporation Election
Effective January 1, 1995, the Company, with the consent of its
stockholders, elected under the Internal Revenue Code to be an S
corporation. For 1996, 1997 and 1998, the stockholders of the
Company were taxed on their proportional share of the
corporation's taxable income, or deducted personally any
corporate losses. Therefore, no provision or liability or
carryforward loss for federal income taxes has been included in
these financial statements.
b) Distributions
The Company has paid no distributions to its stockholders.
c) Tax Provision
As a result of the Company's tax status as an S Corporation,
operating results as presented in the accompanying consolidated
financial statements do not include a provision for income taxes
for the years ended December 31, 1996, 1997 and 1998.
d) Proforma Income Taxes
Proforma income taxes (benefit), assuming that the Company had
not been an S Corporation in each of the periods presented, are
as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ------ ---------
<S> <C> <C> <C>
Federal $90,410 $3,100 $ (93,510)
State 28,174 2,500 (30,674)
--------- ------ ---------
$ 118,584 $5,600 $(124,184)
========= ====== =========
</TABLE>
NOTE 10 - STOCK OPTIONS
a) The Company has granted certain non-statutory options to purchase
shares of Common Stock to two employees. Each option is for
70,000 shares at an exercise price of $1.25 per share. The
options vest on January 1, 1999 and expire June 25, 2008.
b) Plan and non-plan stock option activity is summarized as follows:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1997 1998
------- ---- -------
<S> <C> <C> <C>
Outstanding at beginning of year -- -- --
Options granted at an exercise price
of $1.25 per share -- -- 140,000
------- ---- -------
Outstanding at end of year -- -- 140,000
======= ==== =======
Exercisable at end of year -- -- --
======= ==== =======
Weighted average exercise price of
options outstanding $ -- $ -- $ 1.25
======= ==== =======
Weighted average remaining contractual
life of options outstanding -- -- 9 1/2 years
</TABLE>
- F-12 -
<PAGE> 75
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 10 - STOCK OPTIONS (continued)
The Company accounts for its stock option transactions under the
provisions of APB No. 25. The following proforma information is
based on estimating the fair value of grants based upon the
provisions of SFAS No. 123. The fair value of each option granted
during the period ending December 31, 1998 has been estimated as
of the date of grant using the Black-Scholes option pricing model
with the following assumptions: risk free interest rate of 5.5%,
life of options of 10 years, and expected dividend yield of 0%.
Under these assumptions, the weighted average fair value of
options granted during the period ending December 31, 1998 was
$0.52. Accordingly, the Company's proforma net loss and net loss
per share assuming compensation cost was determined under SFAS
No. 123 would have been the following:
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
-----------------
<S> <C>
Net Loss $(546,560)
Net Loss Per Share $(0.16)
</TABLE>
NOTE 11 - SEGMENTED INFORMATION
The Company's assets are located principally in the United
States.
Product sales are to the following geographic areas:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
United States and the Americas 50% 50% 43%
Europe and the United Kingdom 17 35 40
Asia and Australia 27 15 17
</TABLE>
NOTE 12 - EARNINGS PER SHARE
Stock options issued with an exercise price below the IPO
purchase price during the twelve months before the filing of the
registration statement have been included in the calculation of
shares of common stock outstanding as if they had been
outstanding for all periods presented. The amount of such shares
included in earnings per share calculations totals 140,000.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
a) The Company occupies facilities under terms of an operating lease
expiring September 15, 2000. Rent expense included in the
statement of operations totaled $30,000, $56,100 and $106,592 in
1996, 1997 and 1998, respectively. The Company leases an auto
under term of an operating lease expiring August 31, 1999. Auto
lease expense included in the statement of operations totaled $0,
$5,171 and $15,513 in 1996, 1997 and 1998, respectively.
- F-13 -
<PAGE> 76
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 13 - COMMITMENTS AND CONTINGENCIES
Future minimum lease payments are as follows:
<TABLE>
<S> <C>
1999 $114,894
2000 76,608
</TABLE>
b) The Company maintains a revolving line of credit arrangement with
Bank of America. The credit limit under the arrangement is
$250,000. Advances, when drawn upon, bear interest at the Bank's
Reference Rate plus two percent (9.75% at December 31, 1998).
Advances are collateralized by the Company's accounts receivable
and inventory and are secured by the personal guaranty of the
Company's principal stockholder.
No advances were outstanding under the line at December 31, 1998.
c) The Company is obligated to a former officer and 49% stockholder
for a consulting agreement, covenant not to compete and buy-out
of an employment agreement (collectively, the "Agreement"). The
obligation provides for a monthly payment of $26,190.49 over a 42
month period. At December 31, 1998, nine payments remain. In
addition to these payments, the Agreement requires that so long
as the Company has not paid in full all obligations under the
Agreement, it is restricted from making any distributions to
stockholders, other than necessary for any tax liability
resulting from corporate earnings; is prohibited from issuing
securities; is prohibited from paying executive compensation in
excess of certain levels; and accelerates payment of obligations
under the Agreement if certain corporate income levels are not
met. The obligations under the Agreement are secured by
substantially all of the outstanding shares of common stock of
the Company and all assets of the Company.
The former officer and stockholder has given his consent to the
sale of common stock described in Note 14(c).
d) In June 1998, the Company agreed, subject to the conditions
described below, to issue options to a consultant equal in number
to 10% of the Company's then outstanding capital stock. These
options will be issued if the consultant introduces the Company
to a merger, acquisition or other transaction which is acceptable
to the Company before June 1999. To date, the consultant has not
introduced any such transaction to the Company. If issued, the
options will be exercisable for a period of five years commencing
from June 1998 at an exercise price of $1.20 per share.
- F-14 -
<PAGE> 77
PACIFIC SOFTWORKS, INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
NOTE 14 - SUBSEQUENT EVENTS
a) Subsequent to December 31, 1998, the Company paid in full the
liability to the related party described in Note 4(b).
b) Subsequent to December 31, 1998, the related party receivable
described in Note 4(a) was repaid.
c) In February 1999 the Company sold 100,000 units to a single
accredited investor at a price of $5.00 per unit for total
proceeds of $500,000. Each unit consisted of one share of common
stock and one common stock purchase warrant entitling the holder
thereof to purchase one share of common stock for two years at an
exercise price of $6.00 per share.
d) As a result of the sale of common stock described in item (c)
above, the Company's S Corporation election has been terminated
as of February 14, 1999.
e) In February 1999, the Company entered into a letter of intent
with an underwriter in connection with a proposed initial public
offering of the Company's securities. The letter of intent
relates to the proposed sale by the Company of 800,000 units.
Each unit will consist of one share of common stock and one
warrant. Each warrant will entitle the holder to purchase one
share of common stock at an exercise price of $7.50 for a period
of two years commencing from the initial issuance. Under the
letter of intent, the underwriters will also be granted the right
to purchase up to an additional 120,000 units for the sole
purpose of covering over-allotments. It is expected that the
units will be offered to the public at an offering price of $5.25
per unit.
f) Warrants to purchase 80,000 units have been issued to certain
professionals who have rendered legal, temporary accounting and
administrative services to the Company. Each of these warrants to
purchase units may be exercised at any time over a period of 60
months commencing from the date of the Company's prospectus at a
price of $5.25 per unit. These units are identical to the units
to be sold by the Company in the proposed IPO.
g) Upon completion of the IPO, the Company will issue to the
representative of the underwriters options to purchase one unit
for each 10 units sold to the public. The options will be
exercisable commencing one year from the effective date of the
registration statement and for a period of four years thereafter.
The exercise price of the option is $6.30 per unit.
- F-15 -
<PAGE> 78
800,000 Units
Pacific Softworks, Inc.
[Company Logo]
Each unit consists of one share of common stock and one warrant.
Spencer Edwards, Inc.
_________________, 1999
- -------------------------------------------------------------------------------
PROSPECTUS
- -------------------------------------------------------------------------------
<PAGE> 79
The information in this preliminary prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the Securities and Exchange Commission or any applicable state securities
commission becomes effective. This preliminary prospectus is not an offer to
sell these securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
Subject to Completion, Dated March __,1999
PROSPECTUS
[PACIFIC SOFTWORKS, INC. LOGO]
80,000 UNITS
CONSISTING OF 80,000 SHARES OF COMMON STOCK AND
80,000 WARRANTS
AND
200,000 SHARES
This prospectus relates to the registration by Pacific Softworks for
resale by the named holders, for their accounts, of up to 80,000 units and
200,000 shares of common stock of Pacific Softworks. Each unit consists of one
share of common stock and one warrant. The units are issuable upon exercise of
certain warrants to purchase units at a price of $5.25 per unit. The securities
described in this prospectus are not being underwritten in this offering.
Pacific Softworks will not receive any proceeds from the sale of common stock
and common stock included in the units. Pacific Softworks will receive up to
$420,000 upon exercise of all of the warrants to purchase units. There is no
assurance that the warrants to purchase units will be exercised.
Concurrently with this offering, Pacific Softworks is offering up to
920,000 units by means of a separate prospectus. Information contained in this
separate prospectus, except for the cover page, the back cover page and the
information under the heading "Selling Security Holders", is a part of that
separate prospectus relating to the other concurrent offering by Pacific
Softworks. This prospectus includes certain information (including all
information relating to the concurrent underwritten offering and the
underwriters) that may not be pertinent to the sale of the securities described
in this prospectus by the holders.
The securities described in this prospectus may be sold by the holders
or their transferees starting on the date of this prospectus. The holders have
agreed with the representative not to sell any of their securities for a period
of 13 months from the date of this prospectus without the prior written consent
of the representative. Sales of these securities may depress the price of the
common stock and the warrants in any market that may develop for the common
stock and the warrants.
Prior to this offering there has been no public market for the common
stock or the warrants. We can provide no assurance that a public market will
develop in the future.
INVESTING IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 6.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this prospectus is March ___, 1999
-1-
<PAGE> 80
SALE OF SECURITIES DESCRIBED IN THIS PROSPECTUS.
The sale of the securities described in this prospectus may be made from
time to time in transactions (which may include block transactions by or for the
account of the holders) in the over-the-counter market or in negotiated
transactions through a combination of these methods of sale or otherwise. Sales
may be made at fixed prices which may be changed, at market prices prevailing at
the time of sale, or at negotiated prices.
A post-effective amendment to the registration statement that includes
this prospectus must be filed and declared effective by the Securities and
Exchange Commission (SEC) before a holder may:
o sell any securities described in this prospectus according to the
terms of this prospectus either at a fixed price or a negotiated
price, either of which is not the prevailing market price,
o sell securities described in this prospectus in a block
transaction to a purchaser who resells,
o pays compensation to a broker-dealer that is other than the usual
and customary discounts, concessions or commissions, or
o makes any arrangements, either individually or in the aggregate,
that would constitute a distribution of the securities described
in this prospectus.
-2-
<PAGE> 81
SELLING SECURITY HOLDERS
This prospectus relates to the resale of 80,000 units and 200,000 shares
of common stock of Pacific Softworks. Each unit consists of one share of common
stock and one warrant. Each warrant entitles the holder to buy one share of
common stock at a price of $7.50 per share for a period of 24 months starting
from the date of this prospectus. Pacific Softworks will not receive any of the
proceeds of the sale of the securities by the selling security holders. Pacific
Softworks will receive $420,000 upon full exercise of the warrants to purchase
units.
The following tables set forth certain information regarding the units
and shares of common stock owned beneficially as of March ___, 1999 by each
selling security holder. The selling security holders are not required, and may
choose not, to sell any of their units or shares of common stock. The selling
security holders have agreed with the representative not to sell any of their
securities for a period of 13 months from the date of this prospectus without
the prior written consent of the representative.
<TABLE>
<CAPTION>
UNITS OWNED UNITS BEING
NAME OF SELLING UNIT HOLDER PRIOR TO OFFERING OFFERED
--------------------------- ----------------- -----------
<S> <C> <C>
Randall M. Gates 27,500 27,500
Georgette W. Pagano 12,500 12,500
Aaron A. Grunfeld 25,000 25,000
Ronald M. Resch 2,500 2,500
Lee M. Polster 2,500 2,500
Sheldon P. Berger 2,500 2,500
Peter H. Alpert 2,500 2,500
David Gitman 2,500 2,500
Nicolas Ramniceanu 2,500 2,500
</TABLE>
<TABLE>
<CAPTION>
SHARES OWNED SHARES BEING
NAME OF SELLING STOCK HOLDER PRIOR TO OFFERING OFFERED
---------------------------- ----------------- ------------
<S> <C> <C>
John P. McGrain 140,000 140,000
Georgette W. Pagano 60,000 60,000
</TABLE>
To the extent that the selling security holders intend to sell their
securities directly, through agents, dealers, or the representative, in the
over-the-counter market or otherwise, on terms and conditions that they
determine at the time of sale or that they determine in private negotiations
between buyer and seller, such sales of the shares of common stock and warrants
may be made pursuant to this prospectus and pursuant to Rule 144 adopted under
the Securities Act of 1933, as amended.
No underwriting arrangements exist as of the date of this prospectus for
the selling security holders to sell their securities. Upon being advised of any
underwriting arrangements that may be entered into by a selling security holder
after the date of this prospectus, Pacific Softworks will prepare a supplement
to this prospectus to disclose those arrangements. It is anticipated that the
selling price for the common stock and warrants will be at or between the "bid"
and "asked" prices for these securities, as quoted in the over-the-counter
market immediately preceding the sale.
-3-
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 316 of the California General Corporation Law authorizes a court
to award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article III Section 16 of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the California General Corporation Law. The Registrant's Articles
of Incorporation provides that, pursuant to California law, its directors shall
not be liable for monetary damages for breach of the directors' fiduciary duty
as directors to the company and its stockholders. This provision in the Articles
of Incorporation does not eliminate the directors' fiduciary duty, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under California law. In addition,
each director will continue to be subject to liability for breach of the
director's duty of loyalty to Pacific Softworks for acts or omissions not in
good faith or involving intentional misconduct, for knowing violations of law,
for actions leading to improper personal benefit to the director, and for
payment of dividends or approval of stock repurchases or redemptions that are
unlawful under California law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. Pacific Softworks has entered into
Indemnification Agreements with its officers and directors, a form of which is
attached as Exhibit 10.1 hereto and incorporated herein by reference. The
Indemnification Agreements provide the Registrant's officers and directors with
further indemnification to the maximum extent permitted by the California
General Corporation Law. Reference is made to the Underwriting Agreement
contained in Exhibit 1.1 hereto, which contains provisions indemnifying officers
and directors of the Registrant against certain liabilities.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts, payable by Pacific Softworks in connection with the sale
of Units being registered. All amounts are estimates except the SEC registration
fee, the NASD filing fee and the Nasdaq SmallCap Market listing fee.
<TABLE>
<S> <C>
SEC Registration fee ...................................... $ 4,144
NASD fee .................................................. 1,991
Nasdaq Small Cap Market listing fee ....................... 10,000
Printing and engraving expenses* .......................... 30,000
Legal fees and expenses* .................................. 60,000
Accounting fees and expenses* ............................. 40,000
Blue sky fees and expenses* ............................... 20,000
Transfer agent fees ....................................... 1,825
Miscellaneous fees and expenses* .......................... 8,500
--------
Total ..................................................... $176,460
========
</TABLE>
*Estimated
II-1
<PAGE> 83
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information relates to all securities sold within the past
three years which were not registered under the Securities Act of 1933, as
amended (the "Securities Act"):
In February 1999 Pacific Softworks sold 100,000 units to a single
accredited investor at a price of $5.00 per unit for total proceeds of $500,000.
Each unit consisted of one share of common stock and one common stock purchase
warrant entitling the holder thereof to purchase one share of common stock for
two years at an exercise price of $6.00 per share.
In February 1999 Pacific Softworks also sold and issued warrants to
purchase 40,000 units to certain members of Resch Polster Alpert & Berger LLP,
special counsel to Pacific Softworks in this offering, and warrants to purchase
an additional 40,000 units to two persons who have provided temporary accounting
and administrative services to Pacific Softworks. Each of these warrants to
purchase units may be exercised at any time over a period of 60 months
commencing from the date of this prospectus at a price of $5.25. The units
issuable upon exercise of these warrants are identical to the units sold in this
offering.
Pacific Softworks issued these securities in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act. The recipients
of securities in these transactions represented their intention to acquire the
securities for investment only and not with a view to or for sale in connection
with any distribution thereof. The certificates evidencing the shares and
warrants bear restrictive legends indicating that the shares and warrants were
not registered under the Securities Act. No underwriter was involved in any of
these transactions.
ITEM 27. EXHIBITS
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement
1.3 Form of Selected Dealers Agreement
3.1 Articles of Incorporation of the Registrant, as amended to date
3.2 Bylaws of the Registrant
4.2 Specimen Warrant
4.3 Form of Warrant Agreement
4.4 Specimen common stock certificate
4.5 Form of Lock Up Agreement
4.6 Form of Representative's Option for Purchase of Units
5.1 Opinion of Resch Polster Alpert & Berger LLP*
10.1 Form of Indemnification Agreements
10.2 1998 Equity Incentive Program
10.3 Security and Loan Agreement, dated _________, 1998 between the
Registrant and __________*
10.4 Form of Invention Assignment and Proprietary Information
Agreement
21.1 Subsidiary of the Registrant
23.1 Consent of Merdinger, Fruchter, Rosen & Corso, P.C., Independent
Auditors
23.3 Consent of Counsel (contained within Exhibit 5.1)*
24.1 Power of Attorney (see page II-5)
27.1 Financial Data Schedule
</TABLE>
* To be filed by amendment.
II-2
<PAGE> 84
(b) Financial Statement Schedules
All schedules have been omitted because the information required to be
set forth therein is not applicable or is shown in the consolidated financial
statements or notes thereto.
ITEM 28. UNDERTAKINGS
The undersigned small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act"),
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change
in the information in the registration statement, and
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission ("SEC") such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the small business issuer of expenses incurred or paid by a director,
officer or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
small business issuer will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-3
<PAGE> 85
The undersigned small business issuer will:
(1) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the SEC declared it effective.
(2) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements of filing on form SB-2 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the city of Newbury Park, State of California, on this 26th
day of March, 1999.
Pacific Softworks, Inc.
By /s/ *Glenn P. Russell
--------------------------------------
Glenn P. Russell
President and Chief Executive Officer
II-4
<PAGE> 86
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Glenn P. Russell his true and lawful
attorney-in-fact and agent with full power of substitution, for him and in his
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
sign any registration statement for the same offering covered by this
Registration Statement that is to be effective on filing pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and all post-effective amendments
thereto, and to file the same, with all exhibits thereto and all documents in
connection therewith, with the SEC, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, or his substitute, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Glenn P. Russel President, Chief Executive
- -------------------------- Officer and Chairman (Principal March 26, 1999
Glenn P. Russel Executive Officer and Principal --------------
Financial Officer)
/s/ Mark Sewell Senior Vice President March 26, 1999
- -------------------------- --------------
Mark Sewell
/s/ Sandra J. Garcia Vice President March 26, 1999
- -------------------------- --------------
Sandra J. Garcia
/s/ Robert G. J. Burg II Director March 26, 1999
- -------------------------- --------------
Robert G. J. Burg II
/s/ Wayne T. Grau Director March 26, 1999
- -------------------------- --------------
Wayne T. Grau
/s/ Reuben Sandler, Ph.D. Director March 26, 1999
- -------------------------- --------------
Reuben Sandler, Ph.D.
</TABLE>
II-5
<PAGE> 1
EXHIBIT 1.1
800,000 UNITS
CONSISTING OF
800,000 SHARES OF COMMON STOCK
AND
800,000 WARRANTS
PACIFIC SOFTWORKS, INC.
UNDERWRITING AGREEMENT
May ___, 1999
Spencer Edwards, Inc.
6120 Greenwood Plaza Boulevard
Englewood, Colorado 80111
Dear Sirs:
PACIFIC SOFTWORKS, INC., a California corporation (the "Company")
hereby confirms its agreement with you (who are sometimes hereinafter referred
to as the "Representative") and with the other members of the underwriting group
(the "Underwriters") named on Schedule 1 hereto as follows:
1. Introductory. Subject to the terms and conditions contained herein, the
Company proposes to issue and sell to the Underwriters 800,000 Units (the
"Units"), comprised of 800,000 shares of common stock (the "Common Stock") and
800,000 redeemable warrants (the "Warrants"). Common Stock and Warrants shall be
immediately separately transferable and the Units shall not be listed for
trading on the Nasdaq SmallCap Market. For the purpose of this Agreement,
references hereinafter to Common Stock and Warrants shall be deemed to include,
where appropriate, the Units. In addition, solely for the purpose of covering
over-allotments, the Company grants to the Representative the option to purchase
up to an additional 120,000 units, consisting of 120,000 shares of Common Stock
and 120,000 Warrants (the "Additional Securities"), which option to purchase
shall be exercisable, in whole or in part, from time to time during the
forty-five (45) day period commencing on the date on which the Registration
Statement (as hereinafter defined) is initially declared effective (the
"Effective Date") by the Securities and Exchange Commission (the "Commission").
Unless otherwise noted, the Common Stock, together with the additional 120,000
shares of Common Stock issuable on exercise of the over-allotment
<PAGE> 2
option, is referred to hereinafter as the "Common Stock" and the Warrants and
the 120,000 Warrants issuable on exercise of the over-allotment option are
referred to hereinafter as the "Warrants".
2. Each Warrant will entitle the holder to purchase one share of Common Stock (a
"Warrant Share") at a price equal to $7.50 during the twenty-four (24) month
exercise period of the Warrants, subject to the Company's right of redemption.
The Warrants may be redeemed by the Company commencing one 30 days from the
Effective Date of the Registration Statement upon at least 30 days prior written
notice, in whole but not in part, at a price of $.05 per Warrant provided the
closing bid price for the Company's Common Stock is at least $8.00 during each
day of the fifteen (15) trading day period ending five days preceding the date
of the written notice. The terms and provisions of the Warrants shall be
governed by a warrant agreement between the Company and its transfer agent (the
"Warrant Agreement"), which Warrant Agreement will contain, among other
provisions, anti-dilution protection for warrantholders on terms acceptable to
the Representative. The Company shall not lower the exercise price of the
Warrants during such one year period without the Representative's prior written
consent. The Warrant Agreement governing the Warrants will contain anti-dilution
protection on terms reasonably acceptable to the Representative. The Common
Stock, Warrants and Additional Securities are more fully described in the
Prospectus referred to below. All references to the Company below shall be
deemed to include, where appropriate, the Company's subsidiaries, if any.
3. Representations and Warranties of the Company. The Company represents and
warrants to, and agrees with, each of the Underwriters that:
a. The Company has filed with the Commission a registration statement,
and may have filed one or more amendments thereto, on Form SB-2
(Registration No. 333- ), including in such registration statement and
each such amendment a facing sheet, the information called for by Part
I, audited consolidated financial statements for the past two fiscal
years or such other period as may be appropriate, the information
called for by Part II, the undertakings to deliver certificates, file
reports and file post-effective amendments, the required signatures,
consents of experts, exhibits, a related preliminary prospectus (a
"Preliminary Prospectus") and any other information or documents which
are required for the registration of the Common Stock and Warrants, the
Warrant Shares, the purchase options referred to in Section 2(n) (the
"Representative's Options"), and the securities referred to in Section
2(n) underlying the Representative's Options (the "Representative's
Option Securities"), under the Securities Act of 1933, as amended (the
"Act"). As used in this Agreement, the term "Registration Statement"
means such registration statement, including incorporated documents,
all exhibits and consolidated financial statements and schedules
thereto, as amended, when it becomes effective, and shall include
information
2
<PAGE> 3
with respect to the Common Stock, the Warrants, the Warrant Shares, the
Representative's Options, and the Representative's Option Securities
and the offering thereof permitted to be omitted from the Registration
Statement when it becomes effective pursuant to Rule 430A of the
General Rules and Regulations promulgated under the Act (the
"Regulations"), which information is deemed to be included therein when
it becomes effective as provided by Rule 430A; the term "Preliminary
Prospectus" means each prospectus included in the Registration
Statement, or any amendments thereto, before it becomes effective under
the Act and any prospectus filed by the Company with the consent of the
Representative pursuant to Rule 424(a) of the Regulations; and the term
"Prospectus" means the final prospectus included as part of the
Registration Statement, except that if the prospectus relating to the
securities covered by the Registration Statement in the form first
filed on behalf of the Company with the Commission pursuant to Rule
424(b) of the Regulations shall differ from such final prospectus, the
term "Prospectus" shall mean the prospectus as filed pursuant to Rule
424(b) from and after the date on which it shall have first been used.
b. When the Registration Statement becomes effective, and at all times
subsequent thereto, to and including the Closing Date (as defined in
Section 3) and each Additional Closing Date (as defined in Section 3),
and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Representative or any dealer,
and during such longer period until any post-effective amendment
thereto shall become effective, the Registration Statement (and any
post-effective amendment thereto) and the Prospectus (as amended or as
supplemented if the Company shall have filed with the Commission any
amendment or supplement to the Registration Statement or the
Prospectus) will contain all statements which are required to be stated
therein in accordance with the Act and the Regulations, will comply
with the Act and the Regulations, and will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading, and no event will have occurred which should
have been set forth in an amendment or supplement to the Registration
Statement or the Prospectus which has not then been set forth in such
an amendment or supplement; and no Preliminary Prospectus, as of the
date filed with the Commission, included any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading; except that no representation or warranty is made in this
Section 2(b) with respect to statements or omissions made in reliance
upon and in conformity with written information furnished to the
Company as stated in Section 8(b) with respect to the Underwriters by
or on behalf of the Underwriters expressly for inclusion in any
Preliminary
3
<PAGE> 4
Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto.
c. Neither the Commission nor the "blue sky" or securities authority of
any jurisdiction have issued an order (a "Stop Order") suspending the
effectiveness of the Registration Statement, preventing or suspending
the use of any Preliminary Prospectus, the Prospectus, the Registration
Statement, or any amendment or supplement thereto, refusing to permit
the effectiveness of the Registration Statement, or suspending the
registration or qualification of the Common Stock, the Warrants, the
Warrant Shares, the Representative's Options, or the Representative's
Option Securities, nor has any of such authorities instituted or
threatened to institute any proceedings with respect to a Stop Order.
d. Any contract, agreement, instrument, lease, or license required to
be described in the Registration Statement or the Prospectus has been
properly described therein. Any contract, agreement, instrument, lease,
or license required to be filed as an exhibit to the Registration
Statement has been filed with the Commission as an exhibit to or has
been incorporated as an exhibit by reference into the Registration
Statement.
e. The Company is a corporation duly organized, validly existing, and
in good standing under the laws of the State of California, with full
power and authority, and all necessary consents, authorizations,
approvals, orders, licenses, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and other
governmental authorities and all courts and other tribunals, to own,
lease, license, and use its properties and assets and to carry on the
business in the manner described in the Prospectus. The Company is duly
qualified to do business and is in good standing in every jurisdiction
in which its ownership, leasing, licensing, or use of property and
assets or the conduct of its business makes such qualifications
necessary. The Company has no subsidiaries except as disclosed in the
Prospectus.
f. The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, of which 3,500,000 shares of Common Stock are
issued and outstanding, and 345,000 shares of Common Stock are reserved
for issuance upon the exercise of outstanding options and warrants, and
10,000,000 shares of Preferred Stock, none of which are issued or
outstanding. There is no commitment, plan, or arrangement to issue, and
no outstanding option, warrant, or other right calling for the issuance
of, any share of capital stock of the Company or any security or other
instrument which by its terms is convertible into, exercisable for, or
exchangeable for capital stock of the Company, except as set forth
above, and as may be properly described in the Prospectus.
g. The consolidated financial statements of the Company included in the
Registration Statement and the Prospectus fairly present with respect
to the Company the consolidated
4
<PAGE> 5
financial position, the results of operations, and the other
information purported to be shown therein at the respective dates and
for the respective periods to which they apply. Such consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles, except to the extent that certain
footnote disclosures regarding any stub period may have been omitted in
accordance with the applicable rules of the Commission under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
consistently applied throughout the periods involved, are correct and
complete, and are in accordance with the books and records of the
Company. The accountants whose report on the audited consolidated
financial statements is filed with the Commission as a part of the
Registration Statement are, and during the periods covered by their
report(s) included in the Registration Statement and the Prospectus
were, independent certified public accountants with respect to the
Company within the meaning of the Act and the Regulations. No other
financial statements are required by Form SB-2 or otherwise to be
included in the Registration Statement or the Prospectus. There has at
no time been a material adverse change in the consolidated financial
condition, results of operations, business, properties, assets,
liabilities, or future prospects of the Company from the latest
information set forth in the Registration Statement or the Prospectus,
except as may be properly described in the Prospectus.
h. There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, or, to the
knowledge of the Company, threatened, or in prospect with respect to
the Company or any of its operations, businesses, properties, or
assets, except as may be properly described in the Prospectus or such
as individually or in the aggregate do not now have and will not in the
future have a material adverse effect upon the operations, business,
properties, or assets of the Company. The Company is not in violation
of, or in default with respect to, any law, rule, regulation, order,
judgment, or decree except as may be properly described in the
Prospectus or such as in the aggregate do not now have and will not in
the future have a material adverse effect upon the operations,
business, properties, or assets of the Company; nor is the Company
required to take any action in order to avoid any such violation or
default.
i. The Company has good and marketable title in fee simple absolute to
all real properties and good title to all other properties and assets
which the Prospectus indicates are owned by it, free and clear of all
liens, security interests, pledges, charges, encumbrances, and
mortgages except as may be properly described in the Prospectus or such
as in the aggregate do not now have and will not in the future have a
material adverse effect upon the operations, business, properties, or
assets of the Company. No real property owned, leased, licensed, or
used by the Company lies in an area which is, or to the
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<PAGE> 6
knowledge of the Company will be, subject to zoning, use, or building
code restrictions which would prohibit, and no state of facts relating
to the actions or inaction of another person or entity or his or its
ownership, leasing, licensing, or use of any real or personal property
exists or will exist which would prevent, the continued effective
ownership, leasing, licensing, or use of such real property in the
business of the Company as presently conducted or as the Prospectus
indicates it contemplates conducting, except as may be properly
described in the Prospectus or such as in the aggregate do not now have
and will not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company.
j. Neither the Company nor any other party is now or is expected by the
Company to be 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 which is
material to the Company, and each such contract, agreement, instrument,
lease, license, arrangement, and understanding is in full force and is
the legal, valid, and binding obligation of the parties thereto and is
enforceable as to them in accordance with its terms. The Company enjoys
peaceful and undisturbed possession under all leases and licenses under
which it is operating. The Company is not a party to or bound by any
contract, agreement, instrument, lease, license, arrangement, or
understanding, or subject to any charter or other restriction, which
has had or may in the future have a material adverse effect on the
financial condition, results of operations, business, properties,
assets, liabilities, or future prospects of the Company. The Company is
not in violation or breach of, or in default with respect to, any term
of its Articles of Incorporation (or other charter document) or
by-laws.
k. All patents, patent applications, trademarks, trademark
applications, trade names, service marks, copyrights, franchises,
technology, know-how and other intangible properties and assets (all of
the foregoing being herein called "Intangibles") that the Company owns
or has pending, or under which it is licensed, are in good standing and
uncontested. Except as otherwise disclosed in the Registration
Statement, the Intangibles are owned by the Company, free and clear of
all liens, security interests, pledges, and encumbrances. "Pacific
Softworks (and design)" is a registered trademark used by the Company
to identify its services and such mark is protected by registration in
the name of the Company on the principal register of the United States
Patent Office. There is no right under any Intangible necessary to the
business of the Company as presently conducted or as the Prospectus
indicates it contemplates conducting (except as may be so designated in
the Prospectus). The Company has not infringed, is not infringing, and
has not received notice of infringement with respect to asserted
Intangibles of others. To the knowledge of the
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<PAGE> 7
Company, there is no infringement by others of Intangibles of the
Company. To the knowledge of the Company, there is no Intangible of
others which has had or may in the future have a materially adverse
effect on the financial condition, results of operations, business,
properties, assets, liabilities, or future prospects of the Company.
l. Neither the Company nor any director, officer, agent, employee, or
other person associated with or acting on behalf of the Company has,
directly or indirectly: used any corporate funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or
domestic government officials or employees or to foreign or domestic
political parties or campaigns from corporate funds; violated any
provision of the Foreign Corrupt Practices Act of 1977, as amended; or
made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment. The Company has not accepted any material advertising
allowances or marketing allowances from suppliers to the Company and,
to the extent any advertising allowance has been accepted, the Company
has provided proper documentation to the supplier with respect to
advertising as to which the advertising allowance has been granted.
m. The Company has all requisite power and authority to execute and
deliver, and to perform thereunder each of this Agreement, the
Warrants, and the Representative's Options. All necessary corporate
proceedings of the Company have been duly taken to authorize the
execution and delivery, and performance thereunder by the Company of
this Agreement, the Warrants, and the Representative's Options. This
Agreement has been duly authorized, executed, and delivered by the
Company, is a legal, valid, and binding obligation of the Company, and
is enforceable as to the Company in accordance with its terms. Each of
the Warrants and the Representative's Options has been duly authorized
by the Company and, when executed and delivered by the Company, will
each be a legal, valid, and binding obligation of the Company, and will
be enforceable against the Company in accordance with its respective
terms. No consent, authorization, approval, order, license,
certificate, or permit of or from, or declaration or filing with, any
federal, state, local, or other governmental authority or any court or
other tribunal is required by the Company for the execution and
delivery, or performance thereunder by the Company of this Agreement,
the Warrants or the Representative's Options except filings under the
Act which have been or will be made before the Closing Date and such
consents consisting only of consents under "blue sky" or securities
laws which are required in connection with the transactions
contemplated by this Agreement and which have been obtained at or prior
to the date of this Agreement. No consent of any party to any contract,
agreement, instrument, lease, license, arrangement, or understanding to
which the Company is a party, or to which any of its properties or
assets are subject, is required for the execution or delivery, or
performance
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<PAGE> 8
thereunder of this Agreement, the Warrants and the Representative's
Options; and the execution and delivery, and performance thereunder of
this Agreement, the Warrants and the Representative's Options will not
violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to
terminate or call a default under any such contract, agreement,
instrument, lease, license, arrangement, or understanding, or violate
or result in a breach of any term of the Articles of Incorporation or
by-laws of the Company, or violate, result in a breach of, or conflict
with any law, rule, regulation, order, judgment, or decree binding on
the Company or to which any of its operations, businesses, properties,
or assets are subject.
n. The Common Stock, the Warrants, the Warrant Shares, purchase options
(the "Representative's Options") entitling the Representative or its
assigns to purchase the Representative's Option Securities, and the
Representative's Option Securities are validly authorized and reserved
for issuance. The Common Stock, when issued and delivered in accordance
with this Agreement, the Warrant Shares, when issued and delivered upon
exercise of the Warrants, the Representative's Option Securities, when
issued and delivered upon exercise of the Representative's Options and
the Representative's Option Shares issuable on exercise of warrants
included in the Representative's Option Securities, upon payment of the
exercise price therefor, will be validly issued, fully paid, and
nonassessable, without any personal liability attaching to the
ownership thereof, and will not be issued in violation of any
preemptive rights of stockholders, and the Underwriters will receive
good title to the Common Stock and the Warrants purchased, the
Representative will receive good title to the Representative's Options
purchased and any purchaser of the Warrant Shares or Representative's
Option Securities will receive good title thereto, all such title free
and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements, and voting trusts.
o. The Common Stock, the Warrants, the Warrant Shares, the
Representative's Options and the Representative's Option Securities
conform to all statements relating thereto contained in the
Registration Statement and the Prospectus.
p. Subsequent to the respective dates as of which information is given
in the Registration Statement and the Prospectus, and except as may
otherwise be properly described in the Prospectus, the Company has not
(i) issued any securities or incurred any liability or obligation,
primary or contingent, for borrowed money, (ii) entered into any
transaction not in the ordinary course of business, or (iii) declared
or paid any dividend on its capital stock.
q. Neither the Company nor any of its officers, directors, or
affiliates (as defined in the Regulations), has taken or will take,
directly or indirectly, prior to the termination of the
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<PAGE> 9
distribution of securities contemplated by this Agreement, any action
designed to stabilize or manipulate the price of any security of the
Company, or which has caused or resulted in, or which might in the
future reasonably be expected to cause or result in, stabilization or
manipulation of the price of any security of the Company, to facilitate
the sale or resale of the Common Stock and Warrants.
r. The Company has not incurred any liability for a fee, commission, or
other compensation on account of the employment of a broker or finder
in connection with the transactions contemplated by this Agreement.
s. The Company has obtained from each officer, director and person who
beneficially owns shares of the Company's capital stock or derivative
securities convertible into shares of the Company's capital stock his
or her enforceable written agreement that for a period of 13 months
from the Effective Date, he or she will not, without the
Representative's prior written consent, offer, pledge, sell, contract
to sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of capital stock or any security or
other instrument which by its terms is convertible into, exercisable
for, or exchangeable for shares of Common Stock (except that, subject
to compliance with applicable securities laws, any such officer,
director or stockholder may transfer his or her stock in a private
transaction, provided that any such transferee shall agree, as a
condition to such transfer, to be bound by the restrictions set forth
in this Agreement and further provided that the transferor, except in
the case of the transferor's death, shall continue to be deemed the
beneficial owner of such shares in accordance with Regulation 13d-(3)
of the Exchange Act). For a period of three (3) years from the
Effective Date, all public sales by officers, directors and
stockholders of the Company prior to the Effective Date shall be
effected through or with the Representative on an exclusive basis,
provided that the Representative offers the best price reasonably
available to the selling stockholders. In addition, for a period of
three years commencing 24 months from the Effective Date in the case of
private transactions in the Company's Common Stock, each such selling
security holder specified above shall offer the Representative the
exclusive opportunity to purchase or sell the securities on terms at
least as favorable as the selling security holder can obtain elsewhere.
If the Representative fails to accept in writing any such proposal for
sale by the selling security holders within three (3) business days
after receipt of a notice containing such proposal, then the
Representative shall have no claim or right with respect to any such
sales contained in such notice. If, thereafter, such proposal is
modified in any material respect, the selling security holders shall
adopt the same procedure as with respect to the original proposal. An
appropriate legend shall be marked on the face of stock certificates
representing all of such securities. Public or private sales of Common
Stock by such
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<PAGE> 10
persons shall not include gifts, intra-family transfers or transfers
for estate planning purposes, which shall be exempt from the foregoing
provisions. The Company, on behalf of itself, and all officers,
directors and holders of one percent or more of the Common Stock of the
Company, have provided the Representative their enforceable written
agreements not to sell, transfer, or hypothecate capital stock or
derivative securities of the Company (i) through a "Regulation S"
transaction for a minimum period of five years from the Effective Date
without the prior written consent of the Representative, or (ii)
through a "Regulation D" transaction for a minimum period of 24 months
from the Effective Date. The Company will also obtain from each holder
of options to acquire Common Stock of the Company such person's written
enforceable agreement not to sell Common Stock pursuant to the
exemption afforded by Rule 701 under the 1933 Act for a minimum period
of 13 months from the Effective Date without the prior written consent
of the Representative.
t. Except as otherwise provided in the Registration Statement, no
person or entity has the right to require registration of shares of
Common Stock or other securities of the Company because of the filing
or effectiveness of the Registration Statement.
u. The Company is eligible to use Form SB-2 for registration of the
Common Stock, the Warrants, the Warrant Shares, the Representative's
Options and the Representative's Option Securities.
v. No unregistered securities of the Company, of an affiliate of the
Company or of a predecessor of the Company have been sold within three
years prior to the date hereof, except as described in the Registration
Statement.
w. Except as set forth in the Registration Statement, there is and at
the Closing Date there will be no action, suit or proceeding before any
court, arbitration tribunal or governmental agency, authority or body
pending or, to the knowledge of the Company, threatened which might
result in judgments against the Company not adequately covered by
insurance or which collectively might result in any material adverse
change in the condition (financial or otherwise), the business or the
prospects of the Company or would materially affect the properties or
assets of the Company. a.
x. The Company has filed all federal and state tax returns which are
required to be filed by it and has paid all taxes shown on such returns
and all assessments received by it to the extent such taxes have become
due. All taxes with respect to which the Company is obligated have been
paid or adequate accruals have been set up to cover any such unpaid
taxes.
y. Except as set forth in the Registration Statement:
i. The Company has obtained all permits, licenses and other
authorizations which are required under the Environmental Laws for the
ownership,
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<PAGE> 11
use and operation of each location operated or leased by the Company
(the "Property"), all such permits, licenses and authorizations are in
effect, no appeal nor any other action is pending to revoke any such
permit, license or authorization, and the Company is in full compliance
with all terms and conditions of all such permits, licenses and
authorizations.
ii. The Company and the Property are in compliance with all
Environmental Laws including, without limitation, all restrictions,
conditions, standards, limitations, prohibitions, requirements,
obligations, schedules and timetables contained in the Environmental
Laws or contained in any regulation, code, plan, order, decree,
judgment, injunction, notice or demand letter issued, entered,
promulgated or approved thereunder.
iii. The Company has not, and to the best knowledge of the
Company's executive officers, no other person has, released, placed,
stored, buried or dumped any Hazardous Substances, Oils, Pollutants or
Contaminants or any other wastes produced by, or resulting from, any
business, commercial, or industrial activities, operations, or
processes, on, beneath, or adjacent to the Property or any property
formerly owned, operated or leased by the Company except for
inventories of such substances to be used, and wastes generated
therefrom, in the ordinary course of business of the Company (which
inventories and wastes, if any, were and are stored or disposed of in
accordance with applicable laws and regulations and in a manner such
that there has been no release of any such substances into the
environment).
iv. Except as provided to the Representative, there exists no
written or tangible report, synopsis or summary of any asbestos, toxic
waste or Hazardous Substances, Oils, Pollutants or Contaminants
investigation made with respect to all or any portion of the assets of
the Company (whether or not prepared by experts and whether or not in
the possession of the executive officers of the Company).
v. Definitions: As used herein:
(1) Environmental Laws means all federal, state and
local laws, regulations, rules and ordinances relating to
pollution or protection of the environment, including, without
limitation, laws relating to Releases or threatened Releases
of Hazardous Substances, Oils, Pollutants or Contaminants into
the indoor or outdoor environment (including, without
limitation, ambient air, surface water, groundwater, land,
surface and subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment,
storage, Release, transport or handling of Hazardous
Substances, Oils, Pollutants or Contaminants.
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(2) Hazardous Substances, Oils, Pollutants or
Contaminants means all substances defined as such in the
National Oil and Hazardous Substances Pollutant Contingency
Plan, 40 C.F.R. Section300.6, or defined as such under any
Environmental Law.
(3) Release means any release, spill, emission,
discharge, leaking, pumping, injection, deposit, disposal,
discharge, dispersal, leaching or migration into the indoor or
outdoor environmental (including, without limitation, ambient
air, surface water, groundwater, and surface or subsurface
strata) or into or out of any property, including the movement
of Hazardous Substances, Oils, Pollutants or Contaminants
through or in the air, soil, surface water, groundwater or any
property.
a. Any pro forma financial or other information and related notes
included in the Registration Statement, each Preliminary Prospectus and
the Prospectus comply (or, if the Prospectus has not been filed with
the Commission, as to the Prospectus, will comply) in all material
respects with the requirements of the Act and the rules and regulations
of the Commission thereunder and present fairly the pro forma
information shown, as of the dates and for the periods covered by such
pro forma information. Such pro forma information, including any
related notes and schedules, has been prepared on a basis consistent
with the historical financial statements and other historical
information, as applicable, included in the Registration Statement, the
Preliminary Prospectus and the Prospectus, except for the pro forma
adjustments specified therein, and give effect to assumptions made on a
reasonable basis to give effect to historical and, if applicable,
proposed transactions described in the Registration Statement, each
Preliminary Prospectus and the Prospectus.
All of the above representations and warranties shall survive the
performance or termination of this Agreement.
1. Purchase, Sale, and Delivery of the Units. On the basis of the
representations, warranties, covenants, and agreements of the Company herein
contained, but subject to the terms and conditions herein set forth, the Company
agrees to sell to the Underwriters, severally and not jointly, and the
Underwriters, severally and not jointly, agree to purchase from the Company the
number of Units set forth opposite the Underwriters' names in Schedule 1 hereto.
2. The purchase price per Unit to be paid by the Underwriters shall be $____.
The initial public offering price of the Units shall be $_____.
3. Payment for the Units by the Underwriters shall be made by certified or
official bank check in clearing house funds, payable to the order of the Company
at the offices of Pacific Softworks, Inc., 703 Rancho Conejo Boulevard, Newbury
Park, California 91320, or at such
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<PAGE> 13
other place as the Representative shall determine and advise the Company by at
least two full days' notice in writing, upon delivery of the Units to the
Representative. Such delivery and payment shall be made at 10:00 a.m., Mountain
Time, on the third business day following the time of the initial public
offering, as defined in Section 10(a). The time and date of such delivery and
payment are herein called the "Closing Date."
4. In addition, the Company hereby grants to the Representative the option to
purchase all or a portion of the Additional Securities as may be necessary to
cover over-allotments, at the same purchase price per Additional Security as the
price per Unit provided for in this Section 3. This option may be exercised by
the Representative on the basis of the representations, warranties, covenants,
and agreements of the Company herein contained, but subject to the terms and
conditions herein set forth, at any time and from time to time on or before the
45th day following the Effective Date of the Registration Statement, by written
notice by the Representative to the Company. Such notice shall set forth the
aggregate number of Additional Securities as to which the option is being
exercised, and the time and date, as determined by the Representative, when such
Additional Securities are to be delivered (such time and date are herein called
an "Additional Closing Date"); provided, however, that no Additional Closing
Date shall be earlier than the Closing Date nor earlier than the third business
day after the date on which the notice of the exercise of the option shall have
been given nor later than the eighth business day after the date on which such
notice shall have been given; and further provided, that not more than two
Additional Closings shall be noticed and held following purchase of Additional
Securities by the Representative.
5. Payment for the Additional Securities shall be made by certified or official
bank check in clearing house funds payable to the order of the Company at the
offices of Pacific Softworks, Inc., 703 Rancho Conejo Boulevard, Newbury Park,
California 91320, or at such other place in Denver, Colorado as you shall
determine and advise the Company by at least two full days' notice in writing,
upon delivery of certificates representing the Additional Securities to you.
6. Certificates for the Units and any Additional Securities purchased shall be
registered in such name or names and in such authorized denominations as you may
request in writing at least two full business days prior to the Closing Date or
Additional Closing Date, as applicable. The Company shall permit you to examine
and package such certificates for delivery at least one full business day prior
to any such closing with respect thereto.
7. If for any reason one or more Underwriters shall fail or refuse (otherwise
than for a reason sufficient to justify the termination of this Agreement under
the provisions of Section 10 hereof) to purchase and pay for the number of Units
agreed to be purchased by such Underwriter, the Company shall immediately give
notice thereof to the Representative, and the non-defaulting Underwriters shall
have the right within 24 hours after the receipt by the
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<PAGE> 14
Representative of such notice, to purchase or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon among the
Representative and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, the Units which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail so to
make such arrangements with respect to all such Units, the number of Units which
each non-defaulting Underwriter is otherwise obligated to purchase under the
Agreement shall be automatically increased pro rata to absorb the remaining
Units which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the Units which the defaulting Underwriter or Underwriters agreed to
purchase in excess of 10% of the total number of Units which such non-defaulting
Underwriter agreed to purchase hereunder, and provided further that the
non-defaulting Underwriters shall not be obligated to purchase any Units which
the defaulting Underwriter or Underwriters agreed to purchase if such additional
purchase would cause the Underwriter to be in violation of the net capital rule
of the Commission or other applicable law. If the total number of Units which
the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to the Representative for the purchase of such Units on the terms
herein set forth. In any such case, either the Representative or the Company
shall have the right to postpone the Closing for not more than seven business
days after the date originally fixed as the Closing in order that any necessary
changes in the Registration Statement, the Prospectus or any other documents or
arrangements may be made. If neither the non-defaulting Underwriters nor the
Company shall make arrangements within the 24-hour periods stated above for the
purchase of all the Units which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without further
act or deed and without any liability on the part of the Company any
non-defaulting Underwriter, except the Company shall be liable for actual
expenses incurred by the Representative as provided in Section 10 hereof, and
without any liability on the part of any non-defaulting Underwriter to the
Company.
8. Nothing contained herein shall relieve any defaulting Underwriter of its
liability, if any, to the Company or to the remaining Underwriters for damages
occasioned by its default hereunder.
9. Offering. The Underwriters are to make a public offering of the Units as
soon, on or after the effective date of the Registration Statement, as the
Representative deems it advisable so to do. The Units are to be initially
offered to the public at the initial public offering price as provided for in
Section 3 (such price being herein called the "public offering price"). After
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<PAGE> 15
the initial public offering, you may from time to time increase or decrease the
price of the Units, in your sole discretion, by reason of changes in general
market conditions or otherwise.
10. Covenants of the Company. The Company covenants that it will:
a. Use its best efforts to cause the Registration Statement to become
effective as promptly as possible. If the Registration Statement has
become or becomes effective with a form of Prospectus omitting certain
information pursuant to Rule 430A of the Regulations, or filing of the
Prospectus is otherwise required under Rule 424(b), the Company will
file the Prospectus, properly completed, pursuant to Rule 424(b) within
the time period prescribed and will provide evidence satisfactory to
you of such timely filing.
b. Notify you immediately, and confirm such notice in writing, (i) when
the Registration Statement and any post-effective amendment thereto
become effective, (ii) of the receipt of any comments from the
Commission or the "blue sky" or securities authority of any
jurisdiction regarding the Registration Statement, any post-effective
amendment thereto, the Prospectus, or any amendment or supplement
thereto, and (iii) of the receipt of any notification with respect to a
Stop Order or the initiation or threatening of any proceeding with
respect to a Stop Order. The Company will use its best efforts to
prevent the issuance of any Stop Order and, if any Stop Order is
issued, to obtain the lifting thereof as promptly as possible.
c. During the time when a prospectus relating to the Units or the
Additional Securities is required to be delivered hereunder or under
the Act or the Regulations, comply so far as it is able with all
requirements imposed upon it by the Act, as now existing and as
hereafter amended, and by the Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or
dealings in the Units and Additional Securities in accordance with the
provisions hereof and the Prospectus. If, at any time when a prospectus
relating to the Units or Additional Securities is required to be
delivered hereunder or under the Act or the Regulations, any event
shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Representative, the
Registration Statement or the Prospectus, as then amended or
supplemented, contains any untrue statement of a material fact or omits
to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, or if, in the opinion of
either of such counsel, it is necessary at any time to amend or
supplement the Registration Statement or the Prospectus to comply with
the Act or the Regulations, the Company will immediately notify you and
promptly prepare and file with the Commission an appropriate amendment
or supplement (in form and substance satisfactory to you) which will
correct such statement or omission or which will effect such
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<PAGE> 16
compliance and will use its best efforts to have any such amendment
declared effective as soon as possible.
d. Deliver without charge to you such number of copies of each
Preliminary Prospectus as you may reasonably request and, as soon as
the Registration Statement or any amendment thereto becomes effective
or a supplement is filed, deliver without charge to you two signed
copies of the Registration Statement or such amendment thereto, as the
case may be, including exhibits, and two copies of any supplement
thereto, and deliver without charge to you such number of copies of the
Prospectus, the Registration Statement, and amendments and supplements
thereto, if any, without exhibits, as you may reasonably request for
the purposes contemplated by the Act.
e. Endeavor in good faith, in cooperation with you, at or prior to the
time the Registration Statement becomes effective, to qualify the Units
and Additional Securities for offering and sale under the "blue sky" or
securities laws of such jurisdictions as you may designate; provided,
however, that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be subject
to service of general process or to taxation as a foreign corporation
doing business in such jurisdiction to which it is not then subject. In
each jurisdiction where such qualification shall be effected, the
Company will, unless you agree in writing that such action is not at
the time necessary or advisable, file and make such statements or
reports at such times as are or may be required by the laws of such
jurisdiction.
f. Make generally available (within the meaning of Section 11(a) of the
Act and the Regulations) to its security holders as soon as
practicable, but not later than fifteen (15) months after the date of
the Prospectus, an earnings statement (which need not be certified by
independent certified public accountants unless required by the Act or
the Regulations, but which shall satisfy the provisions of Section
11(a) of the Act and the Regulations) covering a period of at least 12
months beginning after the effective date of the Registration
Statement.
g. For a period of 13 months after the date of the Prospectus, not,
without your prior written consent, offer, issue, sell, contract to
sell, grant any option for the sale of, or otherwise dispose of,
directly or indirectly, any shares of Common Stock (or any security or
other instrument which by its terms is convertible into, exercisable
for, or exchangeable for shares of Common Stock) except as provided in
Section 3 and except for (i) the issuance of Warrant Shares issuable
upon the exercise of Warrants or issuance of Common Stock underlying
options outstanding on the date hereof which are properly described in
the Prospectus, (ii) the issuance of Representative's Option
Securities, or (iii)
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<PAGE> 17
the grant of options pursuant to the Company's existing stock option
plans, or (iv) the issuance of capital stock in connection with any
acquisitions undertaken by the Company.
h. For a period of five years after the Effective Date of the
Registration Statement, furnish you, without charge, the following:
i. Within 90 days after the end of each fiscal year,
three copies of consolidated financial statements certified by
independent certified public accountants, including a balance
sheet, statement of operations, and statement of cash flows of
the Company and its then existing subsidiaries, with
supporting schedules, prepared in accordance with generally
accepted accounting principles, at the end of such fiscal year
and for the 12 months then ended;
ii. As soon as practicable after they have been sent
to stockholders of the Company or filed with the Commission,
three copies of each annual and interim financial and other
report or communication sent by the Company to its
stockholders or filed with the Commission;
iii. As soon as practicable, two copies of every
press release and every material news item and article in
respect of the Company or its affairs which was released by
the Company;
iv. Notice of any regular quarterly or special
meeting of the Company's Board of Directors concurrently with
the sending of such notice to the Company's directors; and
v. Such additional documents and information with
respect to the Company and its affairs and the affairs of any
of its subsidiaries as you may from time to time reasonably
request.
a. Designate an Audit Committee and a Compensation Committee, the
members of which shall be subject to your reasonable approval, which
will generally supervise the financial affairs of the Company and
review executive compensation, respectively.
b. Furnish to you as early as practicable prior to the Closing Date and
any Additional Closing Date, as the case may be, but not less than two
full business days prior thereto, a copy of the latest available
unaudited interim consolidated financial statements of the Company
which have been read by the Company's independent certified public
accountants, as stated in their letters to be furnished pursuant to
Section 7(e). a.
c. File no amendment or supplement to the Registration Statement or
Prospectus at any time, whether before or after the Effective Date of
the Registration Statement, unless such filing shall comply with the Act
and the Regulations and unless you shall previously have been advised of
such filing and furnished with a copy thereof, and
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<PAGE> 18
you and counsel for the Representative shall have approved such filing
in writing within a reasonable time of receipt thereof.
d. Comply with all periodic reporting and proxy solicitation
requirements which may from time to time be applicable to the Company
as a result of the Company's registration under the Exchange Act on a
Registration Statement on Form 8-A .
e. Comply with all provisions of all undertakings contained in the
Registration Statement.
f. Prior to the Closing Date or any Additional Closing Date, as the
case may be, issue no press release or other communication, directly or
indirectly, and hold no press conference and grant no interviews with
respect to the Company, the financial condition, results of operations,
business, properties, assets, or liabilities of the Company, or this
offering, without your prior written consent.
g. On or prior to the Closing Date, sell to the Representative for a
total purchase price of $100, Representative's Options entitling the
Representative or its assigns to purchase (i) 80,000 Units at a price
equal to 120% of the public offering price of the Units, with the terms
of the Representative's Options, including exercise period,
anti-dilution provisions, exercise price, exercise provisions,
transferability, and registration rights, to be in the form filed as an
exhibit to the Registration Statement.
h. Until expiration of the Representative's Options, keep reserved
sufficient shares of Common Stock and Warrants for issuance upon
exercise of the Representative's Options, and shares of Common Stock
for issuance upon exercise of the warrants contained in the
Representative's Options. a.
i. If the Representative, any employee of the Representative or any
company controlled by or under control of the Representative acts as
the introducing broker or finder during the five year period commencing
on the Effective Date with regard to (i) the sale of all or
substantially all of the assets and properties of the Company, (ii) the
merger or consolidation of the Company (other than a merger or
consolidation effected for the purpose of changing the Company's
domicile) or (iii) the acquisition by the Company of the assets or
stock of another business entity, which agreement or understanding is
thereafter consummated during such five-year period or within one year
of expiration of such five-year period, pay to the Representative or
such person(s) as the Representative may designate an amount equal to
5% of the first $1,000,000 or portion thereof in value or consideration
received or paid by the Company, 4% of the second $1,000,000 or portion
thereof in value or consideration received or paid by the Company and
3% of such value or consideration received by the Company in excess of
the first $2,000,000 of such value or consideration received or paid by
the Company. The fee payable to the Representative will be in the same
form of consideration as that paid by or to the Company, as the case
may be, in any
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<PAGE> 19
such transaction. It is understood that the designation of the
Representative to act as a finder is not exclusive and that the
Representative shall not be entitled to the foregoing amounts unless it
participates in the introduction.
j. Adopt procedures for the application of the net proceeds it receives
from the sale of the Units and apply the net proceeds from the sale of
the Units substantially in the manner set forth in the Registration
Statement, which does not contemplate repayment of debt to officers,
directors, stockholders or affiliates of the Company, unless any
deviation from such application is in accordance with the Registration
Statement and occurs only after approval by the Board of Directors of
the Company and then only after the Board of Directors has obtained the
written opinion of recognized legal counsel experienced in federal and
state securities laws as to the propriety of any such deviation.
k. Within the time period which the Prospectus is required to be
delivered under the Act, comply, at its own expense, with all
requirements imposed upon it by the Act, as now or hereafter amended,
by the Rules and Regulations, as from time to time may be enforced, and
by any order of the Commission, so far as necessary to permit the
continuance of sales or dealing in the Units, Common Stock and
Warrants.
l. At the Closing, deliver to the Representative true and correct
copies of the Articles of Incorporation of the Company and all
amendments thereto, all such copies to be certified by the Secretary of
the Company; true and correct copies of the by-laws of the Company and
of the minutes of all meetings of the directors and stockholders of the
Company held prior to the Closing which in any way relate to the
subject matter of this Agreement or the Registration Statement.
m. Use all reasonable efforts to comply or cause to be complied with
the conditions precedent to the several obligations of the Underwriters
in Section 7 hereof.
n. File with the Commission all required information concerning use of
proceeds of the Public Offering in Forms 10-QSB and 10-KSB in
accordance with the provisions of the Act and to provide a copy of such
reports to the Representative and its counsel.
o. Supply to the Representative and the Representative's counsel at the
Company's cost, two bound volumes each containing material documents
relating to the offering of the Common Stock and Warrants within a
reasonable time after the Closing, not to exceed 90 days.
p. As soon as possible prior to the Effective Date, and as a condition
of the Underwriter's obligations hereunder, (i) have the Company listed
on an accelerated basis, and to maintain such listing for not less than
ten years from the Closing Date, in Standard & Poor's Standard
Corporation Records; and (ii) have the Units, Common Stock and Warrants
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<PAGE> 20
quoted on The Nasdaq SmallCap Market" as of the Effective Date, on the
Closing Date, on the Additional Closing Date and thereafter for at
least ten years provided the Company is in compliance with The Nasdaq
SmallCap Market" maintenance requirements.
y. At such time as the Company qualifies for listing on the
Nasdaq National Market, take all steps necessary to have the Company's
Common Stock and Warrants, to the extent eligible, listed on the Nasdaq
National Market.
z. Continue, for a period of at least five years following the
Effective Date of the Registration Statement, to appoint such auditors
as are reasonably acceptable to the Representative, which auditors
shall (i) prepare consolidated financial statements in accordance with
Regulation S-B or, if applicable, Regulation S-X under the General
Rules and Regulations of the Act and (ii) examine (but not audit) the
Company's consolidated financial statements for each of the first three
(3) fiscal quarters prior to the announcement of quarterly financial
information, the filing of the Company's 10-QSB quarterly report and
the mailing of quarterly financial information to security holders.
aa. Within 90 days of the Effective Date of the Registration
Statement, obtain a "key man" life insurance policy in the amount of
$_________ on the life of Glenn P. Russell, with the Company designated
as the beneficiary of such policy, and pay the annual premiums thereon
for a period of not less than three years from the Effective Date of
the Registration Statement.
bb. Cause its transfer agent to furnish the Representative a
duplicate copy of the daily transfer sheets prepared by the transfer
agent upon the reasonable request of the Representative, at the
Company's expense, for a period of five years after the Effective Date.
cc. Refrain from filing a Form S-8 Registration Statement for
a period of 180 days from the Effective Date of the Registration
Statement without the Representative's prior written consent. On or
prior to the filing of the Form S-8 Registration Statement, the Company
shall (i) obtain from all officers and directors their written
agreement not to sell the registered Common Stock underlying options
for the duration of the period through 13 months from the Effective
Date, and (ii) not permit the sale by non-officer and non-director
employees of in excess of an aggregate of 25,000 shares of Common Stock
during the period from the Effective Date of the Form S-8 Registration
Statement through 13 months from the Effective Date. The Company will
also obtain from each holder of options to acquire Common Stock of the
Company such person's written enforceable agreement not to sell shares
of Common Stock pursuant to the exemption afforded by Rule 701 under
the 1933 Act for a minimum period of 13 months from the Effective Date
without the prior written consent of the Representative.
dd. Afford the Representative the right, but not the
obligation, to designate an observer to attend meetings of the Board of
Directors, which right shall commence on the Effective Date and survive
for a period through the later of (i) three years from the Effective
Date, or (ii) exercise of the Representative's Warrants. The designee,
if any, and the Representative will receive notice of each meeting of
the Board of Directors in accordance with Colorado law, of which no
less than four meetings will be held each year. Any such designee will
receive reimbursement for all reasonable costs and expenses incurred in
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<PAGE> 21
attending meetings of the Board of Directors, including but not limited
to, food, lodging and transportation. Moreover, to the extent permitted
by law, the Representative and its designee shall be indemnified for
the actions of such designee as an observer to the Board of Directors
and in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and/or directors, to
the extent permitted under such policy, each of the Representative and
its designee shall be an insured under such policy.
ee. On behalf of itself and on behalf of its officers and
directors, provide the Representative a non-assignable right of first
refusal, which right of first refusal shall extend for a period of
three years after the Effective Date. The right of first refusal shall
entitle the Representative to purchase for its account, or to sell for
the account of the Company, any of the Company's subsidiaries or any
selling security holders or officers, directors or affiliates of such
persons, any debt or equity securities of the Company or common stock
owned by such selling security holders with respect to which the
Company, any of its subsidiaries or successors (other than a successor
entity which has acquired the Company and in which the stockholders of
the Company own less than 25% of the outstanding shares) or selling
security holders may seek to offer and sell pursuant to a registration
statement under the Act or in a private transaction other than with a
lending institution. The Company, its subsidiaries and any selling
security holders will consult with the Representative with regard to
any such offering and will offer the Representative the opportunity to
purchase or sell any such securities on terms not more favorable to the
Company than it can secure elsewhere. If the Representative fails to
accept in writing such proposal for financing made by the Company, its
subsidiaries or such selling security holders within fifteen (15) days
after the receipt by the Representative of a notice containing such
proposal, then the Representative shall have no further claim or right
with respect to the financing proposal contained in such notice. If
thereafter such proposal is modified, the Company, its subsidiaries or
affiliates shall adopt the same procedure as with respect to the
original proposal, except that upon re-presentation, such term for
response by the Representative shall be ten (10) days. Should the
Representative not avail itself of such opportunity, the right of first
refusal shall not be affected thereby, and the right of first refusal
shall continue in effect for the remaining period thereof. The Company
further agrees that any breach by the Company of the Representative's
right of first refusal shall be enforceable through injunctive relief.
The offer or sale by the Company of equity securities in connection
with acquisitions or mergers shall be exempted from the foregoing right
of first refusal.
1. Payment of Expenses. The Company hereby agrees to pay all expenses (subject
to the last sentence of this Section 6) in connection with the offering,
including but not limited to (a) the preparation, printing, filing,
distribution, and mailing of the Registration Statement and the
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<PAGE> 22
Prospectus, including NASD, SEC, Nasdaq filing and/or application fees, and the
printing, filing, distribution, and mailing of this Agreement, any Agreement
Among Underwriters, Selected Dealers Agreement, preliminary and final Blue Sky
Memorandums, material to be circulated to the Underwriters by you and other
incidental or related documents, including the cost of all copies thereof and of
the Preliminary Prospectuses and of the Prospectus, and any amendments or
supplements thereto, supplied to the Representative in quantities as hereinabove
stated, (b) the issuance, sale, transfer, and delivery of the Units, the
Additional Securities, the Warrant Shares, the Representative's Options and the
Representative's Option Securities, including, without limitation, any original
issue, transfer or other taxes payable thereon and the costs of preparation,
printing and delivery of certificates representing such securities, as
applicable, (c) the qualification of the Units, Additional Securities,
Representative's Options, Representative's Option Securities, and Warrant Shares
under state or foreign "blue sky" or securities laws, (d) the fees and
disbursements or counsel for the Company and the accountants for the Company,
(e) the listing of the Units, Common Stock and Warrants on The Nasdaq SmallCap
Market", and (f) the Representative's non-accountable expense allowance equal to
3% of the aggregate gross proceeds from the sale of the Units and the Additional
Securities. Prior to or immediately following the Closing Date, the Company
shall bear the costs of tombstone announcements not to exceed $1,500, if
requested to do so by the Representative.
2. The Company has previously remitted to the Representative the sum of $35,000,
which sum has been credited as a partial payment in advance of the
non-accountable expense allowance provided for in Section 6(f) above.
3. Conditions of Underwriters' Obligations. The Underwriters' obligation to
purchase and pay for the Units and the Additional Securities, as provided
herein, shall be subject to the continuing accuracy of the representations and
warranties of the Company contained herein and in each certificate and document
contemplated under this Agreement to be delivered to you, as of the date hereof
and as of the Closing Date (or the Additional Closing Date, as the case may be),
to the performance by the Company of its obligations hereunder, and to the
following conditions:
a. The Registration Statement shall have become effective not later
than 5:00 p.m., Mountain time, on the date of this Agreement or such
later date and time as shall be consented to in writing by you.
b. At the Closing Date and any Additional Closing Date, you shall have
received the favorable opinion of Resch, Polster, Alpert & Berger, LLP,
counsel for the Company, dated the date of delivery, addressed to you,
and in form and scope satisfactory to your counsel, to the effect that:
i. The Company is a corporation duly organized,
validly existing, and in good standing under the laws of the
State of California, with full power and
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<PAGE> 23
authority, and all necessary consents, authorizations,
approvals, orders, certificates, and permits of and from, and
declarations and filings with, all federal, state, local, and
other governmental authorities and all courts and other
tribunals, to own, lease, license, and use its properties and
assets and to conduct its business in the manner described in
the Prospectus. The Company is duly qualified to do business
and is in good standing in every jurisdiction in which its
ownership, leasing, licensing, or use of property and assets
or the conduct of its business makes such qualification
necessary;
ii. The authorized capital stock of the Company as of
the date of this Agreement consisted of 50,000,000 shares of
Common Stock, of which 3,300,000 shares of Common Stock are
issued and outstanding, 320,000 shares of Common Stock are
reserved for issuance upon the exercise of options; and
10,000,000 shares of Preferred Stock, none of which are issued
and outstanding; and there have been no changes in the
authorized and outstanding capital stock of the Company since
the date of this Agreement, except as contemplated by the
Registration Statement and the Prospectus. Each outstanding
share of capital stock is validly authorized, validly issued,
fully paid, and nonassessable, with no personal liability
attaching to the ownership thereof, has not been issued and is
not owned or held in violation of any preemptive right of
stockholders. There is no commitment, plan, or arrangement to
issue, and no outstanding option, warrant, or other right
calling for the issuance of, any share of capital stock of the
Company or any security or other instrument which by its terms
is convertible into, exercisable for, or exchangeable for
capital stock of the Company, except as set forth above, and
except as is properly described in the Prospectus. There is
outstanding no security or other instrument which by its terms
is convertible into or exchangeable for capital stock of the
Company, except as described in the Prospectus;
iii. There is no litigation, arbitration, claim,
governmental or other proceeding (formal or informal), or
investigation pending, threatened, or in prospect (or any
basis therefor) with respect to the Company or any of its
respective operations, businesses, properties, or assets,
except as may be properly described in the Prospectus or such
as individually or in the aggregate do not now have and will
not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company.
The Company is not in violation of, or in default with respect
to, any law, rule, regulation, order, judgment, or decree,
except as may be properly described in the Prospectus or such
as in the aggregate have been disclosed to the Representative
and do not now have and will not in the future
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<PAGE> 24
have a material adverse effect upon the operations, business,
properties, or assets of the Company; nor is the Company
required to take any action in order to avoid any such
violation or default;
iv. Neither the Company nor any other party is now or
is expected by the Company to be 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 which is material to
the Company;
v. The Company is not in violation or breach of, or
in default with respect to, any term of its Articles of
Incorporation or by-laws;
vi. The Company has all requisite power and authority
to execute and deliver and to perform thereunder this
Agreement, the Warrants and the Representative's Options. All
necessary corporate proceedings of the Company have been taken
to authorize the execution and delivery and performance
thereunder by the Company of this Agreement, the Warrants and
the Representative's Options. Each of this Agreement, the
Warrants and the Representative's Options have been duly
authorized, executed and delivered by the Company, and is a
legal, valid, and binding obligation of the Company, and
(subject to applicable bankruptcy, insolvency, and other laws
affecting the enforceability of creditors' rights generally)
enforceable as to the Company in accordance with its
respective terms. No consent, authorization, approval, order,
license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental
authority or any court or other tribunal is required by the
Company for the execution or delivery, or performance
thereunder by the Company of this Agreement, the Warrants and
the Representative's Options (except filings under the Act
which have been made prior to the Closing Date and consents
consisting only of consents under "blue sky" or securities
laws which are required in connection with the transactions
contemplated by this Agreement, and which have been obtained
on or prior to the date the Registration Statement becomes
effective under the Act). No consent of any party to any
contract, agreement, instrument, lease, license, arrangement,
or understanding to which the Company is a party, or to which
any of its properties or assets are subject, is required for
the execution or delivery, or performance thereunder of this
Agreement, the Warrants and the Representative's Options; and
the execution and delivery and performance thereunder of this
Agreement, the Warrants and the Representative's Options will
not violate, result in a breach of, conflict with, or (with or
without the giving of notice or the passage of time or both)
entitle any party to terminate or call a default
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<PAGE> 25
under any such contract, agreement, instrument, lease,
license, arrangement, or understanding, or violate or result
in a breach of any term of the Articles of Incorporation or
by-laws of the Company, or violate, result in a breach of, or
conflict with any law, rule, regulation, order, judgment, or
decree binding on the Company or to which any of its
operations, businesses, properties, or assets are subject;
vii. The shares of Common Stock are, the shares of
Common Stock issuable on exercise of the Warrants will be, the
shares of Common Stock underlying the Representative's Options
will be upon exercise of the Representative's Options, and the
Representative's Option Shares will be upon exercise of the
Warrants underlying the Representative's Options, validly
authorized, validly issued, fully paid, and nonassessable and
are not issued in violation of any preemptive rights of
stockholders, and the Underwriters have received good title to
the Units and Additional Securities purchased by them from the
Company, free and clear of all liens, security interests,
pledges, charges, encumbrances, stockholders' agreements, and
voting trusts; upon payment for the Warrant Shares and the
Representative's Securities, the holders thereof will receive
good title to such securities, free and clear of all liens,
security interests, pledges, charges, encumbrances,
stockholders' agreement and voting trusts. The Units, Common
Stock, the Warrants, the Warrant Shares, the Representative's
Options and the Representative's Option Securities conform to
all statements relating thereto contained in the Registration
Statement or the Prospectus;
viii. The Warrant Shares have been duly and validly
reserved for issuance pursuant to the terms of the Warrant
Agreement between the Company and its transfer agent, the
Representative's Option Securities have been duly and validly
reserved for issuance pursuant to the terms of the
Representative's Options or the Warrant Agreement, as the case
may be;
ix. Any contract, agreement, instrument, lease, or
license required to be described in the Registration Statement
or the Prospectus has been properly described therein. Any
contract, agreement, instrument, lease, or license required to
be filed as an exhibit to the Registration Statement has been
filed with the Commission as an exhibit to or has been
incorporated as an exhibit by reference into the Registration
Statement;
x. Insofar as statements in the Prospectus purport to
summarize the status of litigation or the provisions of laws,
rules, regulations, orders, judgments, decrees, contracts,
agreements, instruments, leases, or licenses, such statements
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<PAGE> 26
have been prepared or reviewed by such counsel and accurately
reflect the status of such litigation and provisions purported
to be summarized and are correct in all material respects;
xi. Except as provided in the Registration Statement,
no person or entity has the right to require registration of
shares of Common Stock or other securities of the Company
because of the filing or effectiveness of the Registration
Statement;
xii. The Registration Statement has become effective
under the Act. No Stop Order has been issued and no
proceedings for that purpose have been instituted or
threatened;
xiii. The Registration Statement and the Prospectus,
and any amendment or supplement thereto, comply as to form in
all material respects with the requirements of the Act and the
Regulations;
xiv. Such counsel has no reason to believe that
either the Registration Statement or the Prospectus, or any
amendment or supplement thereto, contains any untrue statement
of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading (except that no opinion need be
expressed as to the consolidated financial statements and
other financial data and schedules which are or should be
contained therein);
xv. Since the Effective Date of the Registration
Statement, any event which has occurred which should have been
set forth in an amendment or supplement to the Registration
Statement or the Prospectus has been set forth in such an
amendment or supplement;
xvi. The Company is not currently offering any
securities for sale except as described in the Registration
Statement;
xvii. Such counsel has no knowledge of any promoter,
affiliate, parent or subsidiaries of the Company except as are
described in the Registration Statement;
xviii. The Company has no subsidiaries except as
described in the Registration Statement;
xix. The Company owns or possesses, free and clear of
all liens or encumbrances and rights thereto or therein by
third parties, the requisite licenses or other rights to use
all trademarks, copyrights, service marks, service names,
trade names and licenses necessary to conduct its business
(including without limitation, any such licenses or rights
described in the Registration Statement as being owned or
possessed by the Company or any subsidiary) (all of which are
collectively referred to herein as the "Intellectual
Property"); there is no actual or pending, or threatened
claim, proceeding or action by any person pertaining to or
which
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<PAGE> 27
challenges the exclusive rights of the Company with respect to
any of the Company's Intellectual Property; based on a review
of all the Company's products, proposed products and
Intellectual Property, such products, proposed products or
Intellectual Property do not and will not infringe on any
trademarks, copyrights, service marks, service names, trade
names or valid patents or patents pending held by third
parties known to the Company and such counsel;
xx. The Company is not a party to any agreement
giving rise to any obligation by the Company or any subsidiary
to pay any third-party royalties or fees of any kind
whatsoever with respect to any technology developed, employed,
used or licensed by the Company or any subsidiary, other than
as disclosed in the Prospectus;
xxi. The Units, Common Stock and Warrants are
eligible for quotation on The Nasdaq SmallCap Market;
xxii. All issued and outstanding shares of Common
Stock and all other securities issued and sold or exchanged by
the Company or its subsidiaries have been issued and sold or
exchanged in compliance with all applicable state and federal
securities laws and regulations; and
xxiii. The Company and all of its Property are in
compliance with all Environmental Laws and the Company is in
full compliance with all permits, licenses and authorizations
relating to Environmental Laws.
In rendering such opinion, counsel for the Company may rely
(A) as to matters involving the application of laws other than the laws
of the United States and the laws of the State of California, to the
extent counsel for the Company deems proper and to the extent specified
in such opinion, upon an opinion or opinions (in form and substance
satisfactory to counsel for the Representative) of other counsel,
acceptable to counsel for the Representative, familiar with the
applicable laws, in which case the opinion of counsel for the Company
shall state that the opinion or opinions of such other counsel are
satisfactory in scope, form, and substance to counsel for the Company
and that reliance thereon by counsel for the Company is reasonable; (B)
as to matters of fact, to the extent the Representative deems proper,
on certificates of responsible officers of the Company; and (C) to the
extent they deem proper, upon written statements or certificates of
officers of departments of various jurisdictions having custody of
documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates
shall be delivered to counsel for the Representative.
a. On or prior to the Closing Date and any Additional Closing Date, as
the case may be, you shall have been furnished such information,
documents, certificates, and
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<PAGE> 28
opinions as you may reasonably require for the purpose of enabling you
to review the matters referred to in Sections 7(b) and (c), and in
order to evidence the accuracy, completeness, or satisfaction of any of
the representations, warranties, covenants, agreements, or conditions
herein contained, or as you may reasonably request.
b. At the Closing Date and any Additional Closing Date, as the case may
be, you shall have received a certificate of the chief executive
officer and of the chief financial officer of the Company, dated the
Closing Date or such Additional Closing Date, as the case may be, to
the effect that the conditions set forth in Section 7(a) have been
satisfied, that as of the date of this Agreement and as of the Closing
Date or such Additional Closing Date, as the case may be, the
representations and warranties of the Company contained herein were and
are accurate, and that as of the Closing Date or such Additional
Closing Date, as the case may be, the obligations to be performed by
the Company hereunder on or prior thereto have been fully performed.
c. At the time this Agreement is executed and at the Closing Date and
any Additional Closing Date, as the case may be, you shall have
received a letter from Merdinger, Fruchter, Rosen & Corso, P.C.,
Certified Public Accountants, addressed to you and dated the date of
delivery but covering a period within three business days of such date,
in form and substance satisfactory to you.
d. All proceedings taken in connection with the issuance, sale,
transfer, and delivery of the Units and the Additional Securities shall
be satisfactory in form and substance to you and to counsel for the
Representative, and you shall have received a favorable opinion from
counsel to the Company, dated as of the Closing Date or the Additional
Closing Date, as the case may be, with respect to such of the matters
set forth under Sections 7(b) and 7(c), respectively, and with respect
to such other related matters, as you may reasonably request.
e. The NASD, upon review of the terms of the public offering of the
Units and the Additional Securities, shall not have objected to your
participation in such offering.
f. The Company shall have received notice that the Units, Common Stock
and Warrants will be quoted on The Nasdaq SmallCap Market" as of the
Effective Date.
Any certificate or other document signed by any officer of the Company
and delivered to you or to counsel for the Representative shall be deemed a
representation and warranty by such officer individually and by the Company
hereunder to the Representative as to the statements made therein. If any
condition to your obligations hereunder to be fulfilled prior to or at the
Closing Date or any Additional Closing Date, as the case may be, is not so
fulfilled, you may terminate this Agreement or, if you so elect, in writing
waive any such conditions which have not been fulfilled or extend the time for
their fulfillment.
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<PAGE> 29
1. Indemnification and Contribution.
a. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Underwriters, the Representative, and
each of their officers, directors, partners, employees, agents, and
counsel, and each person, if any, who controls the Representative or
any one of the Underwriters within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, against any and all loss,
liability, claim, damage, and expense whatsoever (which shall include,
for all purposes of this Section 8, but not be limited to, attorneys'
fees and any and all expense whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or
threatened, or any claim whatsoever and any and all amounts paid in
settlement of any claim or litigation) as and when incurred arising out
of, based upon, or in connection with (i) any untrue statement or
alleged untrue statement of a material fact contained (A) in any
Preliminary Prospectus, the Registration Statement, or the Prospectus
(as from time to time amended and supplemented), or any amendment or
supplement thereto, or (B) in any application or other document or
communication (in this Section 8 collectively called an "application")
in any jurisdiction in order to qualify the Units and Additional
Securities under the "blue sky" or securities laws thereof or filed
with the Commission or any securities exchange; or any omission or
alleged omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (ii) any
breach of any representation, warranty, covenant, or agreement of the
Company contained in this Agreement. The foregoing agreement to
indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this Agreement;
however, the Company shall have no liability under this Section 8 if
such statement or omission was made in reliance upon and in conformity
with written information furnished to the Company as stated in Section
8(b) with respect to the Underwriters by or on behalf of the
Underwriters expressly for inclusion in any Preliminary Prospectus, the
Registration Statement, or the Prospectus, or any amendment or
supplement thereto, or in any application, as the case may be.
If any action is brought against the Underwriters, the Representative
or any of their officers, directors, partners, employees, agents, or counsel, or
any controlling persons of an Underwriter or the Representative (an "indemnified
party") in respect of which indemnity may be sought against the Company pursuant
to the foregoing paragraph, such indemnified party or parties shall promptly
notify the Company in writing of the institution of such action (but the failure
so to notify shall not relieve the Company from any liability it may have other
than pursuant to this Section 8(a)) and the Company shall promptly assume the
defense of such action, including the employment of counsel (satisfactory to
such indemnified party or parties) and payment of expenses. Such indemnified
party
29
<PAGE> 30
or parties shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless the employment of such counsel shall have
been authorized in writing by the Company in connection with the defense of such
action or the Company shall not have promptly employed counsel satisfactory to
such indemnified party or parties to have charge of the defense of such action
or such indemnified party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those available to
the Company, in any of which events such fees and expenses shall be borne by the
Company. Anything in this paragraph to the contrary notwithstanding, the Company
shall not be liable for any settlement of any such claim or action effected
without its written consent. The Company agrees promptly to notify the
Underwriters and the Representative of the commencement of any litigation or
proceedings against the Company or against any of its officers or directors in
connection with the sale of the Units or the Additional Securities, any
Preliminary Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or any application.
a. The Underwriters agree to indemnify and hold harmless the Company,
each director of the Company, each officer of the Company who shall
have signed the Registration Statement, each other person, if any, who
controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, to the same extent as the foregoing
indemnity from the Company to the Underwriters in Section 8(a), but
only with respect to statements or omissions, if any, made in any
Preliminary Prospectus, the Registration Statement, or the Prospectus
(as from time to time amended and supplemented), or any amendment or
supplement thereto, or in any application, in reliance upon and in
conformity with written information furnished to the Company as stated
in this Section 8(b) with respect to the Underwriters by or on behalf
of the Underwriters expressly for inclusion in any Preliminary
Prospectus, the Registration Statement, or the Prospectus, or any
amendment or supplement thereto, or in any application, as the case may
be; provided, however, that the obligation of the Underwriters to
provide indemnity under the provisions of this Section 8(b) shall be
limited to the amount which represents the product of the number of
Units and Additional Securities sold hereunder and the initial public
offering prices per Unit set forth on the cover page of the Prospectus.
For all purposes of this Agreement, the amounts of the selling
concession and reallowance set forth in the Prospectus, the information
under "Underwriting" and the identification of counsel to the
Representative under "Legal Matters" constitute the only information
furnished in writing by or on behalf of the Underwriters expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or
the Prospectus (as from time to time amended or supplemented),
30
<PAGE> 31
or any amendment or supplement thereto, or in any application, as the
case may be. If any action shall be brought against the Company or any
other person so indemnified based on any Preliminary Prospectus, the
Registration Statement, or the Prospectus, or any amendment or
supplement thereto, or any application, and in respect of which
indemnity may be sought against the Underwriters pursuant to this
Section 8(b), the Underwriters shall have the rights and duties given
to the Company, and the Company and each other person so indemnified
shall have the rights and duties given to the indemnified parties, by
the provisions of Section 8(a).
b. In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in this
Section 8 is for any reason held to be unavailable to the Underwriters
or the Company, then the Company shall contribute to the damages paid
by the several Underwriters, and the several Underwriters shall
contribute to the damages paid by the Company; provided, however, that
no person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. In
determining the amount of contribution to which the respective parties
are entitled, there shall be considered the relative benefits received
by each party from the sale of the Units and Additional Securities
(taking into account the portion of the proceeds of the offering
realized by each), the parties' relative knowledge and access to
information concerning the matter with respect to which the claim was
asserted, the opportunity to correct and prevent any statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Underwriters agree that it would not
be equitable if the amount of such contribution were determined by pro
rata or per capita allocation (even if the Underwriters were treated as
one entity for such purpose). No Underwriter or person controlling such
Underwriter shall be obligated to make contribution hereunder which in
the aggregate exceeds the total public offering price of the Units and
Additional Securities purchased by such Underwriter under this
Agreement, less the aggregate amount of any damages which such
Underwriter and its controlling persons have otherwise been required to
pay in respect of the same or any substantially similar claim. The
Underwriters' obligations to contribute hereunder are several in
proportion to their respective underwriting obligations and not joint.
For purposes of this Section, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the Act shall have the
same rights to contribution as such Underwriter, and each director of
the Company, each officer of the Company who signed the Registration
Statement, and each person, if any, who controls the Company within the
meaning of Section 15 of the Act, shall have the same rights to
contribution as the Company. Anything in this Section 8(c) to the
contrary
31
<PAGE> 32
notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written
consent. This Section 8(c) is intended to supersede any right to
contribution under the Act, the Exchange Act, or otherwise.
2. Representations and Agreements to Survive Delivery. All representations,
warranties, covenants, and agreements contained in this Agreement shall be
deemed to be representations, warranties, covenants, and agreements at the
Closing Date and any Additional Closing Date, and such representations,
warranties, covenants, and agreements of the Underwriters and the Company,
including the indemnity and contribution agreements contained in Section 8,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Representative, the Underwriters or
any indemnified person, or by or on behalf of the Company or any person or
entity which is entitled to be indemnified under Section 8(b), and shall survive
termination of this Agreement or the delivery of the Units and the Additional
Securities to the Underwriters for a period equal to the statute of limitations
for claims related hereto, but not to exceed an aggregate of three years from
the date hereof. In addition, the provisions of Sections 5(a), 6, 8, 9, 10, and
12 shall survive termination of this Agreement, whether such termination occurs
before or after the Closing Date or any Additional Closing Date.
3. Effective Date of This Agreement and Termination Thereof.
a. This Agreement shall be executed within 24 hours of the Effective
Date of the Registration Statement and shall become effective on the
Effective Date or at the time of the initial public offering of the
Units, whichever is earlier. The time of the initial public offering
shall mean the time, after the Registration Statement becomes
effective, of the release by the Representative for publication of the
first newspaper advertisement which is subsequently published relating
to the Units or the time, after the Registration Statement becomes
effective, when the Units are first released by the Representative for
offering by dealers by letter or telegram, whichever shall first occur.
The Representative or the Company may prevent this Agreement from
becoming effective without liability of any party to any other party,
except as noted below in this Section 10, by giving the notice
indicated in Section 10(c) before the time this Agreement becomes
effective.
b. The Representative shall have the right to terminate this Agreement
at any time prior to the Closing Date or any Additional Closing Date,
as the case may be, by giving notice to the Company if there shall have
been a general suspension of, or a general limitation on prices for,
trading in securities on the New York Stock Exchange or the American
Stock Exchange or in the over-the-counter market; or if there shall
have been an outbreak of major hostilities or other national or
international calamity; or if a banking moratorium has been declared by
a state or federal authority; or if a moratorium in foreign exchange
trading by major international banks or persons has been declared; or
if there
32
<PAGE> 33
shall have been a material interruption in the mail service or other
means of communication within the United States; or if the Company
shall have sustained a material or substantial loss by fire, flood,
accident, hurricane, earthquake, theft, sabotage, or other calamity or
malicious act which, whether or not such loss shall have been insured,
will, in the Representative's opinion, make it inadvisable to proceed
with the offering, sale, or delivery of the Units or the Additional
Securities, as the case may be; or if there shall have been such
material and adverse change in the market for securities in general so
as to make it inadvisable to proceed with the offering, sale, and
delivery of the Units or the Additional Securities, as the case may be,
on the terms contemplated by the Prospectus due to the impaired
investment quality of the Units or the Additional Securities; or if the
Dow Jones Industrial Average shall have fallen by 15% or more from its
closing price on the day immediately preceding the date that the
Registration Statement is declared effective by the Commission.
c. If the Representative elects to prevent this Agreement from becoming
effective as provided in this Section 10, or to terminate this
Agreement, it shall notify the Company promptly by telephone, telex, or
telegram, confirmed by letter. If, as so provided, the Company elects
to prevent this Agreement from becoming effective, the Company shall
notify the Representative promptly by telephone, telex, or telegram,
confirmed by letter.
d. Anything in this Agreement to the contrary notwithstanding other
than Section 10(e), if this Agreement shall not become effective by
reason of an election pursuant to this Section 10 or if this Agreement
shall terminate or shall otherwise not be carried out prior to
September 30, 1999 because (i) of any reason solely within the control
of the Company or its stockholders and not due to the breach of any
representation, warranty or covenant or bad faith of the
Representative, (ii) the Company unilaterally withdraws the proposed
Public Offering from the Representative in favor of another
underwriter, (iii) the Company does not permit the Registration
Statement to become effective for any reason (iv) of any material
discrepancy in any representation by the Company and/or its officers,
directors, stockholders, agents, advisers or representatives, made in
writing, including but not limited to the Registration Statement, to
the Representative, (v) the Company is, directly and/or indirectly,
negotiating with other persons or entities of whatsoever nature
relating to a possible Public Offering of its securities, or (vi) of
any failure on the part of the Company to perform any covenant or
agreement or satisfy any condition of this Agreement by it to be
performed or satisfied, then, in any of such events, the Company shall
be obligated to reimburse the Representative for its out-of-pocket
expenses on an accountable basis. Should the Representative be required
to account for "out-of-pocket" expenses, any expense incurred by the
Representative shall be deemed to be reasonable and unobjectionable
upon
33
<PAGE> 34
a reasonable showing by the Representative that such expenses were
incurred, directly or indirectly, in connection with the proposed
transaction and/or relationship of the parties hereto, as described
herein. In no event will the Representative be entitled to
reimbursement of accountable expenses exceeding $50,000, inclusive of
the $35,000 advanced against the non-accountable expense allowance. The
Representative will return to the Company any portion of the $35,000
payment previously received that is not used in the payment of
accountable expenses.
e. Notwithstanding any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out,
the provisions of Sections 5(a), 6, 8, 9, and 10 shall not be in any
way affected by such election or termination or failure to carry out
the terms of this Agreement or any part hereof.
f. Anything in this Agreement to the contrary notwithstanding other
than Sections 10(d) and (e), if this Agreement shall not be carried out
within the time specified herein for any reason other than as set forth
in Section 10(d), the Company shall have no liability to the
Representative other than for the Representative's accountable expenses
up to a maximum aggregate amount of $35,000, which amount has been paid
in advance in accordance with Section 6 hereof. The Representative will
return to the Company any portion of the $35,000 payment previously
received that is not used in the payment of accountable expenses.
4. Notices. All communications hereunder, except as may be otherwise
specifically provided herein, shall be in writing and, if sent to the
Representative, shall be mailed, delivered, or sent by facsimile transmission
and confirmed by original letter, to Spencer Edwards, Inc., 6120 Greenwood Plaza
Boulevard, Englewood, Colorado 80111, Attention: Edward Price, President , with
a copy to Robert W. Walter, Esq., Berliner Zisser Walter & Gallegos, P.C., 1700
Lincoln Street, Suite 4700, Denver, Colorado 80203; or if sent to the Company
shall be mailed, delivered, or telexed or telegraphed and confirmed by letter,
to Pacific Softworks, Inc., 703 Rancho Conejo Boulevard, Newbury Park,
California 91320, Attention: Glenn P. Russell, President, with a copy to Aaron
A. Grunfeld, Esq., Resch, Polster, Alpert & Berger LLP, 10390 Santa Monica
Boulevard, Los Angeles, California 90025. All notices hereunder shall be
effective upon receipt by the party to which it is addressed.
5. Parties. This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Underwriters, the Company, and the persons and entities
referred to in Section 8 who are entitled to indemnification or contribution,
and their respective successors, legal representatives, and assigns (which shall
not include any buyer, as such, of the Units or the Additional Securities) and
no other person shall have or be construed to have any legal or equitable right,
remedy, or claim under or in respect of or by virtue of this Agreement or any
provision herein contained.
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<PAGE> 35
6. Construction. This Agreement shall be construed in accordance with the laws
of the State of Colorado, without giving effect to conflict of laws. Time is of
the essence in this Agreement. The parties acknowledge that this Agreement was
initially prepared by the Representative, and that all parties have read and
negotiated the language used in this Agreement. The parties agree that, because
all parties participated in negotiating and drafting this Agreement, no rule of
construction shall apply to this Agreement which construes ambiguous language in
favor of or against any party by reason of that party's role in drafting this
Agreement.
If the foregoing correctly sets forth the understanding between us, please so
indicate in the space provided below for that purpose, whereupon this letter
shall constitute a binding agreement between us.
Very truly yours,
Pacific Softworks, Inc.
By:_______________________________
Glenn P. Russell, President
Accepted as of the date first above written.
Denver, Colorado
SPENCER EDWARDS, INC.
for itself
By:_______________________________
Edward Price, President
35
<PAGE> 36
PACIFIC SOFTWORKS, INC.
(A CALIFORNIA CORPORATION)
SCHEDULE 1
This Schedule sets forth the name of each Underwriter referred to in the
Underwriting Agreement and the number of Units to be sold by the Company.
<TABLE>
<CAPTION>
NUMBER OF
NAME UNITS
---- ---------
<S> <C>
Spencer Edwards, Inc.
-------
Total 800,000
=======
</TABLE>
36
<PAGE> 1
EXHIBIT 1.3
SELECTED DEALERS AGREEMENT
PUBLIC OFFERING OF
800,000 SHARES OF COMMON STOCK
800,000 REDEEMABLE WARRANTS
OFFERING PRICE OF $____ PER UNIT
PACIFIC SOFTWORKS, INC.
MAY __, 1999
Spencer Edwards, Inc., on behalf of itself and other underwriters (the
"Underwriters") for which it is the representative (the "Representative"), has
severally agreed with Pacific Softworks, Inc., a California corporation (the
"Company"), to purchase 800,000 Units (the "Firm Securities") of the Company,
and the Representative has been granted the right to purchase up to an
additional 120,000 Units (the "Additional Securities") at its option for the
sole purpose of covering over-allotments in the sale of the Firm Securities (the
Firm Securities and Additional Securities being collectively referred to as the
"Securities" or a "Security"). The Underwriters are offering the Securities to
the public at an offering price of $____. Certain other capitalized terms used
herein are defined in the Underwriting Agreement and are used herein as therein
defined.
The Representative is offering the Securities to certain selected
dealers (the "Selected Dealers"), when, as and if accepted by the Representative
and subject to withdrawal, cancellation or modification of the offer without
notice and further subject to the terms of (i) the Company's current Prospectus,
(ii) the Underwriting Agreement, (iii) this Agreement, and (iv) the
Representative's instructions which may be forwarded to the Selected Dealer from
time to time. A copy of the Underwriting Agreement will be delivered to you
forthwith for inspection or copying or both, upon your request therefor. This
invitation is made by the Representative only if the Securities may be offered
lawfully to dealers in your state.
The further terms and conditions of this invitation are as follows:
1. Acceptance of Orders. Orders received by the Representative from the
Selected Dealer will be accepted only at the price, in the amounts and on the
terms which are set forth in the Company's current Prospectus, subject to
allotment in the Representative's uncontrolled discretion. The Representative
reserves the right to reject any orders, in whole or in part.
2. Selling Concession. As a Selected Dealer, you will be allowed on all
Securities purchased by you, which the Underwriters have not repurchased or
contracted to repurchase prior to termination of this Agreement at or below the
public offering price, a concession of ___% of the full 10% Underwriting
discount, i.e., $___ per Security as shown in the Company's current Prospectus.
No selling concession will be allowed to any domestic broker-dealer who is not a
member of the National Association of Securities Dealers, Inc. (the
"Association"), or to any foreign broker-dealer eligible for membership in the
Association who is not a member of the Association. Payment of such selling
concession to you will be made only as provided in Section 4 hereof. After
<PAGE> 2
the Securities are released for sale to the public, the Representative is
authorized to, and may, change the public offering price and the selling
concession.
3. Reoffer of Securities. Securities purchased by you are to be bona
fide reoffered by you in conformity with this Agreement and the terms of
offering set forth in the Prospectus. You agree that you will not bid for,
purchase, attempt to induce others to purchase, or sell, directly or indirectly,
any Securities except as contemplated by this Agreement and except as a broker
pursuant to unsolicited orders. You confirm that you have complied and agree
that you will at all times comply with the provisions of Regulation M of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") applicable to
this offering. In respect of Securities sold by you and thereafter purchased by
the Representative at or below the public offering price prior to the
termination of this Agreement as described hereinafter (or such longer period as
may be necessary to cover any short position with respect to the offering), you
agree at the Representative's option either to repurchase the Securities at a
price equal to the cost thereof to the Representative, including commissions and
transfer taxes on redelivery, or to repay the Representative such part of your
Selected Dealers' concessions on such Securities as the Representative
designates.
4. Payment for Securities. Payment for the Securities purchased by you
is to be made at the net Selected Dealers' price of $______ per Security, at the
offices of Spencer Edwards, Inc., 6120 Greenwood Plaza Boulevard, Englewood,
Colorado 80111, Attention: Syndicate Department, at such time and on such date
as the Representative may designate, by certified or official bank check,
payable in clearing house funds to the order of the Representative, against
delivery of certificates for the Securities so purchased. If such payment is not
made at such time and on such date, you agree to pay the Representative interest
on such funds at the current interest rates. The Representative may in its
discretion deliver the Securities purchased by you through the facilities of the
Depository Trust Company or, if you are not a member, through your ordinary
correspondent who is a member unless you promptly give the Representative
written instructions otherwise.
5. Offering Representations. The Representative has been informed that a
Registration Statement in respect of the Securities is expected to become
effective under the Securities Act of 1933, as amended (the "Act"). You are not
authorized to give any information or to make any representations other than
those contained in the Prospectus or to act as agent for the Company or for the
undersigned when offering the Securities to the public or otherwise.
6. Blue Sky. Neither the Representative nor the Underwriters assume any
responsibility or obligations as to your right to sell the Securities in any
jurisdiction, notwithstanding any information furnished in that connection. The
Selected Dealer shall report in writing to the Representative the number of
Securities which have been sold by it in each state and the number of
transactions made in each such state. This state report shall be submitted to
the Representative as soon as possible after completion of billing, but in any
event not more than three days after the closing.
7. Dealer Undertakings. By accepting this Agreement, the Selected Dealer
in offering and selling the Securities in the Public Offering (i) acknowledges
its understanding of (a) the Conduct Rules (the "Rules") of the Association and
the interpretations of such Rules promulgated by the Board of Governors of the
Association (the "Interpretations") including, but not limited to the Rule and
Interpretation with respect to "Free-Riding and Withholding" defined therein,
(b) Rule 174 of the rules and regulations promulgated under the Act, (c)
Regulation M promulgated under the
2
<PAGE> 3
Exchange Act, (d) Release No. 3907 under the Act, (e) Release No. 4150 under the
Act, and (f) Sections 2730, 2740, 2420 and 2750 of the Rules and Interpretations
thereunder, and (ii) represents, warrants, covenants and agrees that it shall
comply with all applicable requirements of the Act and the Exchange Act in
addition to the specific provisions cited in subparagraph (i) above and that it
shall not violate, directly or indirectly, any provision of applicable law in
connection with its participation in the Public Offering of the Securities.
8. Conditions of Public Offering. All sales shall be subject to delivery
by the Company of certificates evidencing the Securities against payment
therefore.
9. Failure of Order. If an order is rejected or if a payment is received
which proves insufficient or worthless, any compensation paid to the Selected
Dealer shall be returned by (i) restoration by the Representative to the
Selected Dealer of the latter's remittance or (ii) a charge against the account
of the Selected Dealer with the Representative, as the latter may elect without
notice being given of such election.
10. Additional Representations, Covenants and Warranties of Selected
Dealer. By accepting this Agreement, the Selected Dealer represents that it is
registered as a broker-dealer under the Exchange Act; is qualified to act as a
dealer in the states or the jurisdictions in which it shall offer the
Securities; is a member in good standing of the Association; and shall maintain
such registrations, qualifications and membership in full force and effect and
in good standing throughout the term of this Agreement. If the Selected Dealer
is not a member of the Association, it represents that it is a foreign dealer
not registered under the Exchange Act and agrees to make no sales within the
United States, its territories or its possessions or to persons who are citizens
thereof or residents therein, and in making any sales to comply with the
Association's Rules and Interpretations with respect to Free-Riding and
Withholding. Further, the Selected Dealer agrees to comply with all applicable
federal laws including, but not limited to, the Act and Exchange Act and the
rules and regulations of the Commission thereunder; the laws of the states or
other jurisdictions in which Securities may be offered or sold by it; and the
Constitution, Bylaws, and rules of the Association. Further, the Selected Dealer
agrees that it will not offer or sell the Securities in any state or
jurisdiction except those in which the Securities have been qualified or
qualification is not required. The Selected Dealer acknowledges its
understanding that it shall not be entitled to any compensation hereunder for
any period during which it has been suspended or expelled from membership in the
Association.
11. Employees and other Agents of the Selected Dealer. By accepting this
Agreement, the Selected Dealer assumes full responsibility for thorough and
proper training of its employees and other agents and representatives concerning
the selling methods to be used in connection with the Public Offering of the
Securities, giving special emphasis to the principles of full and fair
disclosure to prospective investors and the prohibitions against "Free-Riding
and Withholding" as set forth in Section 2110 of the Rules and the
Interpretations thereunder.
12. Indemnification by the Company. The Company has agreed in Section 8
of the Underwriting Agreement to indemnify and hold harmless the Underwriters,
the Representative and each person if any, who controls the Representative or
any one of the Underwriters within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act against any and all loss, liability, claim,
damage, and expense whatsoever (which shall include, for all purposes of Section
8 of the Underwriting Agreement, but not be limited to, attorneys' fees and any
and all expense whatsoever incurred in investigating, preparing, or defending
against any litigation, commenced or
3
<PAGE> 4
threatened, or any claim whatsoever and any and all amounts paid in settlement
of any claim or litigation) as and when incurred arising out of, based upon, or
in connection with (i) any untrue statement or alleged untrue statement of a
material fact contained (A) in any Preliminary Prospectus, the Registration
Statement, or the Prospectus (as from time to time amended and supplemented), or
any amendment or supplement thereto, or (B) in any application or other document
or communication (in the Underwriting Agreement collectively called an
"application") in any jurisdiction in order to qualify the Securities under the
"blue sky" or securities laws thereof or filed with the Commission or any
securities exchange; or any omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, or (ii) any breach of any representation, warranty, covenant, or
agreement of the Company contained in the Underwriting Agreement. The
Representative has agreed to give the Company an opportunity and the right to
participate in the defense or preparation of the defense of any action brought
against the Representative, any Underwriter or any controlling person thereof to
enforce any such loss, claim, demand, liability or expense. The agreement of the
Company under this indemnity is conditioned upon notice of any such action
having been promptly given by the indemnified party to the Company. Failure to
notify the Company as provided in the Underwriting Agreement shall not relieve
the Company of its liability which it may have to the Representative, the
Underwriters, or any controlling person thereof other than pursuant to Section
8(a) of the Underwriting Agreement. This agreement is subject in all respects,
especially insofar as the foregoing description of the indemnification
provisions set forth in the Underwriting Agreement is concerned, to the terms
and provisions of the Underwriting Agreement, a copy of which will be made
available for inspection or copying or both to the Selected Dealer upon written
request to the Representative therefor. The Selected Dealer acknowledges and
confirms that, by signing a counterpart of this Agreement, it shall be deemed an
agent of the Underwriters or a "Representative" for all purposes of Section 8 of
the Underwriting Agreement, as expressly set forth therein.
13. Indemnification by the Selected Dealer. The Selected Dealer shall
indemnify and hold harmless the Company, each director of the Company, each
officer of the Company who shall have signed the Registration Statement, each
other person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, to the same extent as the
indemnity from the Company to the Underwriters in Section 8(a) of the
Underwriting Agreement, but only with respect to statements or omissions, if
any, made in any Preliminary Prospectus, the Registration Statement, or the
Prospectus (as from time to time amended and supplemented), or any amendment or
supplement thereto, or in any application, in reliance upon and in conformity
with information furnished to the Representative or the Company with respect to
the Selected Dealer by or on behalf of the Selected Dealer expressly for
inclusion in any Preliminary Prospectus, the Registration Statement, or the
Prospectus, or any amendment or supplement thereto, or in any application, as
the case may be, or are based upon alleged misrepresentations or omissions to
state material facts in connection with statements made by the Selected Dealer
or the Selected Dealer's employees or other agents to the Company or the
Representative orally or by any other means; provided, however, that the
obligation of the Selected Dealer to provide indemnity hereunder shall be
limited to the amount which represents the product of the number of Firm
Securities and Additional Securities sold and the initial public offering price
per Security set forth on the cover page of the Prospectus. If any action shall
be brought against the Company or any other person so indemnified in respect of
which indemnity may be sought against the Selected Dealer pursuant to this
provision, the Selected Dealer shall have the rights and duties given to the
Company in the Underwriting Agreement, and the Company and each other person so
indemnified shall have the rights and duties given to the indemnified parties,
by the provisions of
4
<PAGE> 5
Section 8(a) of the Underwriting Agreement; and the Selected Dealer shall
reimburse the Company and the Representative for any legal or other expenses
reasonably incurred by them in connection with the investigation of or the
defense of any such action or claim. The Representative shall, after receiving
the first summons or other legal process disclosing the nature of the action
being brought against it or the Company in any proceeding with respect to which
indemnity may be sought by the Company or the Representative hereunder, notify
promptly the Selected Dealer in writing of the commencement thereof; and the
Selected Dealer shall be entitled to participate in (and, to the extent the
Selected Dealer shall wish, to direct) the defense thereof at the expense of the
Selected Dealer, but such defense shall be conducted by counsel satisfactory to
the Company and the Representative. If the Selected Dealer shall fail to provide
such defense, the Company or the Representative may defend such action at the
cost and expense of the Selected Dealer. The Selected Dealer's obligation under
this Section 13 shall survive any termination of this Agreement, the
Underwriting Agreement and the delivery of and payment for the Securities under
the Underwriting Agreement, and shall remain in full force and effect regardless
of the investigation made by or on behalf of any Representative within the
meaning of Section 15 of the Act.
14. No Authority to Act as Partner or Agent. Nothing herein shall
constitute the Selected Dealers as an association or other separate entity or
partners with or agents of the Representative or with each other, but each
Selected Dealer shall be responsible for its pro rata share of any liability or
expense based upon any claims to the contrary. The Representative shall not be
under any liability for or in respect of the value, validity or form of the
Securities, or the delivery of certificates for the Securities or the
performance by any person of any agreement on its part, or the qualification of
the Securities for sale under the laws of any jurisdiction, or for or in respect
of any matter in connection with this Agreement, except for lack of good faith
and for obligations expressly assumed by the Representative in this Agreement.
15. Expenses. No expenses incurred in connection with offers and sales
of the Securities under the Public Offering will be chargeable to the Selected
Dealers. A single transfer tax, if any, on the sale of Securities by the
Selected Dealer to its customers will be paid when such Securities are delivered
to the Selected Dealer for delivery to its customers. Notwithstanding the
foregoing, the Selected Dealer shall pay its proportionate share of any transfer
tax or any other tax (other than the single transfer tax described above) if any
such tax shall at any time be assessed against the Representative and other
Selected Dealers.
16. Notices. All notices, demands or requests required or authorized
hereunder shall be deemed given sufficiently if in writing and sent by
registered or certified mail, return receipt requested and postage prepaid, or
by tested telex, telegram, cable or facsimile to, in the case of the
Representative, the address set forth above directed to the attention of the
President of the Representative, and in the case of the Selected Dealer, to the
address provided below by the Selected Dealer, directed to the attention of the
President.
17. Termination. This Agreement may be terminated by the Representative
with or without cause upon written notice to Selected Dealer to such effect; and
such notice having been given, this Agreement shall terminate at the time
specified therein. Additionally, this Agreement shall terminate upon the earlier
of the termination of the Underwriting Agreement, or at the close of business
thirty days after the Securities are released by the Representative for sale to
the public.
18. General Provisions. This Agreement shall be construed and enforced
in accordance with and governed by the laws of the State of Colorado. This
Agreement embodies the entire
5
<PAGE> 6
agreement and understanding between the Representative and the Selected Dealer
and supersedes all prior agreements and understandings related to the subject
matter hereof, and this Agreement may not be modified or amended or any term or
provision hereof waived or discharged except in writing signed by the party
against whom such amendment, modification, waiver or discharge is sought to be
enforced. All the terms of this Agreement, whether so expressed or not, shall be
binding upon, and shall inure to the benefit of, the respective successors,
legal representatives and assigns of the parties hereto; provided, however, that
none of the parties hereto can assign this Agreement or any of its rights
hereunder without the prior written consent of the other party hereto, and any
such attempted assignment or transfer without the other party's prior written
consent shall be void and without force or effect. The headings of this
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
If the foregoing correctly sets forth the terms and conditions of your
agreement to purchase the Securities allotted to you, please indicate your
acceptance thereof by signing and returning to Spencer Edwards, Inc. the
duplicate copy of this Agreement, whereupon this letter and your acceptance
shall become and evidence a binding contract between you and the Representative.
SPENCER EDWARDS, INC.
By:_______________________________
Title:____________________________
6
<PAGE> 7
Gentlemen:
The undersigned confirms its agreement to purchase ____________ Units of
Pacific Softworks, Inc., upon the terms and subject to the conditions of the
foregoing Selected Dealers Agreement, and further agrees that any agreement by
it to purchase Additional Securities during the life of such Agreement will be
upon the same terms and subject to the same conditions. The undersigned
acknowledges receipt of the Prospectus relating to the public offering of the
Securities and confirms that in agreeing to purchase such Securities it has
relied on such Prospectus and not on any other statement whatsoever written or
oral.
Firm Name:_________________________________
(Print or Type name of Firm)
By:________________________________________
(Authorized Agent)
___________________________________________
(Print or Type Name and Title of
Authorized Agent)
Address:___________________________________
Telephone No.______________________________
IRS Employer Identification No.:___________
Dated:_______________________________, 1999
7
<PAGE> 1
EXHIBIT 3.1
[SEAL OF THE
SECRETARY OF STATE
OF THE STATE OF
CALIFORNIA
DATED - NOV 30,1992]
ARTICLES OF INCORPORATION
OF
PACIFIC SOFTWORKS, INC.
I
The name of this corporation is: PACIFIC SOFTWORKS, INC.
II
The purpose of this corporation is to engage in any lawful act or activity for
which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
The name and address in the State of California of this corporation's initial
agent for service of process is: Philip R. Gustlin, 11755 Wilshire Boulevard,
Suite 1400, Los Angeles, CA 90025-1520.
IV
A. This corporation is authorized to issue two classes of shares of stock to be
designated respectively as "Common Shares" and "Preferred Shares." The number of
authorized Common Shares shall be 5,000,000, and the par value of each such
share shall be $0.001. The number of authorized Preferred Shares is 1,000,000,
and the par value of each such share shall be $0.01. The Preferred Shares shall
be issuable from time to time in one or more series, the number of shares in
such series and the designation of such series to be issued shall be determined
from time to time by the board of directors of this corporation.
B. The board of directors is authorized, by majority action on its part, to
issue Preferred Shares from time to time in one or more series; to fix or alter
the rights, preferences, privileges and restrictions, or any of them, as to
wholly unissued series of Preferred Shares; and to fix the number of shares
constituting any such series and designation thereof, or any of them, and to
increase or decrease the number of shares of that series, but not below the
number of shares of such series then outstanding. If the number of shares of
such series is so decreased, the shares constituting such decrease shall resume
the status which they had before the adoption of the resolution originally
fixing the number of shares of such series.
1
<PAGE> 2
V
The liability of the directors of the corporation for monetary damages shall be
eliminated to the fullest extent permissible under California laws.
VI
The corporation is authorized to provide indemnification of agents (as defined
in Section 317 of the Corporations Code) for breach of duty to the corporation
and its stockholders through bylaw provisions or through agreements with agents,
or both, in excess of the indemnification otherwise permitted by Section 317 of
the Corporations Code, subject to the limits on such excess indemnification set
forth in Section 204 of the Corporations Code.
Dated: November 19, 1992
/s/ KENNETH E. WOODGRIFT
---------------------------------------
KENNETH E. WOODGRIFT, Incorporator
2
<PAGE> 3
[Endorsed and Filed
with the Office of
the Secretary of
State of the State
of California on
June 5, 1998]
RESTATED ARTICLES OF INCORPORATION OF
PACIFIC SOFTWORKS, INC.
GLENN P. RUSSELL certifies that:
1. He is the President and Secretary of PACIFIC SOFTWORKS, INC., a
California corporation.
2. The Articles of Incorporation of PACIFIC SOFTWORKS, INC., as amended
to the filing date of this certificate, and setting forth an additional
amendment to Article III, are amended and restated to read as follows:
I
The name of this corporation is PACIFIC SOFTWORKS, INC.
II
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
III
This corporation is authorized to issue two classes of shares of stock
to be designated respectively as "Common Shares" and "Preferred Shares." The
number of authorized Common Shares shall be 50,000,000, and the par value of
each such share shall be $0.001. The number of authorized Preferred Shares is
10,000,000, and the par value of each such share shall be $0.01. The Preferred
Shares shall be issuable from time to time in one or more series, the number
1.
<PAGE> 4
of shares in such series and the designation of such series to be issued shall
be determined from time to time by the board of directors of this corporation.
2.
<PAGE> 5
IV
The board of directors is authorized, by majority action on its part, to
issue Preferred Shares from time to time in one or more series, to fix or alter
the rights, preferences, privileges and restrictions, or any of them, as to
wholly unissued series of Preferred Shares; and to fix the number of shares
constituting any such series and designation thereof, or any of them, and to
increase or decrease the number of shares of that series, but not below the
number of shares of such series then outstanding. If the number of shares of
such series is so decreased, the shares constituting such decrease shall resume
the status which they had before the adoption of the resolution originally
fixing the number of shares of such series.
V
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
VI
The corporation is authorized to indemnify the directors and officers of
the corporation to the fullest extent permissible under California law.
3. The Articles of Incorporation of PACIFIC SOFTWORKS, INC., as amended
and restated in this certificate, have been approved by a resolution of the
board of directors dated January 30, 1998.
4. The restated articles of incorporation set forth above have been
approved by the required stockholder vote in accordance with Corporations Code
Section 902. The corporation has two classes of shares designated "Common
Shares" and "Preferred Shares," respectively. The total number of outstanding
shares of Common Shares entitled to vote with respect to the amendment is
510,200. There are no outstanding Preferred Shares. The percentage vote required
of Common Shares entitled to vote is 51 percent. The number of shares of Common
Shares voting in favor of the amendment was 100 percent which exceeded the vote
required.
Dated: January 30, 1998 /s/ Glenn P. Russell
----------------------------------------
Glenn P. Russell, President
/s/ Glenn P. Russell
----------------------------------------
Glenn P. Russell, Secretary
3.
<PAGE> 6
The undersigned declares under penalty of perjury that the matters set
forth in this certificate are true and correct of his own knowledge and that
this declaration was executed on January 30, 1998, at Camarillo, California.
/s/ Glenn P. Russell
----------------------------------------
Glenn P. Russell
4.
<PAGE> 1
Exhibit 3.2
BYLAWS
OF
PACIFIC SOFTWORKS, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I
OFFICES...................................... 1
SECTION 1. PRINCIPAL EXECUTIVE OFFICE ........................................... 1
SECTION 2. OTHER OFFICES......................................................... 1
ARTICLE II
MEETING OF stockholders
SECTION 1. PLACE OF MEETINGS..................................................... 1
SECTION 2. ANNUAL MEETINGS....................................................... 1
SECTION 3. SPECIAL MEETINGS...................................................... 1
SECTION 4. NOTICE OF MEETINGS OF stockholders.................................... 2
SECTION 5. QUORUM................................................................ 3
SECTION 6. ADJOURNED MEETINGS AND NOTICE THEREOF................................. 3
SECTION 7. VOTING................................................................ 4
SECTION 8. WAIVER OF NOTICE AND CONSENT OF ABSENTEES............................. 5
SECTION 9. ACTION WITHOUT A MEETING.............................................. 5
SECTION 10. PROXIES............................................................... 6
SECTION 11. INSPECTORS OF ELECTION................................................ 7
ARTICLE III
DIRECTORS.................................... 7
SECTION 1. POWERS................................................................ 7
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS................................. 8
SECTION 3. ELECTION AND TERM OF OFFICE........................................... 8
SECTION 4. RESIGNATION AND REMOVAL OF DIRECTORS.................................. 8
SECTION 5. VACANCIES ........................................................ 9
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
SECTION 6. PLACE OF MEETINGS .................................................... 9
SECTION 7. REGULAR MEETINGS ..................................................... 9
SECTION 8. SPECIAL MEETINGS ..................................................... 10
SECTION 9. QUORUM ............................................................... 10
SECTION 10. WAIVER OF NOTICE OR CONSENT .......................................... 10
SECTION 11. ADJOURNMENT .......................................................... 11
SECTION 12. MEETINGS OF CONFERENCE TELEPHONE ..................................... 11
SECTION 13. ACTION WITHOUT A MEETING ............................................. 11
SECTION 14. FEES AND COMPENSATION ................................................ 11
SECTION 15. COMMITTEES ........................................................... 11
SECTION 16. INDEMNIFICATION OF AGENTS ............................................ 12
ARTICLE IV
OFFICERS..................................... 17
SECTION 1. OFFICERS.............................................................. 17
SECTION 2. ELECTIONS............................................................. 17
SECTION 3. OTHER OFFICERS........................................................ 17
SECTION 4. REMOVAL AND RESIGNATION............................................... 17
SECTION 5. VACANCIES............................................................. 17
SECTION 6. CHAIRMAN OF THE BOARD................................................. 18
SECTION 7. PRESIDENT............................................................. 18
SECTION 8. VICE PRESIDENTS....................................................... 18
SECTION 9. SECRETARY............................................................. 18
SECTION 10. CHIEF FINANCIAL OFFICER............................................... 19
ARTICLE V
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
MISCELLANEOUS.................................... 19
SECTION 1. RECORD DATE........................................................... 19
SECTION 2. INSPECTION OF CORPORATE RECORDS....................................... 20
SECTION 3. CHECKS, DRAFTS, ETC................................................... 20
SECTION 4. ANNUAL AND OTHER REPORTS.............................................. 21
SECTION 5. CONTRACTS, ETC., HOW EXECUTED......................................... 22
SECTION 6. CERTIFICATE FOR SHARES................................................ 22
SECTION 7. REPRESENTATION OF SHARES OF OTHER
CORPORATIONS.......................................................... 23
SECTION 8. INSPECTION OF BYLAWS.................................................. 23
SECTION 9. SEAL.................................................................. 24
SECTION 10. CONSTRUCTION AND DEFINITIONS.......................................... 24
ARTICLE VI
AMENDMENTS.................................... 24
SECTION 1. POWER OF stockholders................................................. 24
SECTION 2. POWER OF DIRECTORS.................................................... 24
CERTIFICATE OF SECRETARY.............................................. 24
</TABLE>
<PAGE> 5
BYLAWS
OF
PACIFIC SOFTWORKS, INC.
A California Corporation
ARTICLE I
OFFICES
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office
of the Corporation shall be located at such place as the Board of Directors
shall from time to time determine.
SECTION 2. OTHER OFFICES. Other offices may at any time be established
by the Board of Directors or the Chief Executive Officer at any place or places
where the Corporation is qualified to do business.
ARTICLE II
MEETING OF stockholders
SECTION 1. PLACE OF MEETINGS. All meetings of stockholders shall be held
at any other principal executive office of the Corporation or at any other
place within or without the State of California which may be designated either
by the Board of Directors or by the stockholders in accordance with these
Bylaws.
SECTION 2. ANNUAL MEETINGS. The annual meetings of stockholders shall be
held one hundred twenty (120) days after the end of each fiscal year, or at such
other date and time as shall be designated from time to time by the Board of
Directors or by the stockholders in accordance with these Bylaws. If the date
set forth in these Bylaws falls upon a legal holiday, then such annual meeting
of stockholders shall be held at the same time and place on the next day
thereafter ensuing which is not a legal holiday. At such annual meetings,
Directors shall be elected and any other business may be transacted which is
within the power of the stockholders.
SECTION 3. SPECIAL MEETINGS. Special meetings of the stockholders, for
the purpose of taking any action which is within the powers of the stockholders,
may be called at any time by the Chairman of the Board or the President or by
the Board of Directors, or by the holders of shares entitled to cast not less
than ten percent of the votes at the meeting. Upon request in writing that a
special meeting of stockholders be called for any proper purpose, directed to
the chairman of the Board, President, Vice-President or Secretary by any person
(other than the board) entitled to call a special meeting of stockholders, the
officers forthwith shall cause notice to be given to the
-1-
<PAGE> 6
stockholders entitled to vote that a meeting will be held at a time requested by
the person or persons calling the meeting, not less than thirty-five (35) nor
more than sixty (60) days after receipt of the request.
SECTION 4. NOTICE OF MEETINGS OF stockholders. Written notice of each
meeting of stockholders, whether annual or special, shall be given to each
stockholder entitled to vote thereat, either personally or by mail, or other
means of written communication, charges prepaid, addressed to such stockholder
at the Corporation or given by such stockholder to the Corporation for the
purpose of notice. If any notice addressed to the stockholder at the address of
such stockholder appearing on the books of the Corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Services is unable to deliver the notice to the stockholder
at such address, all future notices shall be deemed to have been duly given
without further mailing if the same shall be available for the stockholder upon
written demand of the stockholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of the notice
to all other stockholders. If no address appears on the books of the Corporation
or is given by the stockholder to the Corporation for the purpose of notice,
notice shall be deemed to have been given to such stockholder if sent by mail or
other means of written communication addressed to the place where the principal
executive office of the Corporation is located, or if published at least once in
a newspaper of general circulation in the county in which the principal
executive office is located.
All such notices shall be given to each stockholder entitled thereto not
less than ten (10) days nor more than sixty (60) days before the meeting. Any
such notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any such notice in accordance with the
foregoing provisions, executed, by the Secretary, Assistant Secretary or any
transfer agent of the Corporation shall be prima facie evidence of the giving of
the notice.
All such notices shall state the place, date and hour of such meeting.
In the case of a special meeting such notice shall also state the general nature
of the business to be transacted at such meeting, and no other business may be
transacted thereat. In the case of an annual meeting, such notice shall also
state those matters which the Board of Directors at the time of the mailing of
the notice intends to present for action by the stockholders. Any proper matter
may be presented at an annual meeting of stockholders though not stated in the
notice, provided that unless the general nature of a proposal to be approved by
the stockholders relating to the following matters is stated in the notice or a
written waiver of notice, any such stockholder approval will require unanimous
approval of all stockholders entitled to vote:
-2-
<PAGE> 7
(a) A proposal to approve a contract or other transaction between the
Corporation and one or more of its directors or any corporation, firm or
association in which one or more of its directors has a material financial
interest or is also a director;
(b) A proposal to amend the Articles of Incorporation;
(c) A proposal to approve the principal terms of a reorganization as
defined in Section 181 of the General Corporation Law;
(d) A proposal to wind up and dissolve the Corporation;
(e) If the Corporation has preferred shares outstanding and the
Corporation is in the process of winding up, a proposal to adopt a plan of
distribution of shares, obligations, or securities of any other corporation or
assets other than money which is not in accordance with the liquidation rights
of the preferred shares.
The notice of any meeting at which Directors are to be elected shall
include the names of nominees intended at the time of the notice to be presented
by management for election.
SECTION 5. QUORUM. The presence in person or by proxy of the holders of
a majority of the shares entitled to vote at any meeting shall constitute a
quorum for the transaction of business. The stockholders present at a duly
called or held meeting at which a quorum is present may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
SECTION 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any stockholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by vote of a majority of the shares the holders of which are
either present in person or by proxy thereat, but in the absence of a quorum, no
other business may be transacted at any such meeting, except as provided in
Section 4 of this Article II.
When any stockholders' meeting, either annual or special, is adjourned
for forty-five (45) days or more, or if after the adjournment a new record date
is fixed for the adjourned meeting, notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the adjourned meeting as
in the case of an original meeting. Except as set forth in this Section 6 of
Article II, it shall not be necessary to give any notice of an adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
-3-
<PAGE> 8
announcement of the time and place thereof at the meeting at which such
adjournment is taken.
SECTION 7. VOTING. At all meetings of stockholders, every stockholder
entitled to vote shall have the right to vote in person or by proxy the number
of shares standing in the name of such stockholder on the stock records of the
Corporation on the record date for such meeting. Shares held by an
administrator, executor, guardian, conservator, custodian, trustee, receiver,
pledgee, minor, corporation or fiduciary or held by this Corporation or a
subsidiary of this Corporation in a fiduciary capacity or by two or more persons
shall be voted in the manner set forth in Sections 702, 703 and 704 of the
General Corporation Law. Shares of this Corporation owned by this Corporation or
a subsidiary (except shares held in a fiduciary capacity) shall not be entitled
to vote. Unless a record date for voting purposes is fixed pursuant to Section 1
of Article V of these Bylaws, then only persons in whose names shares entitled
to vote stand on the stock records of the Corporation at the close of business
on the business day next preceding the day on which notice is given or, if
notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held, shall be entitled to vote at such meeting,
and such day shall be the record date for such meeting. Votes at a meeting may
be given by viva voce or by ballot; provided, however, that all elections for
Directors must be by ballot upon demand made by a stockholder at any election
and before the voting begins. If a quorum is present at the beginning of the
meeting, except with respect to the election of Directors (and subject to the
provisions of Section 5 of this Article II should stockholders withdraw
thereafter) the affirmative vote of the majority of the shares represented at
the meeting and entitled to vote on any matter shall be the act of the
stockholders and shall decide any question properly brought before the meeting,
unless the vote of a greater number of voting by classes is required by the
General Corporation Law or the Articles of Incorporation, in which case the vote
so required shall govern and control the decision of such question. Subject to
the provisions of the next sentence, at all elections of Directors of the
Corporation, each stockholder shall be entitled to cumulate his votes and give
one candidate a number of votes equal to the number of Directors to be elected
multiplied by the number of votes to which his shares are entitled, or to
distribute his votes on the same principal among as many candidates as he shall
think fit. No stockholder shall be entitled to cumulate his votes unless the
name of the candidate or candidates for whom such votes would be cast has been
placed in nomination prior to the voting and any stockholder has given notice at
the meeting prior to the voting, of such stockholder's intention to cumulate his
votes. The candidates receiving the highest number of votes up to the number of
Directors to be elected shall be elected.
SECTION 8. WAIVER OF NOTICE AND CONSENT OF ABSENTEES. The proceedings
and transactions of any meeting of stockholders, either annual or special,
however called and noticed and wherever held, shall be as valid as though had at
a meeting duly held after regular call and notice, if a quorum is present either
in person or by PROXY, and if, either before or after the meeting, each of the
persons entitled to vote, not present in person or by proxy, signs a written
waiver of notice or a consent to the holding of such
-4-
<PAGE> 9
meeting, or an approval of the minutes thereof. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person objects, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened and except that
attendance at a meeting is not a waiver of any right to object to the
consideration of matters required by law or these Bylaws to be included in the
notice but which was not so included, if such objection is expressly made at the
meeting, provided however, that any person making such objection at the
beginning of the meeting or to the consideration of matters required to be but
not included in the Notice may orally withdraw such objection at the meeting or
thereafter waive such objections by signing a written waiver thereof or a
consent to the holding of the meeting or the consideration of the matter or an
approval of the minutes of the meeting. Neither the business to be transacted at
nor the purpose of any annual or special meeting of stockholders need be
specified in any written waiver of notice except that the general nature of the
proposals specified in subsections (a) through (e) of Section 4 of this Article
II, shall be so stated. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
SECTION 9. ACTION WITHOUT A MEETING. Directors may be elected without a
meeting by a consent in writing, setting forth the action so taken, signed by
all of the persons who would be entitled to vote for the election of directors,
provided that, without notice except as hereinafter set forth, a Director may be
elected at any time to fill a vacancy not filled by the Directors by the written
consent of persons holding a majority of the outstanding shares entitled to vote
for the election of Directors.
Any other action which, under any provision of the General Corporation
Law may be taken at any annual or special meeting of the stockholders, may be
taken without a meeting, and without notice except as hereinafter set forth, if
a consent in writing, setting forth the action so taken, is signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Unless the consents
of all stockholders entitled to vote have been solicited in writing:
(a) Notice of any proposed stockholder approval of (i) a contract or
other transaction between the Corporation and one or more of its Directors or
any corporation, firm or association in which one or more of its Directors has a
material financial interest or is also a Director; (ii) indemnification of an
agent of the Corporation as authorized by Section 16, of Article III, of these
Bylaws, (iii) a reorganization of the Corporation as defined in Section 181 of
the General Corporation Law, or (iv) the distribution of shares, obligations or
securities of any other corporation or assets other than money which is not in
accordance with the liquidation rights of preferred shares if the corporation is
in the process of winding
-5-
<PAGE> 10
up, without a meeting by less than unanimous written consent, shall be given at
least ten days before the consummation of the action authorized by such
approval; and
(b) Prompt notice shall be given of the taking of any other corporate
action approved by stockholders without a meeting by less than unanimous written
consent, to those stockholders entitled to vote who have not consented in
writing. Such notices shall be given in the manner and shall be deemed to have
been given as provided in Section 4 of Article II of these Bylaws.
Unless, as provided in Section 1 of Article V of these Bylaws, the Board
of Directors has fixed a record date for the determination of stockholders
entitled to notice of and to give such written consent, the record date for such
determination shall be the day on which the first written consent is given. All
such written consents shall be filed with the Secretary of the Corporation.
Any stockholders giving a written consent, or the stockholder's
proxyholders, or a transferee of the shares of a personal representative of the
stockholder or their respective proxyholders, may revoke the consent by a
writing received by the corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary of the Corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the Secretary of the Corporation.
SECTION 10. PROXIES. Every person entitled to vote or execute consents
shall have the right to do so either in person or by an agent or agents
authorized by a written proxy executed by such person or the duly authorized
agent of such person and filed with the Secretary of the Corporation, or the
persons appointed as inspectors of election or such other person as may be
designated by the Board of Directors or the Chief Executive Officer to receive
proxies; provided, that no such proxy shall be valid after the expiration of
eleven months from the date of its execution, unless the stockholder executing
it specifies therein the length of time for which such proxy is to continue in
force. Every proxy duly executed continues in full force and effect until
revoked by the person executing it prior to the vote pursuant hereto. Except as
otherwise provided by law, such revocation may be effected by attendance at the
meeting and voting in person by the person executing the proxy or by a writing
stating that the proxy is revoked or by a proxy bearing a later date executed by
the person executing the proxy and filed with the Secretary of the Corporation
or the persons appointed as inspectors of election or such other persons as may
be designated by the Board of Directors or the Chief Executive Officer to
receiver proxies.
SECTION 11. INSPECTORS OF ELECTION. In advance of any meeting of
stockholders, the Board of Directors may appoint any persons as inspectors of
election to act at such meeting or any adjournment thereof. If inspectors of
election are not so appointed, or if any person so appointed fail to appear or
refuse to act, the Chairman of any such
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meeting may, and on the request of any stockholder or his proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more stockholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed.
The inspectors of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum and the authenticity, validity and effect of proxies,
receive votes, ballots or consents, hear and determine all challenges and
questions in any way arising in connection with the right to vote, count and
tabulate all votes or consents, determine when the polls shall close, determine
the result and do such acts as may be proper to conduct the election or vote
with fairness to all stockholders. In the determination of the validity and
effect of proxies the dates contained on the forms of proxy shall presumptively
determine the order of execution of the proxies, regardless of the postmark
dates on the envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as is practical.
If there are three inspectors of election, the decision, act or certificate of a
majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein.
ARTICLE III
DIRECTORS
SECTION 1. POWERS. Subject to the General Corporation Law and any
limitations in the Articles of Incorporation relating to action requiring
stockholder approval, and subject to the duties of Directors as prescribed by
the Bylaws, the business and affairs of the Corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the Board of
Directors.
SECTION 2. NUMBER AND QUALIFICATION OF DIRECTORS. The number of
Directors shall be not less than three (3) nor more than five (5). The first
Board shall consist of four (4) Directors. Thereafter, within the limits above
specified, the number of Directors shall be determined by resolution of the
Board of Directors or by the stockholders at the annual meeting of the
stockholders. If the number of Directors is or becomes five or more, an
amendment of the Articles of Incorporation or the Bylaws reducing the authorized
number of Directors to less than five cannot be adopted if the votes cast
against its adoption at a meeting or the shares not consenting in the case of
action by written consent are equal to more than 16-2/3 percent of the
outstanding shares entitled to vote. Directors need not be residents of the
State of California nor stockholders of the Corporation. The term "Director"
shall be used interchangeably with "Directors".
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SECTION 3. ELECTION AND TERM OF OFFICE. The Directors shall be elected
at each annual meeting of stockholders, but if any such annual meeting is not
held or the Directors are not elected at any annual meeting, the Directors may
be elected at any special meeting of stockholders held for that purpose, or at
the next annual meeting of stockholders held thereafter. Each Director shall
hold office at the pleasure of the stockholders until the next annual meeting of
stockholders and until his successor has been elected and qualified or until his
earlier resignation or removal or his office has been declared vacant in the
manner provided in these Bylaws.
SECTION 4. RESIGNATION AND REMOVAL OF DIRECTORS. Any Director may resign
effective upon giving written notice to the Chairman of the Board, the
President, the Secretary or the Board of Directors of the Corporation, unless
the notice specifies a later time for the effectiveness of such resignation, in
which case such resignation shall be effective at the time specified. Unless
such resignation specifies otherwise, its acceptance by the Corporation shall
not be necessary to make it effective. The Board of Directors may declare vacant
the office of a Director who has been declared of unsound mind by an order of
court or convicted of a felony. Any or all of the directors may be removed
without cause if such removal is approved by the affirmative vote of a majority
of the outstanding shares entitled to vote provided that no Director may be
removed (unless the entire Board is removed) when the votes cast against removal
(or, if such action is taken by written consent, the shares held by persons not
consenting in writing to such removal) would be sufficient to elect such
Director if voted cumulatively at an election at which the same total number of
votes were cast (or, if such action is taken by written consent, all shares
entitled to vote were voted) and the entire number of Directors authorized at
the time of the Director's most recent election were then being elected. No
reduction of the authorized number of Directors shall have the effect of
removing any Director before his term of office expires.
SECTION 5. VACANCIES. Vacancies on the Board of Directors (except
vacancies created by the removal of a Director) may be filled by a majority of
the Directors then in office, whether or not less than a quorum, or by a sole
remaining Director, and each Director elected in this manner shall hold office
until the next annual meeting of stockholders and until a successor has been
elected and qualified or until his earlier resignation or removal or his office
has been declared vacant in the manner provided in these Bylaws. A vacancy or
vacancies on the Board of Directors shall exist on the death, resignation or
removal of any Director, or if the board declares vacant the office of a
Director if he is declared of unsound mind by an order of court or is convicted
of a felony, or if the authorized number of Directors is increased, or if the
stockholders fail to elect the full authorized number of Directors to be voted
for at any stockholders meeting at which an election of Directors is held. The
stockholders may elect a Director at any time to fill any vacancy not filled by
the Directors or which occurs by reason of the removal of a Director.
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Any such election by written consent of stockholders shall require the consent
of a majority of the outstanding shares entitled to vote. If the resignation of
a Director states that it is to be effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
SECTION 6. PLACE OF MEETINGS. Regular and special meetings of the Board
of Directors shall be held at any place within or without the State of
California which has been designated in the notice or written waiver of notice
of the meeting, or, if not stated in the notice or waiver of notice or there is
no notice, designated by resolution of the Board of Directors or, either before
or after the meeting, consented to in writing by all members of the Board who
were not present at the meeting. If the place of a regular or special meeting is
not designated in the notice or waiver of notice or fixed by a resolution of the
Board or consented to in writing by all members of the Board not present at the
meeting, it shall be held at the Corporation's principal executive office.
SECTION 7. REGULAR MEETINGS. Immediately following each annual
stockholder's meeting, the Board of Directors shall hold a regular meeting to
elect officers and transact other business. Such meeting shall be held at the
same place as the annual meeting or such other place as shall be fixed by the
Board of Directors. Other regular meetings of the Board of Directors shall be
held at such times and places as are fixed by the Board. Call and notice of
regular meetings of the Board of Directors shall not be required and is hereby
dispensed with.
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SECTION 8. SPECIAL MEETINGS. Special meetings of the Board of Directors
for any purpose or purposes may be called at any time by the Chairman of the
Board, the President, any Vice President, the Secretary, any Assistant Secretary
or any two Directors. Notice of the time and place of special meetings shall be
delivered personally or by telephone or telegraph or sent to the Director by
mail. In case notice is delivered by mail or telegram, it shall be sent, charges
prepaid, addressed to the Director at his address appearing on the corporate
records, or if it is not on these records or is not readily ascertainable, at
the place where the meetings of the Directors are regularly held. If notice is
delivered personally or given by telephone, it shall be delivered or given at
least 48 hours before the meeting or if by telegraph or mailgram, it shall be
telephoned or delivered to the telegraph office at least said 48 hours before
the meeting. If notice is mailed, it shall be deposited in the United States
mail at least four days before the meeting. Such mailing, telephoning or
delivery, personally or by telephone, as provided in this Section, shall be due,
legal and personal notice of such director.
SECTION 9. QUORUM. A Majority of the authorized number of Directors
shall constitute a quorum of the Board for the transaction of business, except
to adjourn a meeting under Section 11. Every act or decision done or made by a
majority of the Directors present at a meeting duly held at which a quorum is
present is the act of the Board of Directors, unless the vote of a greater
number or the same number after disqualifying one or more Directors from voting,
is required by law, the Articles of incorporation or these Bylaws. A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, provided that any action taken is
approved by at least a majority of the required quorum for such meeting.
SECTION 10. WAIVER OF NOTICE OR CONSENT. The transactions of any meeting
of the Board of Directors, however, called and noticed or wherever held, shall
be as valid as though had at a meeting duly held after regular call and notice,
if a quorum is present and if, either before or after the meeting, each of the
Directors not present or who, though present, has prior to the meeting or at its
commencement, protested the lack of proper notice to him, signs a written waiver
of notice, or a consent to holding the meeting, or an approval of the minutes of
the meeting. All such waivers, consents and approvals shall be filed with the
corporate records or made a part of the minutes of the meeting. A notice or
waiver of notice need not specify the purpose of any regular or special meeting
of the Board of Directors. Notice of a meeting need not be given to any Director
who signs a waiver of notice, whether before or after the meeting, or who
attends the meeting without protesting, prior to or at its commencement, the
lack of notice to such Director.
SECTION 11. ADJOURNMENT. A majority of the Directors present, whether
or not a quorum is present, may adjourn any meeting to another time and place.
If the meeting is adjourned for more than 24 hours, notice of the adjournment to
another time or
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place shall be given prior to the time of the adjourned meeting to the Directors
who were not present at the time of the adjournment.
SECTION 12. MEETINGS OF CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another. Participation by Directors in a meeting in the
manner provided in this Section constitutes presence in person at such meeting.
SECTION 13. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken by the Board of Directors may be taken without a meeting, if all
members of the Board shall individually or collectively consent in writing to
such action. Such written consent or consents shall be filed with the minutes of
the proceedings of the Board. Such action by written consent shall have the same
force and effect as a unanimous vote of such directors.
SECTION 14. FEES AND COMPENSATION. Directors and members of committees
shall receive neither compensation for their services as Director or members of
committees or reimbursement for the expenses incurred as Directors or members of
committees unless these payments are fixed by resolution of the Board. Directors
and members of committees may receive compensation and reimbursement for their
expenses incurred as officers, agents or employees of or for other services
performed for the Corporation as approved by the Chief Executive officer without
authorization, approval or ratification by the Board.
SECTION 15. COMMITTEES. The Board of Directors may, at its discretion,
by resolution adopted by a majority of the authorized number of Directors,
designate one or more committees, each of which shall be composed of two or more
Directors, to serve at the pleasure of the Board. The Board may designate one or
more Directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. The Board may delegate to any such
committee, to the extent provided in such resolution, any of the Board's powers
and authority in the management of the Corporation's business and affairs,
except with respect to:
(a) the approval of any action for which the General Corporation
Law or the Articles of Incorporation also requires approval by the stockholders;
(b) the filing of vacancies on the Board of Directors of any
committee.
(c) the fixing of compensation of Directors for serving on the
Board or on any committee;
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(d) the amendment or repeal of Bylaws or the adoption of
new-Bylaws;
(e) the amendment or repeal of any resolution of the Board which
by its express terms is not so amendable or repealable;
(f) a distribution to the stockholders of the corporation, except
at a rate or in a periodic amount or within a price range determined by the
Board;
(g) the authorization of the issuance of shares; and
(h) the appointment of other committees of the Board or the
members thereof.
The Board may prescribe appropriate rules, not inconsistent with these
Bylaws, by which proceedings of any such committee shall be conducted. The
provisions of these Bylaws relating to the calling of meetings of the Board,
notice of meetings of the Board and waiver of such notice, adjournment of
meetings of the board, written consents to Board meetings and approval of
minutes, action by the Board by consent in writing without a meeting, the place
of holding such meetings, meetings by conference telephone or similar
communications equipment, the quorum for such meetings, the vote required at
such meetings and the withdrawal of Directors after commencement of a meeting
shall apply to committees of the Board and action by such committees. In
addition, any member of the committee designated by the Board as the Chairman or
as Secretary of the committee or any two members of a committee may call
meetings of the committee. Regular meetings of any committee may be held without
notice if the time and place of such meetings are fixed by the Board of
Directors or the committee.
SECTION 16. INDEMNIFICATION OF AGENTS.
(a) For the purpose of this section, "agent" means any person who is or
was a director, officer, employee or other agent of this corporation, or is or
was serving at the request of this corporation as a director, officer, employee
or agent of another foreign or domestic corporation, partnership, joint venture,
trust or other enterprise, or was a director, officer, employee or agent of a
foreign or domestic corporation which was a predecessor corporation of this
corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means any threatened, pending or completed action or
proceeding, whether civil, criminal, administrative or investigative; and
"expenses" includes, without limitation, attorneys' fees and any expenses of
establishing a right to indemnification under subdivision (d) or subdivision
(e)(3) of this Section.
(b) This Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any proceeding (other than an action by or
in the right of this
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Corporation) by reason of the fact that such person is or was an agent of this
Corporation, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding if such
person acted in good faith and in a manner such person reasonably believed to be
in the best interests of this corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe the conduct of such person was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere, or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of this
corporation or that the person had reasonable cause to believe that the person's
conduct was unlawful.
(c) This Corporation shall indemnify any person who was or is a party,
or is threatened to be made a party to any threatened, pending or completed
action by or in the right of this Corporation to procure a judgment in its favor
by reason of the fact that such person is or was an agent of this Corporation,
against expenses actually and reasonably incurred by such person in connection
with the defense or settlement of such action if such person acted in good
faith, in a manner such person believed to be in the best interests of this
Corporation and its stockholders.
No indemnification shall be made under this subdivision for any of the
following:
(1) In respect of any claim, issue or matter as to which such
person shall have been adjudged to be liable to this Corporation in the
performance of such person's duty to this Corporation and its stockholders,
unless and only to the extent that the court in which such action was brought
shall determine upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for expenses
and then only to the extent that the court shall determine;
(2) Of amounts paid in settling or otherwise disposing of a
pending action without court approval; or
(3) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
(d) To the extent that an agent of this Corporation has been successful
on the merits in defense of any proceeding referred to in subdivision (b) or (c)
or in defense of any claim, issue or matter therein, the agent shall be
indemnified against expenses actually and reasonably incurred by the agent in
connection therewith.
(e) Except as provided in subdivision (d), any indemnification under
this Section shall be made by this Corporation only if authorized in the
specific case, upon a determination that indemnification of the agent, is proper
in the circumstances because the
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agent has met the applicable standard of conduct set forth in subdivision (b) or
(c), by any of the following:
(1) A majority vote of a quorum consisting of Directors who are
not parties to such proceeding;
(2) If such a quorum of directors is not obtainable, by
independent legal counsel in a written opinion;
(3) Approval or ratification by the affirmative vote of a
majority of the shares of this Corporation entitled to vote represented at a
duly held meeting at which a quorum is present or by the written consent of the
holders of a majority of the outstanding shares entitled to vote. For such
purpose, the shares owned by the person to be indemnified shall not be
considered outstanding or entitled to vote thereon; or
(4) The court in which such proceeding is or was pending, upon
application made by this Corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by this
Corporation.
(f) The right of indemnification provided in this Section 16 of these
By-laws shall include the right to be paid, in advance of a proceedings final
disposition, expenses incurred in defending that proceeding; provided, however,
that if required by the California General Corporation Law, as amended, the
payment of expenses in advance of the final disposition of the proceeding shall
be made only upon delivery to the corporation of an undertaking by or on behalf
of the agent to repay such amount if it shall ultimately be determined that he
is not entitled to be indemnified by the corporation as authorized under this
Article or otherwise. The agent's obligation to reimburse the corporation for
expense advances shall be unsecured and no interest shall be charged thereon.
(g) The indemnification provided by this Section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent such
additional rights to indemnification are authorized in the articles of this
Corporation. The rights to indemnify hereunder shall continue as to a person who
has ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of the person. Nothing
contained in this Section shall affect any right to indemnification to which
persons other than directors and officers may be entitled by contract or
otherwise.
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(h) No indemnification or advance shall be made under this Section,
except as provided in subdivision (d) or subdivision (e)(3), in any
circumstances where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, bylaws, a resolution of the stockholders of an
agreement in effect at the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or other amounts
were paid, which prohibits or otherwise limits indemnification; or
(2) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
(i) Upon and in the event of a determination by the Board of Directors
of this Corporation to purchase such insurance, this Corporation shall purchase
and maintain insurance on behalf of any agent of the Corporation against any
liability asserted against or incurred by the agent in such capacity or arising
out of the agent's status as such whether or not this Corporation would have the
power to indemnify the agent against such liability under the provisions of this
Section. The fact that this Corporation owns all or a portion of the shares of
the company issuing a policy of insurance shall not render this subsection
inapplicable if either of the following conditions are satisfied: (1) if
authorized in the Articles of this Corporation, any policy issued is limited to
the extent provided by Subdivision (d) of Corporations Code Section 204; or (2)
(A) the company issuing the insurance policy is organized, licensed, and
operated in a manner that complies with the insurance laws and regulations
applicable to its jurisdiction of organization, (b) the company issuing the
policy provides procedures for processing claims that do not permit that company
to be subject to the direct control of this Corporation and (C) the policy
issued provides for some manner of risk sharing between the issuer and purchaser
of the policy, on one hand, and some unaffiliated person or persons, on the
other, such as by providing for more than one unaffiliated owner of the company
issuing the policy or by providing that a portion of the coverage furnished will
be obtained from some unaffiliated insurer or reinsurer.
(j) If a claim under this Section 16 of these By-laws is not paid in
full by Corporation within thirty (30) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant shall be entitled to be paid also
the expense (including attorneys' fees) of prosecuting such claim. It shall be a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending a proceeding in advance of its final disposition
where the required undertaking has been tendered to the Corporation) that the
claimant has not met the standards of conduct that make it permissible under the
California General Corporation Law for the Corporation to indemnify the claimant
for the amount claimed. The burden of proving such a defense shall be on the
Corporation. Neither the failure of the
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Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper under the circumstances
because he has met the applicable standard of conduct set forth in the
California General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant had not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct.
(k) The rights provided by this Article shall continue as to a person
who has ceased to be an agent and shall inure to the benefit of the heirs,
executors and administrators of such person.
(l) The Corporation shall not be liable to indemnify any agent under
this Article V for any amounts paid in settlement of any action or claim
effected without the Corporation's written consent, which consent shall not be
unreasonably withheld; or (b) for any judicial award, if the Corporation was not
given a reasonable and timely opportunity, at its expense, to participate in the
defense of such action.
(m) Any amendment, repeal, or modification of this Article shall not
adversely affect any right or protection of any agent existing at the time of
such amendment, repeal, or modification of this Article shall not adversely
affect any right or protection of any agent existing at the time of such
amendment, repeal or modification.
(n) In the event of payment under this Article, the Corporation shall be
subrogated to the extent of such payment to all of the rights of recovery of the
agent, who shall execute all papers required and shall do everything that may be
necessary to secure such rights, including the execution of such documents
necessary to enable the Corporation effectively to bring suit to enforce such
rights.
(o) The Corporation shall not be liable under this Article to make any
payment in connection with any claim made against the agent to the extent the
agent has otherwise actually received payment (under any insurance policy,
agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. The officers of the Corporation shall be a
Chairman of the Board or a President, or both, a Secretary and Chief Financial
Officer. The Corporation may also have, at the discretion of the Board of
Directors, one or more vice Presidents, one or more Assistant Secretaries, one
or more Assistant Treasurers and such
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other officers as may be appointed in accordance with the provisions of Section
3 of this Article IV. Any two or more offices may be held by the same person.
SECTION 2. ELECTIONS. The officers of the Corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article IV, shall be chosen annually by the Board of
Directors, and each such officer shall serve at the pleasure of the Board of
Directors until the regular meeting of the Board of Directors following the
annual meeting of stockholders and until his successor is elected and qualified
or until his earlier resignation or removal.
SECTION 3. OTHER OFFICERS. The Board of Directors may appoint, and may
empower the Chairman of the Board or the President or both of them to appoint,
such other officers as the business of the Corporation may require, each of whom
shall hold office for such period, have such authority and perform such duties
as are provided in the Bylaws or as the Board of Directors may from time to time
determine.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed with or
without cause either by the Board of Directors or, except for an officer chosen
by the Board, by any officer upon whom the power of removal may be conferred by
the Board (subject, in each case, to the rights, if any, of an officer under any
contract of employment). Any officer may resign at any time upon written notice
to the Corporation (without prejudice however, to the rights, if any, of the
Corporation under any contract to which the officer is a party). Any such
resignation shall take effect upon receipt of such notice or at any later time
specified therein. If the resignation is effective at a future time, a successor
may be elected to take the office when the resignation becomes effective. Unless
a resignation specifies otherwise, its acceptance by the Corporation shall not
be necessary to make it effective.
SECTION 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in a
manner prescribed in the Bylaws for regular appointments to the office.
SECTION 6. CHAIRMAN OF THE BOARD. The Board of Directors may, in its
discretion, elect a Chairman of the Board, who, unless otherwise determined by
the Board of Directors, shall preside at all meetings of the Board of Directors
at which he is present and shall exercise and perform any other powers and
duties assigned to him by the board or prescribed by the Bylaws. If the office
of the President is vacant, the Chairman of the Board shall be the General
Manager and Chief Executive Officer of the Corporation and shall exercise the
duties of the President as set forth in Section 7.
SECTION 7. PRESIDENT. Subject to any supervisory powers, if any, that
may be given by the Board of Directors or the Bylaws to the Chairman of the
Board, if
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there be such an officer, the President shall be the Corporation's General
Manager and Chief Executive Officer and shall, subject to the control of the
Board of Directors, have general supervision, direction and control of the
business, affairs and officers of the Corporation. Unless otherwise determined
by the Board of Directors, he shall preside as Chairman at all meetings of the
stockholders, and in the absence of the Chairman of the Board, or if there be
none, at all meetings of the Board of Directors. He shall have the general
powers and duties of management usually vested in the office of president of a
corporation; shall have any other powers and duties that are prescribed by the
Board of Directors or the Bylaws; and shall be primarily responsible for
carrying out all orders and resolutions of the Board of Directors.
SECTION 8. VICE PRESIDENTS. In the absence or disability of the Chief
Executive Officer, the Vice Presidents in order of their rank as fixed by the
Board of Directors, or if not ranked, the Vice President designated by the Board
of Directors, or if there has been no such designation, the Vice President
designated by the Chief Executive Officer, shall perform all the duties of the
Chief Executive Officer, and when so acting, shall have all the powers of, and
be subject to all the restrictions on, the Chief Executive Officer. Each Vice
President shall have any of the powers and perform any other duties that from
time to time may be prescribed for him by the Board of Directors or the Bylaws
or the Chief Executive Officer.
SECTION 9. SECRETARY. The Secretary shall keep or cause to be kept a
book of minutes of all meetings and actions by written consent of all Directors,
stockholders and committees of the Board of Directors. The minutes of each
meeting shall state the time and place that it was held and such other
information as shall be necessary to determine whether the meeting was held in
accordance with law and these Bylaws and the actions taken thereat. The
Secretary shall keep or cause to be kept at the Corporation's principal
executive office, or at the office of its transfer agent or registrar, a record
of the stockholders of the Corporation, giving the names and addresses of all
stockholders and the number and class of shares held by each. The Secretary
shall give, or cause to be given, notice of all meetings of stockholders,
directors and committees required to be given under these Bylaws or by law,
shall keep or cause the keeping of the corporate seal in safe custody and
shall have any other powers and perform any other duties that are prescribed by
the Board of Directors or the Bylaws or the Chief Executive Officer. If the
Secretary refuses or fails to give notice of any meeting lawfully called, any
other officer of the Corporation may give notice of such meeting. The Assistant
Secretary, or if there be more than one, any Assistant Secretary, may perform
any or all of the duties and exercise any or all of the powers of the Secretary
unless prohibited from doing so by the Board of Directors, the Chief Executive
Officer or the Secretary, and shall have such other powers and perform any other
duties as are prescribed for him by the Board of Directors or the Chief
Executive Officer.
SECTION 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
be the Treasurer unless the Board of Directors shall by resolution designate
that the
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<PAGE> 23
Treasurer and the Chief Financial officer shall be separate and set forth their
respective duties in said resolution. The Chief Financial Officer shall keep and
maintain, or cause to be kept and maintained, adequate and correct books and
records of account. The Chief Financial Officer shall cause all money and other
valuables in the name and to the credit of the Corporation to be deposited at
the depositories designated by the Board of Directors or any person authorized
by the Board of Directors to designate such depositories. He shall render to the
Chief Executive Officer and Board of directors, when either of them request it,
an account of all his transactions as Chief Financial officer and of the
financial condition of the Corporation; and shall have any other powers and
perform any other duties that are prescribed by the Board of Directors or the
Bylaws or the Chief Executive Officer. The Assistant Treasurer, or if there be
more than one, any Assistant Treasurer, may perform any or all of the duties and
exercise any or all of the powers of the Chief Financial officer unless
prohibited from doing so by the Board of Directors, the Chief Executive Officer
or the Chief Financial Officer, and shall have such other powers and perform any
other duties as are prescribed for him by the Board of Directors, the Chief
Executive officer or the Chief Financial Officer.
-19-
<PAGE> 24
ARTICLE V
MISCELLANEOUS
SECTION 1. RECORD DATE. The Board of Directors may fix a time in the
future as a record date for the determination of the stockholders entitled to
notice of and to vote at any meeting of stockholders or entitled to give consent
to corporate action in writing without a meeting, to receive any report, to
receive payment of any dividend or other distribution, or allotment of any
rights, or to exercise rights in respect to any change, conversion, or exchange
of shares or any other lawful action. The record date so fixed shall be not more
than sixty days nor less than ten days prior to the date of such meeting, nor
more than sixty days prior to any other action for the purposes of which it is
fixed. When a record date is so fixed, only stockholders of record on that date
are entitled to notice of and to vote at any such meeting, to give consent
without a meeting, to receive any report, to receive a dividend, distribution,
or allotment of rights, or to exercise the rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation after
the record date, except as otherwise provided in the Articles of Incorporation
or Bylaws.
SECTION 2. INSPECTION OF CORPORATE RECORDS. The books of account, record
of stockholders and minutes of proceedings of the stockholders and the Board and
committees of the Board of this Corporation shall be open to inspection upon the
written demand on the Corporation of any stockholder or holder of a voting trust
certificate at any time during usual business hours, for a purpose reasonably
related to such holder's interests as a stockholder or as the holder of such
voting trust certificate. Such inspection by a stockholder or holder of a voting
trust certificate may be made in person or by agent or attorney, and the right
of inspection includes the right to copy and make extracts.
A stockholder or stockholders holding at least five percent in the
aggregate of the outstanding voting shares of the Corporation or who hold at
least one percent of such voting shares and have filed a Schedule 14B with the
United States Securities and Exchange Commission relating to the election of
Directors of the Corporation shall have (in person or by agent or attorney) the
absolute right to inspect and copy the record of stockholders' names and
addresses and shareholdings during usual business hours upon five business days'
prior written demand upon the Corporation and to obtain from the transfer agent
for the Corporation, upon written demand and upon the tender of its usual
charges, a list of the stockholder's names and addresses, who are entitled to
vote for the election of Directors, and their shareholdings, as of the most
recent record date for which it has been compiled or as of a date specified by
the stockholder subsequent to the date of demand. The list shall be made
available on or before the later or five business days after the demand is
received or the date specified therein as the date as of which the list is to be
compiled.
Every Director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties
-20-
<PAGE> 25
of this Corporation and any subsidiary of this Corporation. Such inspection by a
Director may be made in person or by agent or attorney and the right of
inspection includes the right to copy and make extracts.
SECTION 3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
payment of money, notes, or other evidences of indebtedness, issued in the name
of or payable to the Corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Board of Directors. The Board of Directors may authorize one
or more officers of the Corporation to designate the person or persons
authorized to sign such documents and the manner in which such documents shall
be signed.
SECTION 4. ANNUAL AND OTHER REPORTS. The Board of Directors shall
cause an annual report to be sent to the stockholders as required by statute,
unless otherwise waived. A stockholder or stockholders holding at least five
percent of the outstanding shares of any class of the corporation may make a
written request to the Corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the current fiscal year
ended more than thirty days prior to the date of the request and a balance sheet
of the Corporation as of the end of such period and, in addition, if no annual
report for the last fiscal year has been sent to stockholders, the annual report
for the last fiscal year. The statements shall be delivered or mailed to the
person making the request within thirty days thereafter. A copy of such
statements shall be kept on file in the principal executive office of the
corporation for twelve months and they shall be exhibited at all reasonable
times to any stockholder demanding an examination of them or a copy shall be
mailed to such stockholder.
The Corporation shall, upon the written request of any stockholder, mail
to the stockholder a copy of the last annual, semiannual or quarterly income
statement which it has prepared and a balance sheet as of the end of the period.
The quarterly income statements and balance sheets referred to in this
Section shall be accompanied by the report thereon, if any, of any independent
accountants engaged by the Corporation or the certificate of an authorized
officer of the Corporation that such financial statements were prepared without
audit from the books and records of the Corporation.
Unless otherwise determined by the Board of Directors or the Chief
Executive Officer, the Chief Financial Officer and any Assistant Treasurer are
each authorized officers of the corporation to execute the certificate that the
annual report and quarterly income statements and balance sheets referred to in
this Section were prepared without audit from the books and records of the
Corporation.
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<PAGE> 26
Any report sent to the stockholders shall be given personally or by mail
or other means of written communication, charges prepaid, addressed to such
stockholder at the address of such stockholder appearing on the books of the
Corporation or given by such stockholder to the Corporation for the purpose of
notice or set forth in the written request of the stockholder as provided in
this Section. If any report addressed to the stockholder at the address of such
stockholder appearing on the books of the corporation is returned to the
Corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the report to the stockholder
at such address, all future reports shall be deemed to have been duly given
without further mailing if the same shall be available to the stockholder upon
written demand of the stockholder at the principal executive office of the
Corporation for a period of one year from the date of the giving of the report
to all other stockholders. If no address appears on the books of the Corporation
or is given by the stockholder to the Corporation for the purpose of notice or
is sent forth in the written request of the stockholder as provided in this
Section, such report shall be deemed to have been given to such stockholder if
sent by mail or other means of written communication addressed to the place
where the principal executive office of the Corporation is located, or if
published at least once in a newspaper of general circulation in the county in
which the principal executive office is located. Any such report shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by other means of written communication. An affidavit of mailing of
any such report in accordance with the foregoing provisions, executed by the
Secretary, Assistant Secretary, or any transfer agent of the Corporation shall
be prima facie evidence of the giving of the report.
SECTION 5. CONTRACTS, ETC., HOW EXECUTED. The Board of Directors, except
as the Bylaws or Articles of Incorporation otherwise provide, may authorize any
officer or officers, agents or agent to enter into any contract or execute any
instrument in the name of and on behalf of the Corporation, and such authority
may be general or confined to specific instances.
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<PAGE> 27
SECTION 6. CERTIFICATE FOR SHARES. Every holder of shares in the
Corporation shall be entitled to have a certificate or certificates signed in
the name of the Corporation by the Chairman or Vice Chairman of the Board or the
President or a Vice President and by the Chief Financial Officer or any
Assistant Secretary, certifying the number of shares and the class or series of
shares owned by the stockholder. Any or all of the signatures on the certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if such person were such officer, transfer agent or registrar at the date of
issue. Any such certificate shall contain such legend or other statement as may
be required by Section 418 of the General Corporation Law, the Corporate
Securities Law of 1968, and any agreement between the Corporation and the issue
thereof, and may contain such legend or other statement as may be required by
any other applicable law or regulation or agreement.
Certificates for shares may be issued prior to full payment thereof,
under such restrictions and for such purposes, as the Board of Directors or the
Bylaws may provide; provided, however, that any such certificate so issued prior
to full payment shall state the total amount of the consideration to be paid
therefor and the amount paid thereon.
No new certificate for shares shall be issued in place of any
certificate theretofore issued unless the latter is surrendered and canceled at
the same time; provided, however, that a new certificate may be issued without
the surrender and cancellation of the old certificate if the certificate
theretofore issued is alleged to have been lost, stolen or destroyed. In case of
any such allegedly lost, stolen or destroyed certificate, the Corporation may
require the owner thereof or the legal representative of such owner to give the
Corporation a bond (or other adequate security) sufficient to indemnify it
against any claim that may be made against it (including any expense or
liability) on account of the alleged loss, theft or destruction of any such
certificate or the issuance of such new certificate.
SECTION 7. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. Unless the
Board of Directors shall otherwise determine, the Chairman of the Board of the
President, any Vice President, the Secretary and any Assistant Secretary of this
Corporation are each authorized to vote, represent and exercise on behalf of
this Corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this Corporation. The
authority herein granted to such officers to vote or represent on behalf of this
Corporation any and all shares held by this Corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
person authorized to do so by proxy or power of attorney or other document duly
executed by any such officer.
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<PAGE> 28
SECTION 8. INSPECTION OF BYLAWS. The Corporation shall keep in its
principal executive office in California, or if its principal executive office
is not in California, at its principal business office in California, the
original or a copy of the Bylaws as amended to date, which shall be open to
inspection by the stockholders at all reasonable times during office hours. If
the Corporation has no office in California, it shall upon the written request
of any stockholder, furnish him a copy of the Bylaws as amended to date.
SECTION 9. SEAL. The Corporation shall have a common seal, and shall
have inscribed thereon the name of the Corporation, the date of its
incorporation, and the words "INCORPORATED" and "CALIFORNIA."
SECTION 10. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the General Corporation Law shall govern the construction of these
Bylaws. Without limiting the generality of the foregoing, the masculine gender
includes the feminine and neuter, the singular number includes the plural and
the plural number includes the singular, and the term "Person" includes a
corporation as well as a natural person.
ARTICLE VI
AMENDMENTS
SECTION 1. POWER OF stockholders. New Bylaws may be adopted or these
Bylaws may be amended or repealed by the affirmative vote of a majority of the
outstanding shares entitled to vote, or by the written assent of stockholders
entitled to vote such shares, except as otherwise provided by law or by the
Articles of Incorporation.
SECTION 2. POWER OF DIRECTORS. Subject to the right of stockholders as
provided in Section 1 of this Article VI to adopt, amend or repeal Bylaws,
Bylaws other than a Bylaw or amendment thereof changing the authorized number of
Directors may be adopted, amended or repealed by the Board of Directors.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of PACIFIC
SOFTWORKS, INC., a California Corporation; and
(2) That the foregoing Bylaws, comprising 24 pages, constitute the
Bylaws of such Corporation as duly adopted at a meeting of the Directors of the
Corporation held on January 7, 1993.
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<PAGE> 29
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the
seal of such corporation this 7th day of January, 1993.
/s/ JOSEPH R. LOLL
-------------------------------------------
JOSEPH R. LOLL, Secretary
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<PAGE> 1
Exhibit 4.2
NUMBER COMMON STOCK PURCHASE WARRANT CERTIFICATE WARRANT
- -------- ----------
- -------- ----------
PACIFIC SOFTWORKS, INC.
THIS CERTIFIES that, for value received CUSIP
<TABLE>
<S> <C>
or registered assigns (the "Registered Holder") as the This Warrant Certificate is not valid unless
owner of the number of Common Stock Purchase Warrants countersigned by the Warrant Agent.
("Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the IN WITNESS WHEREOF, the Company has caused this
terms and conditions set forth in this Certificate and the Warrant Certificate to be duly executed, manually or in
Warrant Agreement (as hereinafter defined, one (1) fully facsimile, by two of its officers thereunto duly
paid and nonassessable share of Common Stock, $0.001 par authorized and a facsimile of its corporate seal to
value ("Common Stock"), of Pacific Softworks, Inc., a be imprinted hereon.
California corporation (the "Company"), at any time for a
period of 24 months from date of prospectus, upon the PACIFIC SOFTWORKS, INC.
presentation and surrender of this Warrant Certificate, with
the Subscription Form on the reverse hereof, duly executed Dated:
at the corporate office of American Securities Transfer &
Trust, Inc., as Warrant Agent or its successor (the "Warrant By:
Agent"), accompanied by payment of $7.50 (the "Purchase
Price"), in lawful money of the United States of America in President
cash or by official bank or certified check made payable to [PACIFIC SOFTWORKS INC.
the order of the Company. CORPORATE SEAL CALIFORNIA] Secretary
This Warrant Certificate and each Warrant represented COUNTERSIGNED AND REGISTERED:
hereby are issued pursuant to and are subject in all AMERICAN SECURITIES TRANSFER & TRUST, INC.
respects to the terms and conditions set forth in the P.O. Box 1590
Warrant Agreement dated __________________ (the "Warrant Denver, Colorado 80201
Agreement"), by and between the Company and the Warrant
Agent. By__________________________________________
Warrant Agent Authorized Signature
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price, at the number of
shares of Common Stock subject to purchase upon the exercise
of each Warrant represented hereby, is subject to
modification or adjustment.
</TABLE>
<PAGE> 2
PACIFIC SOFTWORKS, INC.
The following abbreviations when used in the inscription on the face of
this instrument, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<CAPTION>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties ----------------------
JT TEN - as joint tenants with right (Cust) (Minor)
of survivorship and not as
tenants in common under Uniform Gifts to Minors
Act
-------------------
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
SUBSCRIPTION FORM
To Be Executed by the Holder
in Order to Exercise Warrants
The undersigned hereby elects to exercise ___________ Warrants
represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities be issued in the name of:
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
- -----------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or type name and address
and be delivered to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please print or type name and address
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
Dated: X
------------------ ------------------------------------
X
------------------------------------
Address: --------------------------------------
--------------------------------------
--------------------------------------
Signature Guaranteed:
ASSIGNMENT
(To be Executed by the Registered Holder
in Order to Assign Warrants)
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER
FOR VALUE RECEIVED, ______________________________________________ hereby sells,
assigns and transfers to _______________________________________________________
________________________________________________________________________________
(Please Print Name and Address Including Zip Code)
________________________________________________________________________________
Warrants represented by this Warrant Certificate and hereby irrevocable
constitutes and appoint ________________________________________________________
________________________________________________________________________________
Attorney to transfer this Warrant Certificate on the books of the Company, with
full power of substitution in the premises.
Signature X
-------------------------------------
X
-------------------------------------
Signature(s) Guaranteed:
- ------------------------------
The signature(s) must be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-16.
<PAGE> 1
Exhibit 4.3
PACIFIC SOFTWORKS, INC.
AND
AMERICAN SECURITIES TRANSFER, INCORPORATED
Warrant Agent
-------------------------------
WARRANT AGREEMENT
Dated March , 1999
<PAGE> 2
TABLE OF CONTENTS*
<TABLE>
<S> <C>
Section 1 Warrants......................................................................... 1
Section 2 Detachability.................................................................... 1
Section 3 Warrant Certificates............................................................. 2
Section 4 Registration of Transfers and Exchanges.......................................... 2
Section 5 Exercise of Warrants............................................................. 2
Section 6 Redemption of Warrants........................................................... 3
Section 7 Payment of Taxes................................................................. 4
Section 8 Mutilated or Missing Warrant Certificates........................................ 5
Section 9 Reservation of Shares............................................................ 5
Section 10 Registration of Shares Issuable Upon Exercise of Warrants........................ 5
Section 11 Adjustments of Exercise Price and Either Shares Purchasable or
Number of Warrants............................................................... 5
Section 12 Fractional Warrants and Fractional Shares........................................ 11
Section 13 Notices to Warrant Holders....................................................... 11
Section 14 Rights of Warrant Holders........................................................ 12
Section 15 Warrant Agent.................................................................... 13
Section 16 Merger, Consolidation or Change of Name of Warrant Agent......................... 14
Section 17 Change of Warrant Agent.......................................................... 15
Section 18 Notices.......................................................................... 15
Section 19 Supplements and Amendments....................................................... 16
Section 20 Successors....................................................................... 17
Section 21 Termination...................................................................... 17
Section 22 Governing Law.................................................................... 17
Section 23 Benefits of This Agreement....................................................... 17
Section 24 Agreement Available to Warrant Holders........................................... 17
Section 25 Counterparts..................................................................... 17
EXHIBIT A................................................................................... 19
FORM OF WARRANT CERTIFICATE................................................................. 21
ASSIGNMENT.................................................................................. 21
EXERCISE.................................................................................... 21
</TABLE>
*This Table of Contents does not constitute a part of this Agreement or have any
bearing upon the interpretation of any of its terms and provisions.
i
<PAGE> 3
THIS WARRANT AGREEMENT, dated as of ___________, is between PACIFIC
SOFTWORKS, INC. ("Company"), a California corporation, and AMERICAN SECURITIES
TRANSFER, INCORPORATED (called, as well as any successor acting as warrant agent
under this Agreement, the "Warrant Agent").
WHEREAS, the Company has one class of common stock, $0.001 par value
(the "Common Stock"), and the Company will issue shares of its Common Stock
pursuant to Registration Statement No. ___-_____ that the Company has filed with
the United States Securities and Exchange Commission; and
WHEREAS, in connection with the issuance of said shares of Common Stock,
the Company will issue Warrants: all shares of Common Stock, $0.001 par value,
and, if appropriate after certain adjustments provided for in this Agreement, of
such other classes of securities or property to be purchased upon the exercise
of the Warrants being called the "Shares"; and
WHEREAS, the Company will issue the Shares and Warrants in units (the
"Units"), each Unit consisting of one Share and one Warrant (evidenced by a
"Warrant Certificate"); and
WHEREAS, each Warrant will entitle the Warrant Holder to purchase one
Share; and
WHEREAS, the Company desires to enter into this Agreement to establish
the terms and conditions of the Warrants, to set forth the rights of the
registered holders of the Warrants (collectively the "Warrant Holders"), and to
provide for the transfer and exercise of the Warrants and other matters; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company and the Warrant Agent is willing so to act under the terms of this
Agreement:
NOW THEREFORE, in consideration of the mutual agreements stated in this
Agreement, the Company and the Warrant Agent agree as follows:
SECTION 1 WARRANTS. Subject to the provisions of this Agreement, each
Warrant shall entitle the Warrant Holder by exercising the Warrant to purchase
from the Company one fully-paid and nonassessable Share at an initial price of
$7.50 per Share. The price at which a Warrant is exercisable at a particular
time shall be called the "Exercise Price."
The Warrants will expire at 5:00 p.m. Los Angeles, California time, on
___________ or such later date as is determined pursuant to the terms of Section
19 hereof (the actual time of expiration of the Warrants being called the
"Expiration Date"). At the time of expiration of the Warrants, any unexercised
Warrants will become void and all rights of the Warrant Holders under the terms
of the Warrant Certificate, this Agreement, and otherwise shall cease.
SECTION 2 DETACHABILITY. The Common Stock and Warrants comprising the
Units will be detachable immediately. A Warrant Certificate may be presented for
exercise, sold, assigned, or otherwise conveyed on the books of the Warrant
Agent either separate from (if the Common Stock and Warrants are then
detachable) or together with a certificate representing shares of the Company's
Common Stock.
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<PAGE> 4
SECTION 3 WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be in registered form only.
The text of the Warrant Certificates, including the forms of exercise
and assignment to be printed on the reverse side of the Warrant
Certificates, shall be substantially in the form set forth in Exhibit A
attached to this Agreement. Warrant Certificates shall be signed by, or
shall bear the facsimile signatures of the Chairman of the Board, the
President or a Vice President of the Company, and the Secretary or an
Assistant Secretary of the Company and shall bear a facsimile of the
Company's corporate seal. If any person whose facsimile signature has
been placed upon any Warrant Certificate as the signature of an officer
of the Company shall have ceased to be such officer before such Warrant
Certificate is countersigned, issued, and delivered, such Warrant
Certificate may be countersigned, issued, and delivered with the same
effect as if such person had not ceased to be such officer. Any Warrant
Certificate may be signed by, or may bear the facsimile signature of,
any person who at the actual date of the preparation of such Warrant
Certificate shall be a proper officer of the Company to sign such
Warrant Certificate even though such person was not such an officer upon
the date of this Agreement.
(b) Warrant Certificates shall be manually countersigned by the
Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent is hereby authorized to countersign and
deliver to, or in accordance with the instructions of, any Warrant
Holder any Warrant Certificate which is properly issued under the terms
of this Agreement.
SECTION 4 REGISTRATION OF TRANSFERS AND EXCHANGES.
(a) The Warrant Agent shall from time to time register the
transfer of any outstanding Warrants upon records to be maintained by
the Warrant Agent for such purpose upon surrender of a Warrant
Certificate to the Warrant Agent for transfer, accompanied by
appropriate instruments of transfer in form satisfactory to the Company
and the Warrant Agent and duly executed by the Warrant Holder or a duly
authorized attorney. Upon any such registration of transfer, new Warrant
Certificates shall be issued in the name of and delivered to the
transferee, and the surrendered Warrant Certificate shall be cancelled.
(b) Any outstanding Warrant Certificate may be surrendered to
the Warrant Agent in exchange for other Warrant Certificates of like
tenor, subject to subsection (f) of Section 11, and representing in the
aggregate the same number of Warrants, subject to any adjustment under
subsection (d) of Section 11. Warrant Certificates so surrendered for
exchange shall be cancelled.
SECTION 5 EXERCISE OF WARRANTS.
(a) Any whole number or all of the Warrants evidenced by any
Warrant Certificate may be exercised upon any single occasion on or
before the Expiration Date. A Warrant shall be exercised by the Warrant
Holder by surrendering to the Warrant Agent the Warrant Certificate
attached to or detached from the Share Certificate, with the exercise
form on the reverse of such Warrant Certificate duly completed and
executed, together with payment in lawful money of the United States of
America in cash
-2-
<PAGE> 5
or by certified or cashier's check or bank draft payable to the order of
the Company, for the Exercise Price for the total number of Shares to be
purchased.
(b) Subject to Section 5(d) and Section 10, upon receipt of a
Warrant Certificate with the exercise form thereon duly executed,
together with payment in full of the Exercise Price for the Shares for
which Warrants then are being exercised, the Warrant Agent shall
requisition from any transfer agent for the Shares (which transfer agent
may be the Warrant Agent pursuant to its appointment therefor separately
from this Agreement) and upon receipt shall make delivery of
certificates evidencing the total number of whole Shares for which
Warrants are then being exercised in such names and denominations as are
required for delivery to, or in accordance with the instructions of the
Warrant Holder, provided that if fewer than all Shares issuable on
exercise of a Warrant Certificate are purchased, the Warrant Agent (if
so requested) shall issue a Warrant Certificate for the balance of the
Shares. Subject to the payment of the Exercise Price becoming collected
funds, such certificates for the Shares shall be deemed to be issued,
and the person to whom such Shares are issued of record shall be deemed
to have become a holder of record of such Shares, as of the date of the
surrender of such Warrant Certificate and payment of the Exercise Price,
whichever shall last occur, provided that if the books of the Company
with respect to the Shares shall be closed as of such date, the
certificates for such Shares shall be deemed to be issued, and the
person to whom such Shares are issued of record shall be deemed to have
become a record holder of such Shares, as of the date on which such
books shall next be open (whether before, on, or after the applicable
Expiration Date) but at the Exercise Price and upon the other conditions
in effect upon the date of surrender of the Warrant Certificate and
payment of the Exercise Price, whichever shall have last occurred, to
the Warrant Agent.
(c) All Warrant Certificates surrendered upon exercise of
Warrants shall be cancelled.
(d) Upon the exercise, or conversion of any Warrant, the Warrant
Agent shall promptly deposit the payment into an account established by
mutual agreement of the Company and the Warrant Agent at a federally
insured commercial bank. All funds deposited in the account will be
disbursed on a weekly basis to the Company, once they have been
determined by the Warrant Agent to be collected funds. Once the funds
are determined to be collected, the Warrant Agent shall cause the Share
certificate(s) representing the exercised Warrants to be issued as
provided in Section 5(b) hereof.
SECTION 6 REDEMPTION OF WARRANTS.
(a) The Company may redeem the Warrants at $0.05 per Warrant
(the "Redemption Price") upon 30 days' prior written notice any time
after a period of 20 consecutive trading days that the closing price of
the Common Stock exceeds $8.00. For these purposes, the closing price of
the Common Stock will be determined by the closing bid price, as
reported by NASDAQ, or if the Common Stock is listed on a national stock
exchange or on the NASDAQ National Market System, the closing price will
be determined by the closing sale price on the primary exchange on which
the Common Stock is traded or on the NASDAQ National Market System, if
such shares are not listed on a national stock exchange. Notwithstanding
the foregoing, the Company will not be entitled to call any of the
Warrants for redemption or redeem any of the Warrants at a time when the
Warrants are not exercisable because the Company has not maintained a
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current registration statement as described in Section 10 hereof. On the
redemption date, the Warrant Holders of record of redeemed Warrants
shall be entitled to payment of the Redemption Price upon surrender of
such redeemed Warrants to the Company at the principal office of the
Warrant Agent.
(b) Notice of redemption of any Warrants shall be given by
mailing, by registered or certified mail, return receipt requested, a
copy of such notice to all of the affected Warrant Holders of record as
of two days prior to the mailing date at their respective addresses
appearing on the books or transfer records of the Company or such other
address designated in writing by the Warrant Holder of record to the
Warrant Agent not less than _______ (__) days prior to the redemption
date and shall be effective upon receipt.
(c) Notwithstanding any other provision of this Agreement, from
and after the redemption date, all rights of the affected Warrant
Holders (except the right to receive the Redemption Price) shall
terminate, but only if (i) on or prior to the redemption date the
Company shall have irrevocably deposited with the Warrant Agent, as
paying agent, a sufficient amount to pay on the redemption date the
Redemption Price for all Warrants called for redemption and (ii) the
notice of redemption shall have stated the name and address of the
Warrant Agent and the intention of the Company to deposit such amount
with the Warrant Agent on or before the redemption date.
(d) The Warrant Agent shall pay to the Warrant Holders of record
of redeemed Warrants all monies received by the Warrant Agent for the
redemption of Warrants to which the Warrant Holders of record of such
redeemed Warrants are entitled under the provisions of this Agreement.
(e) Any amounts deposited with the Warrant Agent which are not
required for redemption of the Warrants may be withdrawn by the Company.
Any amounts deposited with the Warrant Agent which shall be unclaimed
after six (6) months after the redemption date may be withdrawn by the
Company, and thereafter the Warrant Holders of the Warrants called for
redemption for which such funds were deposited shall look solely to the
Company for payment. The Company shall be entitled to the interest, if
any, on funds deposited with the Warrant Agent, and the Warrant Holders
of redeemed Warrants shall have no right to any such interest.
(f) If the Company fails to make a sufficient deposit with the
Warrant Agent as provided above, the Warrant Holder of any Warrants
called for redemption may at the option of the Warrant Holder (i) by
notice to the Company declare the notice of redemption a nullity, or
(ii) maintain an action against the Company for the Redemption Price. If
the Warrant Holder brings such an action, the Company will pay
reasonable attorneys' fees of the Warrant Holder. If the Warrant Holder
fails to bring an action against the Company for the Redemption Price
within ninety (90) days after the redemption date, the Warrant Holder
shall be deemed to have elected to declare the notice of redemption to
be a nullity and such notice shall be without any force or effect.
SECTION 7 PAYMENT OF TAXES. The Company will pay all taxes attributable
to the initial issuance of Shares upon exercise of Warrants. The Company shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issue of any Warrant Certificates or in the issue of
any certificates for Shares in a name other than that of the Warrant Holder upon
the exercise of any Warrant.
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<PAGE> 7
SECTION 8 MUTILATED OR MISSING WARRANT CERTIFICATES. If any Warrant
Certificate is mutilated, lost, stolen, or destroyed, the Company and the
Warrant Agent may, on such terms as to indemnity or otherwise as they may in
their discretion impose (which shall, in the case of a mutilated Warrant
Certificate, include the surrender thereof), and upon receipt of evidence
satisfactory to the Company and the Warrant Agent of such mutilation, loss,
theft, or destruction, issue a substitute Warrant Certificate of like
denomination and tenor as the Warrant Certificate so mutilated, lost, stolen or
destroyed, subject to subsection (f) of Section 11. Applicants for such
substitute Warrant Certificate shall also comply with such other reasonable
regulations and pay any reasonable charges as the Company or the Warrant Agent
may prescribe. If any Warrant Certificate is mutilated, lost, stolen, or
destroyed, and the Warrant Holder desires to exercise any Warrants evidenced
thereby, the Company and the Warrant Agent may authorize such exercise upon
receipt of such evidence and indemnity in lieu of issuing any substitute Warrant
Certificate to evidence the Warrants so exercised.
SECTION 9 RESERVATION OF SHARES.
(a) The Company will at all times reserve and keep available,
free from preemptive rights, out of the aggregate of its authorized but
unissued shares of the Company's Common Stock, for the purpose of
enabling it to satisfy any obligation to issue Shares upon exercise of
Warrants, the full number of Shares issuable upon the exercise of all
outstanding Warrants.
(b) The Company covenants that all Shares which may be issued
upon exercise of Warrants will upon issue be fully paid and
nonassessable by the Company and free from all taxes, liens, charges,
and security interests with respect to the issue thereof.
SECTION 10 REGISTRATION OF SHARES ISSUABLE UPON EXERCISE OF WARRANTS. If
any Shares issuable upon the exercise of Warrants require the maintenance of a
current registration statement under the Securities Act of 1933, as amended (the
"Act"), with respect to such Shares before such Shares may be validly and
lawfully issued, the Company will in good faith endeavor to maintain such
current registration statement under the Act, provided that in no event shall
such Shares be issued, and the Company shall have the authority to suspend the
exercise of any or all Warrants while such registration statement is not
current. Similarly, a Warrant Holder residing in a state where a required
registration or governmental approval of issuance of the Shares is not in effect
as of or has not been obtained within a reasonable time after the surrender date
of the Warrant Certificate for exercise shall not be entitled to exercise
Warrants, unless in the opinion of counsel to the Company such registration or
approval in such state shall not be required or the Company otherwise authorizes
the issuance. In such event, the Warrant Holder shall be entitled to transfer
the Warrants to others, but only prior to the Expiration Date for the Warrants
being transferred.
SECTION 11 ADJUSTMENTS OF EXERCISE PRICE AND EITHER SHARES PURCHASABLE
OR NUMBER OF WARRANTS. The Exercise Price and either the number of Shares
purchasable upon exercise of the Warrants or the number of Warrants outstanding
shall be subject to adjustment from time to time as provided in this Section.
(a) In case the Company shall (i) declare a stock dividend or
make a distribution on its outstanding shares of Common Stock in shares
of Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (iii)
combine or reclassify its outstanding shares of
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<PAGE> 8
Common Stock into a smaller number of shares of Common Stock, the
Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination, or reclassification shall be adjusted so that it shall
equal the price determined by multiplying the Exercise Price by a
fraction, the denominator of which shall be the number of shares of
Common Stock outstanding after giving effect to such action, and the
numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action.
(b) In case the Company shall fix a record date for the issuance
of rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities
convertible into Common Stock) at a price (the "Subscription Price") (or
having a conversion price per share of Common Stock) less than the
current market price of the Common Stock (as defined in subsection (k)
of this Section 11) on the record date mentioned below, the Exercise
Price shall be adjusted so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior
to the date of such issuance by a fraction, the numerator of which shall
be the sum of the number of shares of Common Stock outstanding on the
record date mentioned below and the number of additional shares of
Common Stock which the aggregate offering price of the total number of
shares of Common Stock so offered (or the aggregate conversion price of
the convertible securities so offered) would purchase at such current
market price per share of the Common Stock, and the denominator of which
shall be the sum of the number of shares of Common Stock outstanding on
such record date and the number of additional shares of Common Stock
offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or tie warrants are issued and shall
become effective immediately after the record date for the determination
of stockholders entitled to receive such rights or warrants: and to the
extent that shares of Common Stock are not delivered (or securities
convertible into Common Stock are not delivered) after the expiration of
such rights or warrants, the Exercise Price shall be readjusted to the
Exercise Price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities
convertible into Common Stock) actually delivered.
(c) In case the Company shall hereafter distribute to the
holders of its Common Stock evidences of its indebtedness or assets
(excluding cash dividends or distributions and dividends or
distributions referred to in subsection (a) of this Section) or
subscription rights or warrants (excluding those referred to in
subsection (b) of this Section), then in each such case the Exercise
Price in effect thereafter shall be determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, the
numerator of which shall be the total number of shares of Common Stock
outstanding multiplied by the current market price per share of Common
Stock (as defined in subsection (k) of this Section), less the fair
market value (as determined by the Company's Board of Directors) of said
assets or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of
shares of Common Stock outstanding multiplied by such current market
price per share of Common Stock. Such adjustment shall be made
successively whenever such a record date is fixed. Such adjustment shall
be made whenever any such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such distribution.
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<PAGE> 9
(d) In case the Company shall issue shares of its Common Stock
(excluding shares issued (i) in any of the transactions described in
subsections (a), (b), and (c) above, (ii) upon the issuance or exercise
of options granted to the Company's directors, employees, and
consultants under a plan or plans adopted by the Company's Board of
Directors and approved by its stockholders, if such shares would
otherwise be included in this subsection (d) of this Section (but only
to the extent that the aggregate number of shares excluded hereby and
issued after the date hereof shall not exceed 10% of the Company's
Common Stock outstanding at the time of any issuance), (iii) upon
exercise of rights, options, and warrants outstanding or authorized for
grant or contractually bound to be issued at April ___, 1999, upon
exercise of the options that were originally a part of the original
option issued to the Underwriter pursuant to the Underwriting Agreement,
dated April ___, 1999, between the Company and Spencer Edwards
Securities, Inc., or upon exercise of any Warrants or the overallotment
option granted to the Underwriter pursuant to the Underwriting
Agreement, (iv) to stockholders of any corporation which merges into the
Company or from which the Company acquires assets and some or all of the
consideration consists of equity securities of the Company in proportion
to their stock holdings of such corporation immediately prior to such
merger or acquisition, upon such merger or acquisition, (v) issued in a
bona fide public offering pursuant to a firm commitment underwriting,
but only if no adjustment is required pursuant to any other specific
subsection of this Section 11 (without regard to subsection (i) of this
Section) with respect to the transaction giving rise to such rights, and
(vi) in connection with any nonregistered offering of Common Stock or
securities convertible into or exercisable for Common Stock, unless the
issuance or sale price is less than 85% of the current market price of
the Common Stock on the date of issuance, in which case the adjustment
shall only be for the difference between 85% of the current market price
and the issue or sale price) for a consideration per share (the
"Offering Price") less than the current market price per share (as
defined in Subsection (k) of this Section) on the date the Company fixes
the offering price of such additional shares, then the Exercise Price
shall be adjusted immediately thereafter so that it shall equal the
price determined by multiplying the Exercise Price in effect immediately
prior thereto by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of
Common Stock which the aggregate consideration received (determined as
provided in subsection (j) of this Section) for the issuance of such
additional shares would purchase at such current market price per share
of Common Stock, and the denominator of which shall be the number of
shares of Common Stock outstanding immediately after the issuance of
such additional shares. Such adjustment shall be made successively
whenever such an issuance is made.
(e) In case the Company shall issue any securities convertible
into or exchangeable for its Common Stock (excluding securities issued
in transactions described in subsections (a), (b), and (c) of this
Section and subject to the limitations in subsection (d) of this
Section) for a consideration per share of Common Stock (the "Conversion
Price") initially deliverable upon conversion or exchange of such
securities (determined as provided in subsection (j) of this Section)
less than the current market price per share (as defined in subsection
(k) of this Section) in effect immediately prior to the issuance of such
securities, then the Exercise Price shall be adjusted immediately
thereafter so that it shall equal the price determined by multiplying
the Exercise Price in effect immediately prior thereto by a fraction,
the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such
securities and the number of shares of Common Stock which the aggregate
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<PAGE> 10
consideration received (determined as provided in subsection (i) of this
Section) for such securities would purchase at such current market price
per share of Common Stock, and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to
such issuance and the maximum number of shares of Common Stock of the
Company deliverable upon conversion of or in exchange for such
securities at the initial conversion or exchange price or rate. Such
adjustment shall be made successively whenever such an issuance is made.
(f) Unless the Company shall have exercised its election as
provided in subsection (g) of this Section, whenever any adjustment of
the Exercise Price becomes effective pursuant to the terms of this
Section the number of Shares purchasable upon the exercise of each
affected outstanding Warrant shall be simultaneously adjusted to the
number determined by dividing (i) the product of the number of Shares
purchasable upon the exercise of each outstanding Warrant prior to such
adjustment multiplied by the applicable Exercise Price in effect prior
to such adjustment by (ii) the applicable Exercise Price in effect after
such adjustment.
(g) On or after the date any adjustment of the number of Shares
purchasable upon exercise of a Warrant may be made as provided in
subsection (f) of this Section, the Company may elect to adjust the
number of Warrants in substitution for any such adjustment in the number
of Shares purchasable upon exercise of a Warrant. All Warrants
outstanding after such adjustment of the number of Warrants shall be
exercisable for one Share. Each Warrant held of record prior to such
adjustment of the number of Warrants shall become the number of Warrants
(calculated to the nearest hundredth) obtained by (i) multiplying the
number of Warrants held of record prior to adjustment of the number of
Warrants by the Exercise Price in effect prior to adjustment of the
Exercise Price and (ii) dividing the product so obtained by the Exercise
Price in effect after adjustment of the Exercise Price. The Company
shall give notice to the Warrant Holders and the Warrant Agent of its
election to adjust the number of Warrants, indicating the record date
for the adjustment and, if known at the time, the amount of the
adjustment to be made. Such record date may be the date on which the
adjustment to the Exercise Price becomes effective or any date
thereafter but shall be at least 10 days later than the date of the
notice to Warrant Holders. Upon each adjustment of the number of
Warrants pursuant to this subsection (g) the Company shall, as promptly
as practicable, either distribute to Warrant Holders on such record date
Warrant Certificates evidencing the additional Warrants to which such
Warrant Holders shall be entitled as a result of such adjustment or
distribute to such Warrant Holders in substitution and replacement for
the Warrant Certificates held by them prior to the date of adjustment,
and upon surrender thereof if required by the Company, new Warrant
Certificates evidencing all the Warrants to which such holders shall be
entitled after such adjustment. Warrant Certificates so distributed
shall be issued, executed and countersigned in the manner specified in
this Agreement (but may bear, at the option of the Company, the adjusted
Exercise Price) and shall be registered in the names of the holders of
record of Warrant Certificates on the record date specified in the
notice to Warrant Holders given pursuant to this subsection (g).
(h) In any case in which this Section shall require that an
adjustment shall become effective immediately after a record date for an
event, the Company may defer until the actual occurrence of such event
(i) issuing to the Warrant Holder of any Warrant exercised after such
record date and before the occurrence of such event the additional
Shares issuable upon such exercise by reason of the adjustment required
by such event
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<PAGE> 11
over and above the Shares Issuable upon such exercise before giving
effect to such adjustment and (ii) paying to such Warrant Holder any
amount of cash in lieu of a fractional Share, provided the Company shall
deliver to such Warrant Holder a due bill or other appropriate
instrument evidencing the right of such Warrant Holder to receive such
additional Shares or such cash upon the occurrence of the event
requiring such adjustment.
(i) Subject to the provisions of subsection (h) of this Section,
the form of Warrant Certificate need not be changed because of any
adjustment in the Exercise Price, the number of Shares purchasable upon
the exercise of a Warrant, or the number of Warrants outstanding and
Warrant Certificates issued after any such adjustment may state the same
Exercise Price, the same number of Warrants, and the same number of
Shares purchasable upon exercise of a Warrant as are stated in the
Warrant Certificates issued before such adjustment as if such adjustment
had not occurred. However, the Company may at any time in its sole
discretion (which shall be conclusive) make any change in the form of
Warrant Certificate that it may deem appropriate and that does not
affect the substance thereof, and any Warrant Certificate may be in the
form as so changed.
(j) For purposes of any computation respecting consideration
received pursuant to subsections (d) and (e) of this Section, the
following shall apply:
(A) in the case of the issuance of shares of Common Stock
for cash, the consideration shall be the amount of such cash,
provided that in no case shall any deduction be made for any
commissions, discounts, or other expenses incurred by the
Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common Stock
for a consideration in whole or in part other than cash, the
consideration other than cash shall be deemed to be the fair
market value thereof as determined in good faith by the Board of
Directors of the Company (irrespective of the accounting
treatment thereof), whose determination shall be conclusive;
(C) in the case of the issuance of securities convertible
into or exchangeable for shares of Common Stock, the aggregate
consideration received therefor shall be deemed to be the
consideration received by the Company for the issuance of such
securities plus the additional minimum consideration, if any, to
be received by the Company upon the conversion or exchange
thereof (the consideration in each case to be determined in the
same manner as provided in clauses (A) and (B) of this
subsection j) of this Section); and
(D) in case the Company shall sell and issue Common Stock,
together with one or more other securities as part of a unit at
a price per unit, then in determining a consideration per share
of Common Stock for purposes of this Section, the Board of
Directors of the Company shall determine, in good faith, whose
determination shall be described in a duly adopted board
resolution certified by the Company's Secretary, or Assistant
Secretary, the fair value of the shares of Common Stock then
being sold as part of such unit, and such
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<PAGE> 12
determination, in the absence of fraud or bad faith, shall be
binding upon the holders of the Warrants.
(k) For the purpose of any computation under subsections (b),
(c), (d), and (e) of this Section, the current market price per share of
Common Stock at any date shall be deemed to be the average Fair Market
Value of a share of Common Stock for 30 consecutive business days before
such date.
"Fair Market Value" shall mean an amount that is determined as
follows: (i) if the Common Stock is listed on the New York Stock
Exchange, the American Stock Exchange, or such other securities exchange
designated by the Board of Directors of the Company, or admitted to
unlisted trading privileges on any such exchange, or if the Common Stock
is quoted on a National Association of Securities Dealers, Inc. system
that reports closing prices, the Fair Market Value shall be the closing
price of the Common Stock as reported by the Wall Street Journal on the
day the Fair Market Value is to be determined, or if no such price is
reported for such day, then the determination of such closing price
shall be as of the last immediately preceding day on which the closing
price is so reported; or (ii) if the Common Stock is not so listed or
admitted to unlisted trading privileges or so quoted, the Fair Market
Value shall be the average of the last reported highest bid and the
lowest asked prices quoted on the National Association of Securities
Dealers, Inc. Automated Quotations System ("NASDAQ") or, if not so
quoted, then by the National Quotation Bureau, Inc. on the day the Fair
Market Value is determined; or (iii) if the Common Stock is not so
listed or admitted to unlisted trading privileges or so quoted, and bid
and asked prices are not reported, the Fair Market Value shall be
determined in such reasonable manner as may be presented by the Board of
Directors of the Company.
(l) No adjustment in the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least five
cents ($0.05) in such price; provided, however, that any adjustments
which by reason of this subsection (l) of this Section are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All calculations
under this Section shall be made to the nearest cent or to the nearest
one-hundredth of a Share, as the case may be. Anything in this Section
to the contrary notwithstanding, the Company shall be entitled, but
shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Section, as it shall determine, in
its sole discretion, to be advisable in order that any dividend or
distribution in shares of Common Stock, or any subdivision,
reclassification, or combination of Common Stock, hereafter made by the
Company shall not result in any federal income tax liability to the
holders of Common Stock or securities convertible into Common Stock.
(m) In the event that at any time, as a result of an adjustment
made pursuant to subsection (a) of this Section, the Holder of the
Warrants thereafter shall become entitled to receive any securities of
the Company, other than Common Stock, thereafter the number of such
other securities so receivable upon exercise of the Warrants shall be
subject to adjustment from time-to-time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in subsections (a) to (l), inclusive, of this
Section.
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SECTION 12 FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) Notwithstanding any other provision of this Agreement or any
Warrant Certificate, the Company shall not be required to issue
fractions of Warrants on any distribution of Warrant Certificates
pursuant to subsection (f) of Section 11 or to distribute Warrant
Certificates which evidence fractional Warrants. In lieu of issuing any
fraction of a Warrant otherwise called for upon any adjustment pursuant
to subsection (d) of Section 11, the Company shall pay to the Warrant
Holder entitled thereto an amount in cash equal to such fraction
multiplied by the current market value of one such Warrant determined as
follows:
(1) If the Warrants are listed on the New York Stock
Exchange, the American Stock Exchange, or such other national
stock exchange specified by the Board of Directors of the
Company, or admitted to unlisted trading privileges on any such
exchange, or if the Warrants are quoted on a National
Association of Securities Dealers, Inc. system that reports
closing prices, the current market value shall be the closing
price of the Warrants as reported by the Wall Street Journal for
the last trading day prior to the date of such adjustment
pursuant to subsection (d) of Section 11, or, if no such price
is reported for such day, then the determination of such closing
price shall be as of the last immediately preceding day on which
the closing price is so reported, or
(2) If the Warrants are not so listed or admitted to
unlisted trading privileges or so quoted, the current market
value shall be the mean of the last reported bid and asked
prices reported by NASDAQ, if the Warrants are quoted on NASDAQ,
and if not, the mean of the last reported bid and asked prices
reported by the National Quotation Bureau, Inc., in either case
on the last business day prior to the date of such adjustment
pursuant to subsection (d) of Section 11; or
(3) If neither subparagraph (1) or (2) is applicable, the
current market value shall be an amount determined in such
reasonable manner as may be prescribed by the Board of Directors
of the Company.
(b) Notwithstanding any other provision of this Agreement or any
Warrant Certificate, the Company shall not be required to issue
fractions of Shares upon exercise of the Warrants or to distribute
certificates which evidence fractions of Shares. With respect to any
fraction of a Share called for upon exercise of any Warrant, the Company
in lieu of issuing such fractional Shares shall pay to, or in accordance
with the instructions of, the Warrant Holder exercising such Warrant an
amount in cash equal to such fraction multiplied by the Fair Market
Value of one share of Common Stock.
SECTION 13 NOTICES TO WARRANT HOLDERS.
(a) Upon any adjustment of the Exercise Price, the Company
within 20 days thereafter shall (a) cause to be filed with the Warrant
Agent a certificate, signed by the Chairman of the Board, the President,
or a Vice President of the Company and by its Treasurer or an Assistant
Treasurer, setting forth the Exercise Price after such adjustment and
setting forth in reasonable detail the method of calculation and the
facts upon which any such calculation is based and setting forth either
(1) the number of Shares (or portion thereof) purchasable upon exercise
of an affected Warrant after such
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<PAGE> 14
adjustment of the Exercise Price, or (2) the number of Warrants into
which each outstanding affected Warrant will be changed as a result of
such adjustment in the Exercise Price, which certificate shall be
conclusive evidence of the correctness of the matters set forth therein,
and (b) cause written notice of such adjustments to be given to each
affected Warrant Holder as of the record date applicable to such
adjustment. Where appropriate, such notice may be given in advance and
included as a part of the notice required to be mailed under the other
provisions of this Section.
(b) Whenever the Company shall
(i) expect to effect any capital reclassification of
the capital stock of the Company (other than a change in par
value or from par value to no par value or from no par value
to par value or as a result of a subdivision or
combination), any sale, lease, or conveyance of all or
substantially all of the assets of the Company or any
consolidation or merger of the Company with another
corporation (other than a merger with a subsidiary in which
merger the Company is the continuing corporation and which
does not result in any reclassification or change of the
Shares issuable upon exercise of the Warrants), or
(ii) expect to be involved in any voluntary or
involuntary dissolution, liquidation, or winding up of the
Company, then in any such case the Company shall cause to be
mailed to each Warrant Holder, at the earliest practicable
time (and in any event not less than 20 days before any
record date or other date set for definitive, action)
written notice of such event and of the date on which the
books of the Company shall close or the date when such
reclassification, sale, lease, conveyance, consolidation,
merger, dissolution, liquidation, or winding up shall take
place, as the case may be. Such notice shall also set forth
such facts as shall indicate the effect of such action (to
the extent such effect may be known at the date of notice)
on each Exercise Price and the kind and amount of the Shares
and other securities and property deliverable upon exercise
of the Warrants before and after any adjustment for the
occurrence of such event. Such notice shall also specify the
date as of which the holders of the shares of Common Stock
of record shall be entitled to exchange their shares of
Common Stock for securities or other property deliverable
upon such reclassification, sale, lease, conveyance, merger,
dissolution, liquidation, or winding up, as the case may be.
(c) Without limiting the obligation of the Company hereunder to
provide notice to each Warrant Holder, it is agreed that failure of the
Company to give notice shall not invalidate any corporate action taken
by the Company.
SECTION 14 RIGHTS OF WARRANT HOLDERS.
(a) No Warrant Holder, as such, shall have any rights of a
stockholder of the Company, either at law or equity, and the rights of
the Warrant Holders, as such, are limited to those rights expressly
provided in this Agreement or in the Warrant Certificates.
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<PAGE> 15
(b) When any Warrant Certificate shall have been surrendered for
exercise accompanied by payment of the Exercise Price, as provided in
this Agreement, certificates for the Shares purchased upon such exercise
shall be issuable and any person designated to be the record holder of
such Shares shall be deemed to have become a holder of record of such
Shares as of the date of such surrender and payment, whichever last
occurs; provided that if at such date the transfer books for the shares
of Common Stock shall be closed, the certificates for the Shares shall
be issuable on the date on which such books shall next be open (whether
before, on, or after an Expiration Date) and until then the Company
shall be under no duty to deliver any certificate for such Shares; and
further provided that such books, unless otherwise required by law,
shall not be closed at any one time for a period longer than 20 days.
(c) The Company and the Warrant Agent may treat the registered
Warrant Holder in respect of any Warrant Certificate as the absolute
owner thereof for all purposes notwithstanding any notice to the
contrary.
SECTION 15 WARRANT AGENT.
(a) The Company hereby appoints the Warrant Agent to act as the
agent of the Company in accordance with this Agreement, and the Warrant
Agent hereby accepts such appointment.
(b) The Warrant Agent undertakes the duties and obligations
imposed by this Agreement upon the following terms and conditions by all
of which the Company and every Warrant Holder by acceptance of any
Warrant Certificate, shall be bound:
(1) The statements contained in this Agreement and in the
Warrant Certificates shall be taken as statements of the Company
and the Warrant Agent assumes no responsibility for the
correctness of any of the same except such as described the
Warrant Agent or action taken or to be taken by it.
(2) The Warrant Agent shall not be responsible for any
failure of the Company to comply with any of the Company's
covenants contained in this Agreement or in the Warrant
Certificates.
(3) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the
Warrant Agent shall incur no liability or responsibility to the
Company or to any Warrant Holder in respect of any action taken,
suffered, or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel,
provided the Warrant Agent shall have exercised reasonable care
in the selection and continued employment of such counsel.
(4) The Warrant Agent shall incur no liability or
responsibility to the Company or to any Warrant Holder for any
action taken in reliance on any notice, resolution, waiver,
consent, order, certificate, or other paper, document, or
instrument believed by it to be genuine and to have been signed,
sent, or presented by the proper party or parties.
(5) The Company agrees to pay to the Warrant Agent the
Warrant Agent's standard published rates in effect on the date
of this Agreement, as the
-13-
<PAGE> 16
same may be changed from time to time upon thirty (30) days
prior written notice from the Warrant Agent to the Company, for
all services rendered by the Warrant Agent in the execution of
this Agreement, to reimburse the Warrant Agent for all expenses,
taxes, and governmental charges and other charges of any kind
and nature incurred by the Warrant Agent in the execution of
this Agreement and to indemnify the Warrant Agent and save it
harmless against any and all liabilities, including judgments,
costs, and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of this Agreement except as a
result of the Warrant Agent's, negligence or bad faith.
(6) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any
other action likely to involve expense unless the Company or one
or more Warrant Holders shall furnish the Warrant Agent with
reasonable security and indemnity for any costs and expenses
which may be incurred, but this provision shall not affect the
power of the Warrant Agent to take such action as the Warrant
Agent may consider proper, whether with or without any such
security or indemnity. All rights of action under this Agreement
or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrant Certificates
or the production thereof at any trial or other proceeding
relative thereto, and any such action, suit, or proceeding
instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the
ratable benefit of the Warrant Holders as their respective
rights or interests may appear.
(7) The Warrant Agent and any stockholder, director, officer
or employee of the Warrant Agent may buy, sell, or deal in any
of the Warrants or other securities of the Company or become
pecuniarily interested in any transaction in which the Company
may be interested, or contract with or lend money to the Company
or otherwise act as fully and freely as through it were not
Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(8) The Warrant Agent shall act hereunder solely as agent
for the Company, and its duties shall be determined solely by
the provisions hereof and those provisions of the Act, the
Securities Exchange Act of 1934, and those Rules and Regulations
of the Securities and Exchange Commission applicable to the
duties of the Warrant Agent hereunder.
SECTION 16 MERGER, CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT.
(a) Any corporation into which the Warrant Agent may be merged
or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion, or consolidation to which the
Warrant Agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be the successor to
the Warrant Agent hereunder without the execution or filing of any paper
or any further act on the part of the parties hereto, provided that such
corporation would be eligible for appointment as a successor Warrant
Agent under the provisions of Section 17 of this Agreement. In case at
the time such successor to the Warrant Agent shall succeed to the agency
created by this Agreement, and in case at that time any of the
-14-
<PAGE> 17
Warrant Certificates shall have been countersigned but not delivered,
any such successor to the Warrant Agent may adopt the countersignature
of the original Warrant Agent; and in case at that time any of the
Warrant Certificates shall not have been countersigned, any successor to
the Warrant Agent may countersign such Warrant Certificates either in
the name of the predecessor Warrant Agent or in the name of the
successor Warrant Agent: and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in
this Agreement.
(b) In case at any time the name of the Warrant Agent shall be
changed and at such time any of the Warrant Certificates shall have been
countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name; and in case at that time any of
the Warrant Certificates shall not have been countersigned, the Warrant
Agent may countersign such Warrant Certificates either in its prior name
or in its changed name, and in all such cases such Warrant Certificates
shall have the full force provided in the Warrant Certificates and in
this Agreement.
SECTION 17 CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be
discharged from its duties under this Agreement by giving to the Company notice
in writing, and by giving notice in writing to each Warrant Holder at his
address appearing in the Warrant register, specifying a date when such
resignation shall take effect, which notice shall be sent at least 90 days prior
to the date so specified. If the Warrant Agent shall resign or shall otherwise
become incapable of acting, the Company shall appoint a successor to the Warrant
Agent. If the Company shall fail to make such appointment within a period of 90
days after it has been notified in writing of such resignation or incapacity by
the resigning or incapacitated Warrant Agent or by any Warrant Holder, then any
Warrant Holder may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such court, the
duties of the Warrant Agent shall be carried out by the Company. Any successor
Warrant Agent, whether appointed by the Company or by such a court, shall be a
bank or trust company or transfer agent, in good standing, organized under the
laws of any state of the United States of America and having at the time of its
appointment as Warrant Agent a combined capital and surplus of at least
$2,000,000. After appointment, the successor Warrant Agent shall be vested with
the same powers, rights, duties, and responsibilities as if it had been
originally named as Warrant Agent without further act or deed, and the former
Warrant Agent shall deliver and transfer to the successor Warrant Agent any
property at the time held by it hereunder, and execute and deliver any further
assurance, conveyance, act, or deed necessary for the purpose. Failure to give
any notice provided for in this Section, however, or any defect therein, shall
not affect the legality or validity of the resignation or removal of the Warrant
Agent or the appointment of the successor Warrant Agent, as the case may be.
SECTION 18 NOTICES. Any notice or demand authorized by this Agreement to
be given or made by the Warrant Agent or by any Warrant Holder to or on the
Company shall be sufficiently given or made if sent by mail, first class or
registered, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
PACIFIC SOFTWORKS, INC.
703 Rancho Conejo Boulevard
Newbury Park, California 91320
Attention: Chief Executive Officer
-15-
<PAGE> 18
Any notice or demand authorized by this Agreement to be given or made by any
Warrant Holder or by the Company to or on the Warrant Agent shall be
sufficiently given or made if sent by mail, first class or registered, postage
paid, addressed (until another address is filed in writing by the Warrant Agent
with the Company) as follows:
American Securities Transfer, Incorporated
1825 Lawrence Street, Suite 444
Denver, Colorado 80202-1817
Attention: _________________
Any distribution, notice, or demand required or authorized by this Agreement to
be given or made by the Company or the Warrant Agent to or on the Warrant
Holders shall be sufficiently given or made if sent by mail, first class or
registered, postage prepaid, addressed to the Warrant Holders at their last
known addresses as they shall appear on the registration books for the Warrant
Certificates maintained by the Warrant Agent.
SECTION 19 SUPPLEMENTS AND AMENDMENTS.
(a) The Company and the Warrant Agent may from time to time
supplement or amend this Agreement without the approval of any Warrant
Holders in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with
any other provision herein, or to make any other provisions in regard to
matters or questions arising hereunder which the Company and the Warrant
Agent may deem necessary or desirable and which shall not adversely
affect the interests of the Warrant Holders, including (but not limited
to) any extension of the Expiration Date for such period or periods as
the Board of Directors of the Company may determine, and any conditional
or unconditional reduction in the Exercise Price.
(b) With the consent of the Warrant Holders of at least
two-thirds of all remaining outstanding Warrants, given as set forth in
this subsection (b) of this Section, the Warrant Agent and the Company
may make any other amendment in this Agreement; provided that no such
change may shorten the time of exercise of any Warrant or increase the
Exercise Price of any Warrant without the consent of all Warrant
Holders. Consent of the Warrant Holders under this subsection (b) shall
be evidenced by either (i) a consent in writing to the amendment, which
consent need not set forth the specific form of amendment, but shall be
sufficient if it agrees to the general substance thereof, and which
shall be executed by the Warrant Holders and notarized or acknowledged
(any consent so given in respect of a particular Warrant shall be
binding upon any subsequent owner thereof), or (ii) by the affirmative
vote of the requisite Warrant Holders at a meeting of Warrant Holders
called by the Company or the Warrant Agent and held at such time and
place as may be specified in a written notice of the meeting to be
mailed to each Warrant Holder not less than I0 days nor more than 60
days prior to the date set for the meeting. The Company or the Warrant
Agent may establish a record date for the determination of Warrant
Holders entitled to vote at any meeting of Warrant Holders, which record
date shall be not more than 60 days prior to the date of mailing notice
thereof. The Company and the Warrant Agent may make reasonable
regulations for the conduct of such meeting and for the appointment of a
chairman and a secretary thereof and of inspectors of votes. Proxies may
be used at any such meeting in the same manner as is provided in the
Company's bylaws with respect to proxies for meetings of its
stockholders.
-16-
<PAGE> 19
SECTION 20 SUCCESSORS. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 21 TERMINATION. Subject to extensions under Section 19, this
Agreement shall terminate at the close of business on the Expiration Date or
such earlier date upon which all Warrants have been exercised. The provisions of
Section 15 shall survive such termination.
SECTION 22 GOVERNING LAW. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract under the laws of the State of
California and for all purposes shall be construed in accordance with the laws
of said State.
SECTION 23 BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent, and the Warrant Holders any legal or equitable right, remedy, or
claim under this Agreement, but this Agreement shall be for the sole and
exclusive benefit of the Company, the Warrant Agent, and the Warrant Holders.
SECTION 24 AGREEMENT AVAILABLE TO WARRANT HOLDERS. A copy of this
Agreement shall be available at all reasonable times at the office of the
Warrant Agent for inspection by any Warrant Holder. As a condition of such
inspection, the Warrant Agent may require any Warrant Holder to submit a Warrant
Certificate held of record for inspection.
SECTION 25 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be deemed to be
an original and all such counterparts shall together constitute but one and the
same instrument.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
-17-
<PAGE> 20
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
PACIFIC SOFTWORKS, INC.
S E A L
By
-------------------------------
Glenn Russell
Chairman of the Board
Attest:
- ------------------------------
: Secretary
- -------------------
AMERICAN SECURITIES TRANSFER,
INCORPORATED
S E A L
By
-------------------------------
Gregory D. Tubbs, Senior Vice President
Attest:
- ------------------------------
: Secretary
- -------------------
-18-
<PAGE> 21
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
[FACE]
The Warrants evidenced by this certificate were issued as part of a Unit
consisting of one share of Common Stock and one Warrant. Each Warrant entitles
the Warrant Holder to purchase one share of Common Stock. The Warrants may not
be exercised if the shares of Common Stock which are issuable upon exercise of
the Warrants have not been registered pursuant to a registration statement under
the Securities Act of 1933, as amended, that is effective and current and the
shares have not been qualified for sale in the state of residence of the Warrant
Holder unless exemptions from such registration and qualification are available.
The Warrants are subject to redemption and may not be exercised after the
redemption date.
VOID AFTER ________, 2004
W Warrant
-------------------------------
CUSIP _________
WARRANT CERTIFICATE
PACIFIC SOFTWORKS, INC.
This Warrant Certificate certifies that
__________________________________________ or registered assigns (the "Warrant
Holder"), is the registered owner of the above-indicated number of Warrants
("Warrants") expiring at 5:00 p.m., Los Angeles, California time, on ___________
(the "Expiration Date"). Each full Warrant entitles the Warrant Holder to
purchase from PACIFIC SOFTWORKS, INC., a California corporation (the "Company"),
on or before the Expiration Date, one fully paid and nonassessable share of
Common Stock ($0.001 par value per share) of the Company at the initial purchase
price of $7.50 per share (the "Exercise Price") through _____________, in lawful
money of the United States of America for each full Warrant represented hereby
upon surrender of this Warrant Certificate with the exercise form hereon duly
completed and executed, with payment of the Exercise Price at the office of
American Securities Transfer, Incorporated (herein called the "Warrant Agent"),
1825 Lawrence Street, Suite 444, Denver, Colorado 80202-1817, Attention:
_________________, but only subject to the conditions set forth herein and in a
Warrant Agreement, dated _______________ (the "Warrant Agreement"), between the
Company and the Warrant Agent. The Company may redeem the Warrants at $0.05 per
Warrant upon 20 days' prior written notice any time after a period of 20
consecutive trading days that the closing price of the Common Stock exceeds
$8.00. For these purposes, the closing price of the Common Stock will be
determined by the closing bid price, as reported by NASDAQ, or if the Common
Stock is listed on a national stock exchange or on the NASDAQ National Market
System, the closing price will be determined by the closing sale price on the
primary exchange on which the Common Stock is traded or on the NASDAQ National
Market System, if such shares are not listed on a national stock exchange.
The Exercise Price, the number of shares purchasable upon exercise of
each Warrant, the number of Warrants outstanding, and the Expiration Date are
subject to adjustments upon the occurrence of certain events set forth in the
Warrant Agreement. Reference is hereby made to the provisions on the reverse
side of this Warrant Certificate and the provisions of the Warrant Agreement,
all of which are hereby incorporated by reference in and made a part of this
Warrant Certificate and which shall for all purposes have the same effect as
though fully set forth at this place.
-19-
<PAGE> 22
Upon due presentment for registration of transfer of this Warrant
Certificate at the office of the Warrant Agent, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants, subject to any adjustments made in accordance with the provisions
of the Warrant Agreement, shall be issued to the transferee in exchange for this
Warrant Certificate, subject to the limitations provided in the Warrant
Agreement, upon payment of the transfer fee and any tax or other governmental
charge imposed in connection with such transfer.
The holder of the Warrants evidenced by this Warrant Certificate may
exercise all or any whole number of such Warrants during the exercise period and
in the manner stated hereon. The Exercise Price is payable in lawful money of
the United States of America by certified or cashier's check payable to the
order of the Company. Upon any exercise of any Warrants evidenced by this
Warrant Certificate in an amount less than the number of Warrants so evidenced,
there shall be issued to the Warrant Holder a new Warrant Certificate evidencing
the number of Warrants not so exercised. No adjustment shall be made for any
dividends on any shares issued upon exercise of this Warrant.
No warrant may be exercised after 5:00 p.m., Los Angeles, California
time, on the Expiration Date and any Warrant not exercised by such time shall
become void.
[The remainder of this page intentionally left blank.]
-20-
<PAGE> 23
This Warrant Certificate shall not be valid unless manually
countersigned by the Warrant Agent.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be signed by its Chairman of the Board or its President and by its Secretary,
each by a facsimile of his signature, and has caused a facsimile of its
corporate seal to be imprinted hereon.
Dated: PACIFIC SOFTWORKS, INC.
a California corporation
By:
-------------------------------------------
Glenn Russell, Chairman of the Board and
Chief Executive Officer
By:
-------------------------------------------
, Secretary
------------------------
Countersigned:
AMERICAN SECURITIES TRANSFER, INCORPORATED
Warrant Agent
By:
-------------------------------
Authorized Signatory
-21-
<PAGE> 24
[REVERSE]
FORM OF WARRANT CERTIFICATE
This Warrant Certificate, when surrendered to the Warrant Agent at its
principal office by the Warrant Holder, in person or by attorney duly authorized
in writing, may be exchanged, in the manner and subject to the limitations
provided in the Warrant Agreement, upon the payment of any tax or other
governmental charge imposed in connection with such exchange, for another
Warrant Certificate or Warrant Certificates of like tenor and evidencing a like
number of Warrants, subject to any adjustments made in accordance with the
provisions of the Warrant Agreement.
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for all
purposes, and neither the Company nor the Warrant Agent shall be affected by any
notice to the contrary. No Warrant Holder, as such, shall have any rights of a
holder of the Common Stock of the Company, either at law or at equity, and the
rights of the Warrant Holder, as such, are limited to those rights expressly
provided in the Warrant Agreement and in the Warrant Certificate.
Under the Warrant Agreement, the Exercise Price is subject to adjustment
if the Company shall effect any stock split or stock combination with respect to
the Common Stock. Any such adjustment of the Exercise Price will also result in
an adjustment of the number of shares of Common Stock purchasable upon exercise
of a Warrant or, if the Company should elect, an adjustment of each outstanding
Warrant into a different number of Warrants.
The Company shall not be required to issue fractions of Warrants upon
any such adjustment or to issue fractions of shares upon the exercise of any
Warrants after any such adjustment, but the Company, in lieu of issuing any such
fractional interest, shall pay an amount in cash equal to such fraction times
the current market value of one Warrant or one share of Common Stock, as the
case may be, determined in accordance with the Warrant Agreement.
The Warrant Agreement is subject to amendment upon the approval of
holders of at least two-thirds of the outstanding Warrants as a group, except
that no such approval is required for the reduction of the Exercise Price or
extension of the Expiration Date. No amendment shall accelerate the Expiration
Date or increase the Exercise Price without the approval of all the holders of
all outstanding Warrants. A copy of the Warrant Agreement will be available at
all reasonable times at the office of the Warrant Agent for inspection by any
Warrant Holder. As a condition of such inspection, the Warrant Agent may require
any Warrant Holder to submit his Warrant Certificate for inspection.
IMPORTANT: The Warrants represented by this Certificate may not be exercised by
a Warrant Holder unless at the time of exercise the underlying shares of Common
Stock are qualified for sale, by registration or otherwise, in the state where
the Warrant Holder resides or unless the issuance of the shares of Common Stock
would be exempt under the applicable state securities laws. Further, a
registration statement under the Securities Act of 1933, as amended, covering
the issuance of shares of Common Stock upon the exercise of this Warrant must be
in effect and current at the time of exercise unless the issuance of shares of
Common Stock upon any exercise is exempt from the registration requirements of
the Securities Act of 1933. Unless such registration statement is in effect and
current at the time of exercise, or unless such an exemption is available, the
Company may decline to permit the exercise of this Warrant.
-22-
<PAGE> 25
ASSIGNMENT
(Form of Assignment to be Executed if the Warrant Holder Desires to
Transfer Warrants Evidenced Hereby)
FOR VALUE RECEIVED, _________________________________________________
hereby sells, assigns, and transfers to
_______________________________________________ (Please print name and address
including zip code.)
Please insert social security
or other identifying number.
________________________________________
________________________________________________________________
Warrants represented by this Warrant Certificate and does hereby irrevocably
constitute and appoint
______________________________________________________________________ Attorney,
to transfer said Warrants on the books of the Warrant Agent with full power of
substitution in the premises.
Dated:_________________________________
___________________________________________
Signature
(Signature must confirm in all respects to
name of holder as specified on the face of
this Warrant Certificate)
Signature Guaranteed:
_______________________________
-23-
<PAGE> 26
EXERCISE
(Form of Exercise to be Executed if the Warrant Holder
Desires to Exercise Warrants Evidenced Hereby)
WARRANT AGENT:
The undersigned hereby irrevocably elects to exercise _________ Warrants
represented by this Warrant Certificate and to purchase thereunder the full
number of shares of Common Stock issuable upon exercise of such Warrants.
Enclosed is $___________ as the purchase price therefor. The undersigned
requests that certificates for such shares of Common Stock be issued in the name
of, and cash for any fractional Shares be paid to,
________________________________________________________________________________
(Please print name and address including zip code).
Please insert social security or other identifying number_______________________
and, if said number of Warrants not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the unexercised number
of Warrants evidenced by this Warrant Certificate be delivered to the Warrant
Holder except as such unexercised number of Warrants may be assigned under the
form of assignment appearing hereon.
Dated: ______________, _____
__________________________________
Signature
(Signature must confirm in
all respects to name of the
Warrant Holder as specified
on the face of this Warrant
Certificate)
Signature Guaranteed:
________________________________
NOTICE: Signature must be guaranteed by a member of the Medallion
Signature Guaranty Program.
-24-
<PAGE> 1
Exhibit 4.4
PACIFIC SOFTWORKS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA
50,000,000 AUTHORIZED SHARES $0.001 PAR VALUE
------------
CUSIP
------------
SEE REVERSE
FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
Is The Owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF $0.001 PAR VALUE COMMON STOCK OF
PACIFIC SOFTWORKS, INC.
transferable only on the books of the Company in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid unless countersigned by the Transfer Agent and Registrar.
IN WITNESS WHEREOF, the said Company has caused this Certificate to be
executed by the facsimile signatures of its duly authorized officers and to be
sealed with the facsimile seal of the Company.
Dated:
PACIFIC SOFTWORKS, INC.
SECRETARY CORPORATE SEAL PRESIDENT
CALIFORNIA
COUNTERSIGNED AND REGISTERED:
AMERICAN SECURITIES TRANSFER & TRUST, INC.
P.O. Box 1590
Denver, Colorado 80201
By ____________________________________________________
Transfer Agent & Registrar Authorized Signature
<PAGE> 2
PACIFIC SOFTWORKS, INC.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT - Custodian
----------------------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, ______________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Shares
- --------------------------------------------------------------------------
of the Common Stock represented by the within Certificate, and do herby
irrevocably constitute and appoint
attorney-in-fact
- ---------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation, with
full power of substitution in the premises.
Dated
-------------------------
----------------------------------------------------------
----------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed:
- -----------------------------------------
The signature(s) must be guaranteed by an eligible guarantor institution
(Banks, Stockbrokers, Savings and Loan Associations and Credit Unions with
membership in an approved signature guarantee Medallion Program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 1
Exhibit 4.5
LOCK-UP AGREEMENT
March __, 1999
Spencer Edwards, Inc.
6120 Greenwood Plaza Boulevard
Englewood, Colorado 80111
Ladies and Gentlemen:
The undersigned understands that Spencer Edwards, Inc. (the
"Representative") proposes to enter into an Underwriting Agreement with Pacific
Softworks, Inc., a California corporation (the "Company"), providing for the
public offering of shares of Common Stock of the Company (the "Securities")
pursuant to a Registration Statement on Form SB-2 (the "Registration Statement")
filed with the Securities and Exchange Commission.
In consideration of the agreement by the Representative to offer and
sell the Securities pursuant to the public offering, and of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees that he, she or it will not, directly or
indirectly, for a period of 13 months following the date of the Prospectus
relating to the public offering of the Securities, sell, offer to sell, contract
to sell, margin, grant any option for the sale of, grant any security interest
in, pledge, hypothecate, or otherwise sell or dispose of any of the Common
Stock, or any options or warrants to purchase any Common Stock, or any
securities convertible into or exchangeable for Common Stock, or any interest in
such securities or rights, owned directly by the undersigned or with respect to
which the undersigned has the power of disposition, in any such case whether now
owned or hereafter acquired at any time prior to the Effective Date of the
Registration Statement, other than (i) as a bona fide gift or gifts, provided
that the undersigned provides prior written notice of such gift or gifts to the
Representative and the donee or donees thereof agree to be bound by the
restrictions set forth herein or (ii) with the prior written consent of Spencer
Edwards, Inc. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of any of the Common Stock held by the undersigned except in
compliance with the foregoing restrictions. Spencer Edwards, Inc. may in its
sole discretion without notice, release all or any portion of the securities
subject to this Lock-Up Agreement or any similar agreement executed by any other
security holder, and if Spencer Edwards, Inc. releases any securities of any
other security holder, securities of the undersigned shall not be entitled to
release from this Lock-Up Agreement.
In the event that the undersigned owns no Common Stock of the Company at
the date hereof or prior to the Effective Date, but has the right to acquire
Common Stock of the Company pursuant to options or warrants, and if the
undersigned exercises such options or warrants prior to the expiration of the 13
month period commencing on the Effective Date, he, she or it agrees that the
Common Stock purchased on such exercise of options or warrants will be subject
to the terms of this Lock-Up Agreement for the remaining portion of such 13
month period which commenced on the Effective Date. In addition, the undersigned
agrees that he, she or it will not sell, pledge, hypothecate or otherwise
dispose of such Common Stock pursuant to the exemption afforded by Rule 701
under the Securities Act of 1933, as amended, during such 13 month period
without the prior written consent of the Representative.
<PAGE> 2
Spencer Edwards, Inc.
March ___, 1999
Page Two
The undersigned further agrees that he, she or it shall not enter into
any swap or other arrangement that transfers all or a portion of the economic
consequences associated with the ownership of any Common Stock owned by the
undersigned at the date hereof, or that the undersigned obtains ownership of
during the 13 month period commencing on the Effective Date (regardless of
whether any of the transactions are to be settled by the delivery of Common
Stock, other securities, cash or otherwise), for a period of 13 months from the
Effective Date without the prior written consent of Spencer Edwards, Inc.
The undersigned further agrees that all of the rights, authority and
preemptive provisions granted to the Representative pursuant to this Lock-Up
Agreement may be transferred by the Representative to any other NASD member firm
that participates in the proposed public offering of the Company's securities.
The undersigned understands that the Company and the Representative will
undertake the public offering in reliance upon this Lock-Up Agreement.
Very truly yours,
By: ______________________________
Print Name: _______________________
<PAGE> 1
EXHIBIT 4.6
THE REPRESENTATIVE'S OPTIONS REPRESENTED BY THIS CERTIFICATE AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES") HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A
REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
AND WITH THE SECURITIES ADMINISTRATORS OF CERTAIN STATES UNDER THE
SECURITIES ("BLUE SKY") LAWS OF SUCH STATES. HOWEVER, NEITHER THE
REPRESENTATIVE'S OPTIONS NOR SUCH SECURITIES MAY BE SOLD, TRANSFERRED,
PLEDGED, OR HYPOTHECATED EXCEPT PURSUANT TO (I) A POST-EFFECTIVE
AMENDMENT TO SUCH REGISTRATION STATEMENT, (II) A SEPARATE REGISTRATION
STATEMENT UNDER SUCH ACT, OR (III) AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT AND UNDER THE APPLICABLE BLUE SKY LAWS.
THIS REPRESENTATIVE'S OPTION MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED
EXCEPT AS OTHERWISE PROVIDED HEREIN AND THE HOLDER OF THIS
REPRESENTATIVE'S OPTION, BY ITS ACCEPTANCE HEREOF, AGREES THAT IT WILL
NOT SELL, TRANSFER OR ASSIGN THIS REPRESENTATIVE'S OPTION EXCEPT AS
OTHERWISE PROVIDED HEREIN.
PACIFIC SOFTWORKS, INC.
Representative's Option for the Purchase of Units
No. UWW-001 80,000 Representative's Options
THIS CERTIFIES that, for receipt in hand of $10 and other value
received, SPENCER EDWARDS, INC. (the "Holder"), is entitled to subscribe for and
purchase from PACIFIC SOFTWORKS, INC., a California corporation (the "Company"),
upon the terms and conditions set forth herein, at any time, or from time to
time, after __________, 1999 and before 5:00 p.m. Mountain time on _____, 2004
(the "Exercise Period"), 80,000 Units (a "Unit" or the "Units") of the Company
at an exercise price of $_____ per Representative's Option or 120% of the
offering price (the "Purchase Price") of Units sold by the Company in the Public
Offering (hereinafter defined). Each Unit shall be identical to the Units sold
in the public offering to be underwritten by the Holder (the "Public Offering")
and shall consist of one share of Common Stock ("Common Stock") and one warrant
("Warrant"). Each Warrant shall be exercisable to purchase one share of Common
Stock (a "Warrant Share") at a price of 7.50 (the "Exercise Price") until
______, 2001, which is two years from the date on which the Company's
Registration Statement on Form SB-2, Registration No. 333-______ (the
"Registration Statement") was declared effective by the Securities and Exchange
Commission (the "Effective Date"). The terms and provisions of the Warrants
shall be governed by a warrant agreement between the Company and its transfer
agent (the "Warrant Agreement").
The term the "Holder" as used herein shall include any transferee to
whom this Representative's Option has been transferred in accordance with the
above. As used herein the term "this Representative's Option" shall mean and
include this Representative's Option and any Representative's Option or
Representative's Options hereafter issued as a consequence of the exercise or
transfer of this Representative's Option in whole or in part, and the term
"Common
<PAGE> 2
Stock" shall mean and include the Company's Common Stock with ordinary voting
power, which class at the date hereof is publicly traded.
1. This Representative's Option may not be sold, transferred, assigned, pledged
or hypothecated until _______, 2000 (12 months from the Effective Date of the
Registration Statement) except that it may be transferred, in whole or in part,
(i) to one or more officers, employees or partners of the Holder (or the
officers, employees or partners of any such partner); (ii) to a member of the
underwriting syndicate and/or its officers, employees or partners; or (iii) by
operation of law. After ____, 2000, this Representative's Option may be sold,
transferred, assigned or hypothecated in accordance with applicable law.
a. This Representative's Option may be exercised during the Exercise
Period as to the whole or any lesser number of Units, by the surrender
of this Representative's Option (with the election attached hereto duly
executed) to the Company at its office at 703 Rancho Conejo Boulevard,
Newbury Park, California, or such other place as is designated in
writing by the Company, together with a certified or bank cashier's
check payable to the order of the Company in an amount equal to the
Purchase Price.
b. Upon written request of the Holder, and in lieu of payment for the
Units by check in accordance with paragraph 2(a) hereof, the Holder may
exercise this Representative's Option (or any portion thereof) for and
receive the number of Units equal to a fraction, the numerator of which
equals: (i) the amount by which the combined average closing bid price
of the Common Stock and the Warrants (or the closing bid price of the
Units if quoted as such) for the ten (10) trading days preceding the
date of exercise (the "Current Market Price" as further defined below)
exceeds the Purchase Price per Unit multiplied by, (ii) the number of
Units to be purchased; the denominator of which equals the Current
Market Price. Following exercise of this Representative's Option, and at
anytime thereafter through and until expiration of the Warrants, the
Holder may exercise the Warrants underlying this Representative's Option
by tendering a notice of exercise, together with a certified or bank
cashier's check payable to the order of the Company, in an amount equal
to the Exercise Price multiplied by the number of Warrant Shares as to
which such exercise relates.
c. Upon written request of the Holder, and in lieu of payment of the
Exercise Price of the Warrants by check in accordance with paragraph
2(b) hereof, the Holder may exercise the Warrants (or any portion
thereof) for and receive the number of Warrants equal to a fraction, the
numerator of which equals (i) the amount by which the Current Market
Price of the Common Stock for the ten (10) trading days preceding the
date of exercise exceeds the Exercise Price per Warrant, multiplied by
(ii) the number of Warrant Shares to be purchased; the denominator of
which equals the Current Market Price.
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<PAGE> 3
d. For the purposes of any computation under this Representative's
Option, the "Current Market Price" at any date shall be the closing
price of the Common Stock and/or Warrants, as the case may be, on the
business day next preceding the event requiring an adjustment or
calculation hereunder. If the principal trading market for such
securities is an exchange, the closing price shall be the reported last
sale price on such exchange on such day provided if trading of such
Common Stock and/or Warrants, as the case may be, is listed on any
consolidated tape, the closing price shall be the reported last sale
price set forth on such consolidated tape. If the principal trading
market for such securities is the over-the-counter market, the closing
price shall be the last reported sale price on such date as set forth by
The Nasdaq Stock Market, Inc., or, if the security is not quoted on such
market, the average closing bid and asked prices as set forth in the
National Quotation Bureau pink sheets or the Electronic Bulletin Board
System for such day. Notwithstanding the foregoing, if there is no
reported last sale price or average closing bid and asked prices, as the
case may be, on a date prior to the event requiring an adjustment or
calculation hereunder, then the Current Market Price shall be determined
as of the latest date prior to such day for which such last sale price
or average closing bid and asked price is available.
2. Upon each exercise of this Representative's Option, the Holder shall be
deemed to be the holder of record of the Common Stock and Warrants comprising
the Units issuable upon such exercise, notwithstanding that the transfer books
of the Company shall then be closed or certificates representing such Warrants
shall not then have been actually delivered to the Holder. As soon as
practicable after each such exercise of this Representative's Option, the
Company shall issue and deliver to the Holder a certificate or certificates for
the Common Stock and Warrants issuable upon such exercise, registered in the
name of the Holder or its designee. If this Representative's Option should be
exercised in part only, the Company shall, upon surrender of this
Representative's Option for cancellation, execute and deliver a new
Representative's Option evidencing the right of the Holder to purchase the
balance of the Units (or portions thereof) subject to purchase hereunder.
3. Any options issued upon the transfer or exercise in part of this
Representative's Option (together with this Representative's Option, the
"Representative's Options") shall be numbered and shall be registered in a
Representative's Option Register as they are issued. The Company shall be
entitled to treat the registered holder of any Representative's Option on the
Representative's Option Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Representative's Option on the part of any other person. The
Representative's Options shall be transferable only on the books of the Company
upon delivery thereof duly endorsed by the Holder or by his duly authorized
attorney or representative, or accompanied by proper evidence of succession,
assignment or authority to transfer. In all cases of transfer by an attorney,
executor, administrator, guardian or other legal representative, duly
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<PAGE> 4
authenticated evidence of his or its authority shall be produced. Upon any
registration of transfer, the Company shall deliver a new Representative's
Option or Representative's Options to the person entitled thereto. The
Representative's Options may be exchanged, at the option of the Holder thereof,
for another Representative's Option, or other Representative's Options of
different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of Units (or portions thereof) upon surrender to
the Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause Representative's Options to be
transferred on its books to any person if, in the opinion of counsel to the
Company, such transfer does not comply with the provisions of the Securities Act
of 1933, as amended (the "Act"), or applicable state blue sky laws and the rules
and regulations thereunder.
4. The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of providing for
the exercise of this Representative's Option and the Common Stock and Warrants
comprising the Units purchasable upon exercise of this Representative's Option,
such number of shares of Common Stock as shall, from time to time, be sufficient
therefor. The Company covenants that all shares of Common Stock issuable upon
exercise of this Representative's Option and the Warrants underlying this
Representative's Option shall be validly issued, fully paid, nonassessable, and
free of preemptive rights.
a. In case the Company shall sell or issue hereafter either its Common
Stock or any rights, options, warrants or obligations or securities
containing the right to subscribe for or purchase any Common Stock
("Options") or exchangeable for or convertible into Common Stock
("Convertible Securities"), at a price per share, as determined pursuant
to paragraph (b) of this section, less than the Purchase Price then in
effect on the date of such sale or issuance, then the number of Units
thereafter purchasable upon exercise of this Representative's Option
shall be determined by multiplying the number of Units theretofore
purchasable upon exercise of this Representative's Option by a fraction,
(i) the numerator of which shall be the number of shares of Common Stock
outstanding on the date of issuance of such Common Stock, Options or
Convertible Securities and (ii) the denominator of which shall be the
number of shares of Common Stock outstanding on the date prior to the
date of issuance of such Common Stock or Convertible Securities plus the
number of shares of Common Stock which the aggregate consideration
received by the Company upon such issuance would purchase on such date
at the Purchase Price then in effect.
b. The following provisions, in addition to other provisions of this
section shall be applicable in determining any adjustment under (a)
above:
i. In case of the issuance or sale of Common Stock part or all
of which shall be for cash, the cash consideration received by
the Company therefor shall be deemed to be the amount of cash
proceeds of such sale of shares less any compensation
4
<PAGE> 5
paid or discount allowed in the sale, underwriting or purchase
thereof by underwriters or dealers or others performing similar
services or any expenses incurred in connection therewith, plus
the amounts, if any, determined as provided in (b)(ii) below.
ii. In case of the issuance or sale of Common Stock wholly or
partly for a consideration other than cash, the amount of the
consideration other than cash received by the Company for such
Common Stock shall be deemed to be the fair value of such
consideration as determined by a resolution adopted by the Board
of Directors of the Company acting in good faith, less any
compensation paid or incurred by the Company for any
underwriting of, or otherwise in connection with such issuance,
provided, however, the amount of such consideration other than
cash shall in no event exceed the cost thereof as recorded on
the books of the Company. In case of the issuance or sale of
Common Stock (otherwise than upon conversion or exchange)
together with other stock or securities or other assets of the
Company for a consideration which is received for both such
Common Stock and other securities or assets, the Board of
Directors of the Company acting in good faith shall determine
what part of the consideration so received is to be deemed to be
the consideration for the issuance of such Common Stock, less
any compensation paid or incurred by the Company for any
underwriting of, or otherwise in connection with such issuance,
provided, however, the amount of such consideration other than
cash shall in no event exceed the cost thereof as recorded on
the books of the Company. In case at any time the Company shall
declare a dividend or make any other distribution upon any stock
of the Company payable in Common Stock then such Common Stock
issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
iii. The price per share of any Common Stock sold or issued by
the Company (other than pursuant to Options or Convertible
Securities) shall be equal to a price calculated by dividing (A)
the amount of the consideration received by the Company, as
determined pursuant to (b)(i) and (b)(ii) above, upon such sale
or issuance by (B) the number of shares of Common Stock sold or
issued.
iv. In case the Company shall at any time after the date hereof
issue any Options or Convertible Securities, the following
provisions shall apply in making any adjustment:
(A) The price per share for which Common Stock
is issuable upon the exercise of the Options or upon
conversion or exchange of the Convertible Securities
shall be determined by (1) dividing the total amount,
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<PAGE> 6
if any, received or receivable by the Company as
consideration for the issuance of such Options or
Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to
the Company upon exercise of such Options or the
conversion or exchange of such Convertible Securities,
by (2) the aggregate maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon
the conversion or exchange of such Convertible
Securities.
(B) In determining the price per share for which
Common Stock is issuable upon exercise of the Options or
conversion or exchange of the Convertible Securities as
set forth above and in computing any adjustment pursuant
to (a) above: the aggregate maximum number of shares of
Common Stock issuable upon the exercise of such
Convertible Securities shall be considered to be
outstanding at the time such Options or Convertible
Securities were issued and to have been issued for such
price per share as determined pursuant to (b)(iv)(A),
and the consideration for the issuance of such Options
or Convertible Securities and the amount of additional
consideration payable to the Company upon exercise of
such Options or upon the conversion or exchange of such
Convertible Securities shall be determined in the same
manner as the consideration received upon the issuance
or sale of Common Stock as provided in paragraphs (b)(i)
and (b)(ii).
(C) On the expiration of such Options or the
termination of any right to convert or exchange any
Convertible Securities, the number of Units subject to
this Representative's Option shall forthwith be
readjusted to such number of Units as would have been
obtained had the adjustments made upon the issuance of
such Options or Convertible Securities been made upon
the basis of the delivery of only the number of shares
of Common Stock actually delivered upon the exercise of
such Options or upon conversion or exchange of such
Convertible Securities.
(D) If the minimum purchase price per share of
Common Stock provided for in any Option, or the rate at
which any Convertible Securities are convertible into or
exchangeable for Common Stock, shall change or a
different purchase price or rate shall become effective
at any time or from time to time (other than pursuant to
any anti-dilution provisions of such Options or
Convertible Securities) then upon such change becoming
effective, the number of Units subject to this
Representative's Option shall
6
<PAGE> 7
forthwith be increased or decreased to such number of
Units as would have been obtained had the adjustments
made upon the granting or issuance of such Options or
Convertible Securities been made upon the basis of (1)
the issuance of the number of shares of Common Stock
theretofore actually delivered upon the exercise of such
Options or upon the conversion or exchange of such
Convertible Securities, and the total consideration
received therefor, and (2) the granting or issuance at
the time of such change of any such Options or
Convertible Securities then still outstanding for the
consideration, if any, received by the Company therefor
and to be received on the basis of such changed price or
rate of exchange or conversion.
i. Except as otherwise specifically provided herein, the date of
issuance or sale of Common Stock shall be deemed to be the date
the Company is legally obligated to issue such Common Stock or
the date the Company is legally obligated to issue any Option or
Convertible Security. If the Company shall take a record date
for the purpose of determining holders of Common Stock entitled
to (A) receive a dividend or other distribution payable in
Common Stock or in Options or Convertible Securities or (B)
subscribe for or purchase Common Stock, Options or Convertible
Securities, such record date shall be deemed to be the date of
issue or sale of the Common Stock, Options or Convertible
Securities.
ii. The number of shares of Common Stock outstanding at any
given time shall not include treasury shares but the disposition
of any such treasury shares shall be considered an issue or sale
of Common Stock for the purposes of this section.
iii. Anything hereinabove to the contrary notwithstanding, no
adjustment shall be made pursuant to (a) above to the Purchase
Price or to the number of Units purchasable upon:
(A) The issuance or sale by the Company of any
Units, Common Stock or Warrants pursuant to these
Representative's Options, the issuance or sale of Units,
Common Stock or Warrants on exercise of a separate
Representative's Option to purchase Warrants, any
securities offered in a public offering underwritten by
Spencer Edwards, Inc., any shares, Options or
Convertible Securities issued and outstanding at the
effective date of such public offering, any shares
issuable pursuant to the Company's stock option plan
currently in effect, provided the total number of shares
issuable pursuant to such plan does not exceed 320,000
shares.
7
<PAGE> 8
(B) The issuance or sale by the Company of any
Common Stock pursuant to any Options or Convertible
Securities issued and outstanding prior to the date of
Effective Date of the Registration Statement.
(C) The issuance or sale of Common Stock
pursuant to the exercise of Options or conversion or
exchange of Convertible Securities hereinafter issued
for which an adjustment has been made (or was not
required to be made) pursuant to the provisions hereof.
(D) The increase in the number of shares of
Common Stock subject to any Option or Convertible
Security referred to in subsections (A), (B) or (C)
hereof pursuant to the provisions of such Option or
Convertible Securities designed to protect against
dilution.
c. If the Company shall at any time subdivide its outstanding
Common Stock by recapitalization, reclassification or split-up thereof,
the number of Units subject to this Representative's Option immediately
prior to such subdivision shall be proportionately increased, and if the
Company shall at any time combine the outstanding Common Stock by
recapitalization, reclassification or combination thereof, the number of
Units subject to this Representative's Option immediately prior to such
combination shall be proportionately decreased. Any corresponding
adjustment to the Purchase Price shall become effective at the close of
business on the record date for such subdivision or combination.
d. If the Company after the date hereof shall distribute to the
holders of its Common Stock any securities or other assets (other than a
distribution of Common Stock or a cash distribution made as a dividend
payable out of earnings or out of any earned surplus legally available
for dividends under the laws of the jurisdiction of incorporation of the
Company), the Board of Directors shall be required to make such
equitable adjustment in the Purchase Price in effect immediately prior
to the record date of such distribution as may be necessary to preserve
the rights substantially proportionate to those enjoyed hereunder by the
Holder immediately prior to such distribution. Any such adjustment made
in good faith by the Board of Directors shall be final and binding upon
the Holder and shall become effective as of the record date for such
distribution.
e. No adjustment in the number of Units subject to this
Representative's Option shall be required unless such adjustment would
require an increase or decrease in such number of Units of at least 1%
of the then adjusted number of Units issuable upon exercise of this
Representative's Option, provided, however, that any adjustments which
by reason of the foregoing are not required at the time to be made shall
be carried forward and taken into account and included in determining
the amount of any subsequent adjustment;
8
<PAGE> 9
and provided further, however, that in case the Company shall at any
time subdivide or combine the outstanding Common Stock or issue any
additional Common Stock as a dividend, said percentage shall forthwith
be proportionately increased in the case of a combination or decreased
in the case of a subdivision or dividend of Common Stock so as to
appropriately reflect the same. If the Company shall make a record of
the holders of its Common Stock for the purpose of entitling them to
receive any dividend or distribution and legally abandon its plan to pay
or deliver such dividend or distribution then no adjustment in the
number of Units subject to this Representative's Option shall be
required by reason of the making of such record.
f. Whenever the number of Units purchasable upon the exercise of
this Representative's Option is adjusted as provided herein, the
Purchase Price shall be adjusted (to the nearest one tenth of a cent) by
respectively multiplying such Purchase Price immediately prior to such
adjustment by a fraction, the numerator of which shall be the number of
Units purchasable upon the exercise of this Representative's Option
immediately prior to such adjustment, and the denominator of which shall
be the number of Units purchasable immediately thereafter.
g. In case of any reclassification of the outstanding Common
Stock (other than a change covered by (c) hereof or which solely affects
the par value of such Common Stock) or in the case of any merger or
consolidation of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification or capital
reorganization of the outstanding Common Stock), or in the case of any
sale or conveyance to another corporation of the property of the Company
as an entirety or substantially as an entirety in connection with which
the Company is dissolved, the Holder of this Representative's Option
shall have the right thereafter (until the expiration of the right of
exercise of this Representative's Option) to receive upon the exercise
hereof, for the same aggregate Purchase Price payable hereunder
immediately prior to such event, the kind and amount of shares of stock
or other securities or property receivable upon such reclassification,
capital reorganization, merger or consolidation, or upon the dissolution
following any sale or other transfer, by a holder of the number of Units
obtainable upon the exercise of this Representative's Option immediately
prior to such event; and if any reclassification also results in a
change in Common Stock covered by (c) above, then such adjustment shall
be made pursuant to both this paragraph (g) and paragraph (c). The
provisions of this paragraph (g) shall similarly apply to successive
re-classifications, or capital reorganizations, mergers or
consolidations, sales or other transfers.
9
<PAGE> 10
If the Company after the date hereof shall issue or agree to
issue Common Stock, Options or Convertible Securities, other than as
described herein, and such issuance or agreement would in the opinion of
the Board of Directors of the Company materially affect the rights of
the Holders of the Representative's Options, the Purchase Price and the
number of Units purchasable upon exercise of the Representative's
Options shall be adjusted in such matter, if any, and at such time as
the Board of Directors of the Company, in good faith, may determine to
be equitable in the circumstances. The minutes or unanimous consent
approving such action shall set forth the Board of Director's
determination as to whether an adjustment is warranted and the manner of
such adjustment. In the absence of such determination, any Holder may
request in writing that the Board of Directors make such determination.
Any such determination made in good faith by the Board of Directors
shall be final and binding upon the Holders. If the Board fails,
however, to make such determination within sixty (60) days after such
request, such failure shall be deemed a determination that an adjustment
is required.
h. i. Upon occurrence of each event requiring an
adjustment of the Purchase Price and of the number of Units
purchasable upon exercise of this Representative's Option in
accordance with, and as required by, the terms hereof, the
Company shall forthwith employ a firm of certified public
accountants (who may be the regular accountants for the Company)
who shall compute the adjusted Purchase Price and the adjusted
number of Units purchasable at such adjusted Purchase Price by
reason of such event in accordance herewith. The Company shall
give to each Holder of the Representative's Options a copy of
such computation which shall be conclusive and shall be binding
upon such Holders unless contested by Holders by written notice
to the Company within thirty (30) days after receipt thereof.
ii. In case the Company after the date hereof shall
propose (A) to pay any dividend payable in stock to the holders
of its Common Stock or to make any other distribution (other
than cash dividends) to the holders of its Common Stock or to
grant rights to subscribe to or purchase any additional shares
of any class or any other rights or options, (B) to effect any
reclassification involving merely the subdivision or combination
of outstanding Common Stock, or (C) any capital reorganization
or any consolidation or merger, or any sale, transfer or other
disposition of its property, assets and business substantially
as an entirety, or the liquidation, dissolution or winding up of
the Company, then in each such case, the
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<PAGE> 11
Company shall obtain the computation described above and
if an adjustment to the Purchase Price is required, the
Company shall notify the Holders of the Representative's
Options of such proposed action, which shall specify the
record date for any such action or if no record date is
established with respect thereto, the date on which such
action shall occur or commence, or the date of
participation therein by the holders of Common Stock if
any such date is to be fixed, and shall also set forth
such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action on the
Purchase Price and the number, or kind, or class of
shares or other securities or property obtainable upon
exercise of this Representative's Option after giving
effect to any adjustment which will be required as a
result of such action. Such notice shall be given at
least twenty (20) days prior to the record date for
determining holders of the Common Stock for purposes of
any such action, and in the case of any action for which
a record date is not established then such notice shall
be mailed at least twenty (20) days prior to the taking
of such proposed action.
iii. Failure to file any certificate or notice
or to give any notice, or any defect in any certificate
or notice, shall not effect the legality or validity of
the adjustment in the Purchase Price or in the number,
or kind, or class of shares or other securities or
property obtainable upon exercise of the
Representative's Options or of any transaction giving
rise thereto.
i. The Company shall not be required to issue fractional Units
upon any exercise of the Representative's Options. As to any final
fraction of a Unit which the Holder of a Representative's Option would
otherwise be entitled to purchase upon such exercise, the Company shall
pay a cash adjustment in respect of such final fraction in an amount
equal to the same fraction of the combined market price of such share of
Common Stock and Warrant on the business day preceding the day of
exercise. The Holder of a Representative's Option, by his acceptance of
a Representative's Option, expressly waives any right to receive any
fractional Units.
j. Regardless of any adjustments pursuant to this section in the
Purchase Price or in the number, or kind, or class of shares or other
securities or other property obtainable upon exercise of a
Representative's Option, a Representative's Option may continue to
express the Purchase Price and the number of Units obtainable upon
exercise at the same price and number of Units as are stated herein.
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<PAGE> 12
k. The number of Units, the Purchase Price and all other terms
and provisions of the Company's agreement with the Holder of this
Representative's Option shall be determined exclusively pursuant to the
provisions hereof.
l. The above provisions of this section 6 shall similarly apply
to successive transactions which require adjustments.
m. Notwithstanding any other language to the contrary herein,
(i) the anti-dilution terms of this Representative's Option will not be
enforced so as to provide the Holder the right to receive, or for the
accrual of, cash dividends prior to the exercise of this
Representative's Option, and (ii) the anti-dilution terms of this
Representative's Option will not be enforced in such a manner as to
provide the Holder with disproportionate rights, privileges and economic
benefits not provided to purchasers of the Units in the Public Offering.
7. The rights and privileges of the Warrants issuable on exercise of
this Representative's Option shall be as provided in the warrant certificate
(the "Warrant Certificate") to be delivered to the Holder on exercise of this
Representative's Option. All anti-dilution and other rights shall be as provided
for in the Warrant Certificate and as set forth in the warrant agreement by and
between the Company and the Warrant Agent for the Company (the "Warrant
Agreement"). The provisions of the Warrant Agreement relating to anti-dilution
rights and any other rights and privileges granted to holders of publicly traded
Warrants are incorporated by reference herein as if more fully set forth herein.
Notwithstanding any other language to the contrary herein or in the Warrant
Agreement by and between the Company and the Warrant Agent, in the event, prior
to the exercise of this Warrant, Holders of publicly-traded Warrants shall be
entitled to the benefit of any anti-dilution provisions of the Warrant Agreement
or the Warrant Certificate then, in such event, the Warrants issuable upon
exercise of this Representative's Option shall be adjusted in accordance with
the provisions of the anti-dilution provisions of the Warrant Certificate and
the Warrant Agreement in a manner identical to the adjustments made pursuant to
the anti-dilution provisions and other rights and privileges applicable to
publicly-traded warrants. Any such adjustment may be made at or immediately
prior to the date of exercise hereof. Notwithstanding any other language to the
contrary herein, (i) the anti-dilution terms of the Warrants underlying this
Representative's Option will not be enforced so as to provide the Holder the
right to receive, or for the accrual of, cash dividends prior to the exercise of
such Warrants, and (ii) the anti-dilution terms of the Warrants underlying this
Representative's Option will not be enforced in such a manner as to provide the
Holder with disproportionate rights, privileges and economic benefits not
provided to purchasers of Warrants in the Public Offering.
8. The issuance of any Units or other securities upon the exercise of
this Representative's Option or any Warrant Shares upon the exercise of the
Warrants, and the delivery
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<PAGE> 13
of certificates or other instruments representing such securities, or other
securities, shall be made without charge to the Holder for any tax or other
charge in respect of such issuance. The Company shall not, however, be required
to pay any tax which may be payable in respect of any transfer involved in the
issue and delivery of any certificate in a name other than that of the Holder
and the Company shall not be required to issue or deliver any such certificate
unless and until the person or persons requesting the issue thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
9. a. If, at any time after ______, 1999 (the Effective Date of the
Registration Statement), and ending _______, 2006 (seven years after the
Effective Date of the Registration Statement), the Company shall file a
registration statement (other than on Form S-4, Form S-8, or any
successor form) with the Securities and Exchange Commission (the
"Commission") while Units are available for purchase upon exercise of
this Representative's Option or while any Common Stock, Warrants or
Units (collectively, the "Representative's Securities") are outstanding,
the Company shall, on two occasions only, give the Holder and all the
then holders of such Representative's Options and Representative's
Securities at least 30 days prior written notice of the filing of such
registration statement. If requested by the Holder or by any such holder
in writing within 20 days after receipt of any such notice, the Company
shall, at the Company's sole expense (other than the fees and
disbursements of counsel for the Holder or such holder and the
underwriting discounts and non-accountable expenses, if any, payable in
respect of the securities sold by the Holder or any such holder),
register or qualify the Common Stock included in the Representative's
Securities and underlying the Warrants that are included in the
Representative's Securities of the Holder or any such holders who shall
have made such request concurrently with the registration of such other
securities, all to the extent requisite to permit the public offering
and sale of such securities, and will use its best efforts through its
officers, directors, auditors and counsel to cause such registration
statement to become effective as promptly as practicable. The Common
Stock to be registered is hereinafter referred to as "Registrable
Securities." Notwithstanding the foregoing, if the managing underwriter
of any such offering shall advise the Company in writing that, in its
opinion, the distribution of all or a portion of the Registrable
Securities requested to be included in the registration concurrently
with the securities being registered by the Company would materially
adversely affect the distribution of such securities by the Company for
its own account, then the Holder or any such holder who shall have
requested registration of his or its Registrable Securities shall delay
the offering and sale of such Registrable Securities (or the portions
thereof so designated by such managing underwriter) for such period, not
to exceed 90 days, as the managing underwriter shall request, provided
that no such delay shall be required as to any
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<PAGE> 14
Registrable Securities if any securities of the Company are included in
such registration statement for the account of any person other than the
Company and the Holder unless the securities included in such
registration statement for such other person shall have been reduced pro
rata to the reduction of the Registrable Securities which were requested
to be included in such registration.
b. If at any time after ________, 1999 (the Effective Date of
the Registration Statement), and before _________, 2004 (five years
after the Effective Date of the Registration Statement), the Company
shall receive a written request from holders of Representative's
Securities who, in the aggregate, own (or upon exercise of all
Representative's Options will own) a majority of the total number of
Units issuable upon exercise of the Representative's Options, the
Company shall, as promptly as practicable, prepare and file with the
Commission a registration statement sufficient to permit the public
offering and sale of the Registrable Securities, and will use its best
efforts through its officers, directors, auditors and counsel to cause
such registration statement to become effective as promptly as
practicable; provided, however, that the Company shall only be obligated
to file and obtain effectiveness of one such registration statement for
which all expenses incurred in connection with such registration (other
than the fees and disbursements of counsel for the Holder or such
holders and underwriting discounts and non-accountable expenses, if any,
payable in respect of the Registrable Securities sold by the Holder or
any such holder) shall be borne by the Company. In addition to the one
demand registration provided for herein above, the holders of the
Registrable Securities who, in the aggregate, own (or upon exercise of
all Representative's Options will own) a majority of the total number of
Units issued or issuable upon exercise of the Representative's Options
may request that the Company prepare and file a registration statement
to permit the public offering and sale of the Registrable Securities on
two additional occasions only, but the costs of preparation and filing
of such additional registration statements shall be at the then holders'
cost and expense unless the Company elects to register additional shares
of Common Stock, in which case the cost and expense of such registration
statements will be prorated between the Company and the holders of the
Registrable Securities according to the aggregate sales price of the
securities being issued.
c. In the event of a registration pursuant to the provisions of
this paragraph 9, the Company shall use its best efforts to cause the
Registrable Securities so registered to be registered or qualified for
sale under the securities or blue sky laws of such jurisdictions as the
Holder or such holders may reasonably request; provided, however, that
the Company shall not be required to qualify to do business in any state
by reason of this paragraph 9(c) in which it is not otherwise required
to qualify to do business and provided further, that the
14
<PAGE> 15
Company has no obligation to qualify the Registrable Securities where
such qualification would cause any unreasonable delay or expenditure by
the Company.
d. The Company shall keep effective any registration or
qualification contemplated by this paragraph 9 and shall from time to
time amend or supplement each applicable registration statement,
preliminary prospectus, final prospectus, application, document and
communication for such period of time as shall be required to permit the
Holder or such holders to complete the offer and sale of the Registrable
Securities covered thereby. The Company shall in no event be required to
keep any such registration or qualification in effect for a period in
excess of nine months from the date on which the Holder and such holders
are first free to sell such Registrable Securities; provided, however,
that if the Company is required to keep any such registration or
qualification in effect with respect to securities other than the
Registrable Securities beyond such period, the Company shall keep such
registration or qualification in effect as it relates to the Registrable
Securities for so long as such registration or qualification remains or
is required to remain in effect in respect of such other securities.
e. In the event of a registration pursuant to the provisions of
this paragraph 9, the Company shall furnish to the Holder and to each
such holder such reasonable number of copies of the registration
statement and of each amendment and supplement thereto (in each case,
including all exhibits), such reasonable number of copies of each
prospectus contained in such registration statement and each supplement
or amendment thereto (including each preliminary prospectus), all of
which shall conform to the requirements of the Act and the rules and
regulations thereunder, and such other documents as the Holder or such
holders may reasonably request in order to facilitate the disposition of
the Registrable Securities included in such registration.
f. In the event of a registration pursuant to the provisions of
this paragraph 9, the Company shall furnish the Holder and each holder
of any Registrable Securities so registered with an opinion of its
counsel to the effect that (i) the registration statement has become
effective under the Act and no order suspending the effectiveness of the
registration statement, preventing or suspending the use of the
registration statement, any preliminary prospectus, any final
prospectus, or any amendment or supplement thereto has been issued, nor
to such counsel's actual knowledge has the Securities and Exchange
Commission or any securities or blue sky authority of any jurisdiction
instituted or threatened to institute any proceedings with respect to
such an order and (ii) the registration statement and each prospectus
forming a part thereof (including each preliminary prospectus), and any
amendment or supplement thereto, complies as to form with the Act and
the rules and regulations thereunder. Such counsel shall also provide a
Blue Sky Memorandum setting
15
<PAGE> 16
forth the jurisdictions in which the Registrable Securities have been
registered or qualified for sale pursuant to the provisions of paragraph
9(c).
g. The Company agrees that until all the Registrable Securities
have been sold under a registration statement or pursuant to Rule 144
under the Act, it shall keep current in filing all reports, statements
and other materials required to be filed with the Commission to permit
holders of the Registrable Securities to sell such securities under Rule
144.
h. The Holder and any holders who propose to register their
Registrable Securities under the Act shall execute and deliver to the
Company a selling stockholder questionnaire on a form to be provided by
the Company.
i. In addition to the rights above provided, the Company will
cooperate with the then holders of the Representative's Options and
underlying Registrable Securities in preparing and signing a
registration statement, on two occasions only in addition to the
registration statements discussed above, required in order to sell or
transfer the Registrable Securities and will supply all information
required therefor, but such additional registration statements shall be
at the then Holders' cost and expense unless the Company elects to
register additional shares of the Company's Common Stock in which case
the cost and expense of such registration statements will be prorated
between the Company and the Holders of the Representative's Options and
Registrable Securities according to the aggregate sales prices of the
securities being sold.
10. a. Subject to the conditions set forth below, the Company agrees to
indemnify and hold harmless the Holder, any holder of any of the
Registrable Securities, their officers, directors, partners, employees,
agents and counsel, and each person, if any, who controls any such
person within the meaning of Section 15 of the Act or Section 20(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
from and against any and all loss, liability, charge, claim, damage and
expense whatsoever (which shall include, for all purposes of this
Section 10, but not be limited to, attorneys' fees and any and all
expense whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim
whatsoever, and any and all amounts paid in settlement of any claim or
litigation), as and when incurred, arising out of, based upon, or in
connection with (i) any untrue statement or alleged untrue statement of
a material fact contained (A) in any registration statement, preliminary
prospectus or final prospectus (as from time to time amended and
supplemented), or any amendment or supplement thereto, or (B) in any
application or other document or communication (in this Section 10
collectively called an "application") executed by or on behalf of the
Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to register or qualify
any of the Registrable Securities under the securities or blue
16
<PAGE> 17
sky laws thereof or filed with the Commission or any securities
exchange; or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to
the Company with respect to the Holder or any holder of any of the
Registrable Securities by or on behalf of such person expressly for
inclusion in any registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be, or (ii) any breach of any
representation, warranty, covenant or agreement of the Company contained
in this Representative's Option. The foregoing agreement to indemnify
shall be in addition to any liability the Company may otherwise have,
including liabilities arising under this Representative's Option.
If any action is brought against the Holder or any holder of any
of the Registrable Securities or any of its officers, directors,
partners, employees, agents or counsel, or any controlling persons of
such person (an "indemnified party") in respect of which indemnity may
be sought against the Company pursuant to the foregoing paragraph, such
indemnified party or parties shall promptly notify the Company in
writing of the institution of such action (but the failure so to notify
shall not relieve the Company from any liability it may otherwise have
to Holder or any holder of any of the Registrable Securities) and the
Company shall promptly assume the defense of such action, including the
employment of counsel (reasonably satisfactory to such indemnified party
or parties) and payment of expenses. Such indemnified party or parties
shall have the right to employ its or their own counsel in any such
case, but the fees and expenses of such counsel shall be at the expense
of such indemnified party or parties unless the employment of such
counsel shall have been authorized in writing by the Company in
connection with the defense of such action or the Company shall not have
promptly employed counsel reasonably satisfactory to such indemnified
party or parties to have charge of the defense of such action or such
indemnified party or parties shall have reasonably concluded that there
may be one or more legal defenses available to it or them or to other
indemnified parties which are different from or additional to those
available to the Company, in any of which events such fees and expenses
shall be borne by the Company and the Company shall not have the right
to direct the defense of such action on behalf of the indemnified party
or parties. Anything in this paragraph to the contrary notwithstanding,
the Company shall not be liable for any settlement of any such claim or
action effected without its written consent.
b. The Holder and each holder agrees to indemnify and hold
harmless the Company, each director of the Company, each officer of the
Company who shall have signed any registration statement covering the
Registrable Securities held by the Holder and
17
<PAGE> 18
each holder and each other person, if any, who controls the Company
within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the
Company to the Holder and each holder in paragraph 10(a), but only with
respect to statements or omissions, if any, made in any registration
statement, preliminary prospectus, or final prospectus (as from time to
time amended and supplemented), or any amendment or supplement thereto,
or in any application, in reliance upon and in conformity with written
information furnished to the Company with respect to the Holder and each
holder by or on behalf of the Holder and each holder expressly for
inclusion in any such registration statement, preliminary prospectus, or
final prospectus, or any amendment or supplement thereto, or in any
application, as the case may be. If any action shall be brought against
the Company or any other person so indemnified based on any such
registration statement, preliminary prospectus, or final prospectus, or
any amendment or supplement thereto, or in any application, and in
respect of which indemnity may be sought against the Holder and each
holder pursuant to this paragraph 10(b), the Holder and each holder
shall have the rights and duties given to the Company, and the Company
and each other person so indemnified shall have the rights and duties
given to the indemnified parties, by the provisions of paragraph 10(a).
c. To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to
paragraph 10(a) or 10(b) (subject to the limitations thereof) but it is
found in a final judicial determination, not subject to further appeal,
that such indemnification may not be enforced in such case, even though
this Agreement expressly provides for indemnification in such case, or
(ii) any indemnified or indemnifying party seeks contribution under the
Act, the Exchange Act or otherwise because the indemnification provided
for in this Section 10 is for any reason held to be unenforceable by the
Company and the Holder and any holder, then the Company (including for
this purpose any contribution made by or on behalf of any director of
the Company, any officer of the Company who signed any such registration
statement and any controlling person of the Company), as one entity, and
the Holder and any holder of any of the Registrable Securities included
in such registration in the aggregate (including for this purpose any
contribution by or on behalf of the Holder or any holder), as a second
entity, shall contribute to the losses, liabilities, claims, damages and
expenses whatsoever to which any of them may be subject, on the basis of
relevant equitable considerations such as the relative fault of the
Company and the Holder or any such holder in connection with the facts
which resulted in such losses, liabilities, claims, damages and
expenses. The relative fault, in the case of an untrue statement,
alleged untrue statement, omission or alleged omission, shall be
determined by, among other things, whether such statement, alleged
18
<PAGE> 19
statement, omission or alleged omission relates to information supplied
by the Company, by the Holder or by any holder of Registrable Securities
included in such registration, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement, alleged statement, omission or alleged omission. The
Company and the Holder agree that it would be unjust and inequitable if
the respective obligations of the Company and the Holder for
contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages and expenses (even if the
Holder and the other indemnified parties were treated as one entity for
such purpose) or by any other method of allocation that does not reflect
the equitable considerations referred to in this paragraph 10(c). No
person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation. For
purposes of this paragraph 10(c), each person, if any, who controls the
Holder or any holder of any of the Registrable Securities within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act
and each officer, director, partner, employee, agent and counsel of each
such person, shall have the same rights to contribution as such person
and each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20(a) of the Exchange Act, each officer
of the Company who shall have signed any such registration statement,
and each director of the Company shall have the same rights to
contribution as the Company, subject in each case to the provisions of
this paragraph 10(c). Anything in this paragraph 10(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written
consent. This paragraph 10(c) is intended to supersede any right to
contribution under the Act, the Exchange Act or otherwise.
11. The securities issued upon exercise of the Representative's Options
shall be subject to a stop transfer order and the certificate or certificates
evidencing any such securities shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES
ISSUABLE UPON EXERCISE HEREOF (THE "SECURITIES") HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, PURSUANT TO A REGISTRATION
STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION AND WITH THE
SECURITIES ADMINISTRATORS OF CERTAIN STATES UNDER THE SECURITIES ("BLUE
SKY") LAWS OF SUCH STATES. HOWEVER, NEITHER THE REPRESENTATIVE'S OPTIONS
NOR SUCH SECURITIES MAY BE SOLD, TRANSFERRED, PLEDGED, OR HYPOTHECATED
EXCEPT PURSUANT TO (I) A POST-EFFECTIVE AMENDMENT TO SUCH REGISTRATION
STATEMENT, (II) A SEPARATE REGISTRATION STATEMENT UNDER SUCH ACT, OR
(III) AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND UNDER THE
APPLICABLE BLUE SKY LAWS.
19
<PAGE> 20
12. Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any Representative's Option (and upon
surrender of any Representative's Option if mutilated), and upon reimbursement
of the Company's reasonable incidental expenses, the Company shall execute and
deliver to the Holder thereof a new Representative's Option of like date, tenor
and denomination.
13. The Holder of any Representative's Option shall not have, solely on
account of such status, any rights of a stockholder of the Company, either at
law or in equity, or to any notice of meetings of stockholders or of any other
proceedings of the Company, except as provided in this Representative's Option.
14. This Representative's Option shall be construed in accordance with
the laws of the State of Colorado, without giving effect to conflict of laws.
Dated: _____________, 1999
PACIFIC SOFTWORKS, INC.
By:_______________________________
Glenn P. Russell, President
[SEAL]
20
<PAGE> 21
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
attached Representative's Option.)
FOR VALUE RECEIVED, ___________________________________ hereby sells,
assigns and transfers unto ________________________ Representative's Option to
purchase __________ Units of Pacific Softworks, Inc. (the "Company"), together
with all right, title and interest therein, and does hereby irrevocably
constitute and appoint ____________________________ attorney to transfer such
Representative's Option on the books of the Company, with full power of
substitution.
Dated:_______________________________
Signature:___________________________
Signature Guaranteed:________________
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Representative's Option in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
21
<PAGE> 22
ELECTION TO EXERCISE
(To be executed by the holder if such holder desires to
exercise the attached Representative's Option)
The undersigned hereby exercises his or its rights to subscribe for
__________ Units covered by the within Representative's Option (each as defined
in the within Representative's Option) and tenders payment herewith in the
amount of $__________ in accordance with the terms thereof, and requests that
certificates for such Units be issued in the name of, and delivered to:
________________________
________________________
________________________
(Print Name, Address and Social Security or
Tax Identification Number)
and, if such number of Units (or portions thereof) shall not be all the Units
covered by the within Representative's Option, that a new Representative's
Option for the balance of the Representative's Option (or portions thereof)
covered by the within Representative's Option be registered in the name of, and
delivered to, the undersigned at the address stated below.
Name:_________________________
(Print)
Address:______________________
_______________________________
(Signature)
Dated:_________________________ Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond to the name as
written upon the face of this Representative's Option in every particular,
without alteration or enlargement or any change whatsoever. Signature(s) must be
guaranteed by an eligible guarantor institution which is a participant in a
Securities Transfer Association recognized program.
<PAGE> 1
Exhibit 10.1
PACIFIC SOFTWORKS, INC.
OFFICER AND DIRECTOR
INDEMNIFICATION AGREEMENT
PREAMBLE
This Agreement is made on _________________________ between PACIFIC
SOFTWORKS, INC., a California corporation ("the Company"), and
__________________________ ("Indemnitee"). The Company believes that it is in
its best interest to attract and retain capable people to serve as directors,
officers, and agents of the Company, and enters into this Indemnification
Agreement with the belief that the Agreement will help achieve that goal.
Indemnitee is an director and/or officer of the Company.
The Company and Indemnitee are aware of the heightened risk of
litigation and other claims that may be asserted against directors, officers,
and agents of the Company. In recognition of Indemnitee's need for protection
against personal liability, to enhance the value of Indemnitee's services to the
Company, and to induce Indemnitee to provide services to the Company as a
director and/or officer, the Company seeks to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the fullest
extent permitted by law and as set forth in this Agreement and, to the extent
applicable insurance is maintained, for the coverage of Indemnitee under the
Company's policies of directors' and officers' liability insurance.
In consideration of the preceding, and of Indemnitee's agreeing to
provide services to the Company, the parties agree as follows:
AGREEMENT TO INDEMNIFY
1. (a) If Indemnitee was, is, or becomes a participant in, or is
threatened to be made a participant in, a proceeding because of, or arising in
part out of, an indemnifiable event as defined in Paragraph 1(b); below, the
Company will indemnify Indemnitee from and against any and all expenses to the
fullest extent permitted by law, as it now exists or as it may be changed in the
future. The parties intend that this Agreement will provide for indemnification
in excess of that expressly granted by statute, including, but not limited to,
any indemnification provided by the Company's articles of incorporation, its
bylaws, a vote of its stockholders or disinterested directors, or by applicable
law.
(b) The term "indemnifiable event" in Paragraph 1(a), above,
refers to any event or occurrence that takes place before or after execution of
this Agreement, and that is related to:
(1) The fact that Indemnitee is or was a director or
officer of the Company; or
(2) Anything done or not done by Indemnitee in a capacity
specified in Paragraph 1(B)(1), above, whether or not the basis of the
proceeding is an alleged action in an official capacity as a director, officer,
employee, or agent, or in any other capacity while serving as a director,
officer, employee, or agent of the Company.
1.
<PAGE> 2
(c) Notwithstanding anything in this Agreement to the contrary,
Indemnitee will not be entitled to indemnification under this Agreement in
connection with any proceeding initiated by Indemnitee against the Company or
any director of officer of the Company unless:
(1) The Company has joined in or the Board has consented
to the initiation of the proceeding;
(2) The proceeding is one to enforce indemnification
rights as set forth in Paragraph 4, below; or
(3) The proceeding is instituted after a change in
control, as defined in Paragraph 2(b), below, and independent counsel has
approved its initiation.
(d) If requested by Indemnitee, the Company will, within 10
business days of the request, advance all expenses to Indemnitee (an "expense
advance"). Notwithstanding the preceding, to the extent that the reviewing
party, as defined in Paragraph 2, below, determines that Indemnitee would not be
permitted to be indemnified under applicable law, the Company will be entitled
to reimbursement from Indemnitee for these amounts, and Indemnitee agrees to
reimburse the Company in that event. If Indemnitee has commenced legal
proceedings in a court of competent jurisdiction to determine whether Indemnitee
should be indemnified as provided in Paragraph 3, below, a determination made by
the reviewing party that Indemnitee should not be indemnified will not be
binding, and Indemnitee will not be required to reimburse the Company for any
expense advanced until a judicial determination is made and all appeal rights
have been used or have elapsed. Indemnitee's obligation to reimburse the Company
for expense advances will be unsecured, and no interest will be charged on any
expense advance.
(e) Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee has been successful on the merits in defending a
proceeding relating to an indemnifiable event or in defending any issue or
matter in such a proceeding, Indemnitee will be indemnified against all expenses
in connection with the proceeding.
(f) If Indemnitee is entitled under any provision of this
Agreement to indemnification by the Company for partial expenses, rather than
for all expenses, the Company will indemnify Indemnitee for the portion for
which Indemnitee is entitled.
REVIEWING PARTY
2. (a) Before any change in control, as defined in Paragraph 2(b),
below, occurs, the reviewing party will be an appropriate person or body
consisting of a member or members of the board of directors, or any other person
or body appointed by the board, who is not a party to the proceeding for which
Indemnitee is seeking indemnification. After a change in control, the reviewing
party will be independent counsel. On all matters arising after a change in
control (other than a change in control approved by a majority of the directors
of the board who were directors immediately before the change in control)
concerning Indemnitee's right to indemnity payments and expense advances under
this Agreement, any other agreement, applicable law, or the Company's articles
of incorporation or bylaws, the Company will seek legal advice only from
independent counsel selected by Indemnitee and approved by the Company, and who
has not otherwise performed services for the Company or the Indemnitee
2.
<PAGE> 3
(other than indemnification matters) within the last five years. The independent
counsel will not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. Among other responsibilities,
independent counsel will render a written opinion to the Company and Indemnitee
in whether and to what extent Indemnitee should be indemnified under applicable
law. The Company agrees to pay the reasonable fees of the independent counsel
and to indemnify counsel against any and all expenses, including attorneys'
fees, claims, liabilities, loss, and damages arising out of or relating to this
Agreement or the engagement of independent counsel under this Agreement.
(b) The term "change in control" used in Paragraph 2(a), above,
refers to a state of affairs that will be deemed to have occurred if:
(1) Any person is or becomes the beneficial owner,
directly or indirectly, of securities representing 20 percent or more of the
voting power of the Company's then-outstanding voting securities;
(2) During any period of two consecutive years,
individuals who, at the beginning of the period, constitute the board, together
with any new director whose election by the board or nomination for election by
the Company's stockholders was approved by a vote of at least two thirds of the
directors then in office who either were directors at the beginning of the
two-year period, or whose election or nomination was previously approved, cease
for any reason to constitute a majority of the board;
(3) The stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
a consolidation that would result in the voting securities of the Company
outstanding immediately before the merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 80 percent of the total voting
power represented by the voting securities of the Company or the surviving
entity outstanding immediately after the merger or consolidation; or
(4) The stockholders of the Company approve a plan of
complete liquidation of the Company, or an agreement for the sale or disposition
by the Company (in one or more transactions) of all or substantially all of the
assets of the Company.
INDEMNIFICATION PROCESS AND APPEAL
3. (a) Indemnitee will receive indemnification of expenses from the
Company in accordance with this Agreement as soon as practicable after
Indemnitee has made written demand on the Company for indemnification, unless
the reviewing party has given a written opinion to the Company that Indemnitee
is not entitled to indemnification under this Agreement or applicable law.
(b) Regardless of any action by the reviewing party, if
Indemnitee has not received full indemnification within 30 days after making a
demand in accordance with Paragraph 3(a), above, Indemnitee will have the right
to enforce his or her indemnification rights under this Agreement by commencing
litigation in the appropriate California court,
3.
<PAGE> 4
seeking an initial determination by the court or challenging any determination
by the reviewing party. The Company consents to service of process and to appear
in any proceeding. Any determination by the reviewing party not challenged by
Indemnitee will be binding on the parties. This remedy is in addition to any
other remedies Indemnitee may have in law or in equity.
(c) It will be a defense to any action brought by Indemnitee
against the Company to enforce this Agreement (other than an action brought to
enforce a claim for expenses incurred in defending a proceeding in advance of
its final disposition when the required undertaking has been tendered to the
Company) that it is not permissible, under this Agreement or applicable law, for
the Company to indemnify Indemnitee for the amount claimed. In connection with
any action or determination by the reviewing party on whether Indemnitee is
entitled to indemnification under this Agreement, the burden of proving a
defense or determination will be on the Company. Neither the failure of the
reviewing party or the Company to have made a determination before commencement
of action by Indemnitee that indemnification is proper under the circumstances
because Indemnitee has met the standard of conduct set forth in actual law, nor
an actual determination by the reviewing party or the Company that Indemnitee
had not met the applicable standard, will be a defense to the action or create a
presumption that Indemnitee has not met the applicable standard. For purposes of
this Agreement, the termination of any claim, action, suit, or proceeding by
judgment, order, settlement, conviction, or plea of nolo contendre will not
create a presumption that Indemnitee did not meet any particular standard of
conduct or have any particular belief or that a court has determined that
indemnification is not permitted by applicable law.
INDEMNIFICATION FOR EXPENSES INCURRED IN ENFORCING RIGHTS
4. (a) The Company will indemnify Indemnitee against any and all
expenses. If requested by Indemnitee, the Company will, within 10 business days
after request, advance Indemnitee expenses that are incurred in connection with
any claim asserted against or action brought by Indemnitee for:
(1) Indemnification of expenses or advances of expenses by
the Company under this Agreement, any other agreement, applicable law, or the
Company's articles of incorporation or bylaws relating to indemnification for
indemnifiable events; and
(2) Recovery under directors' and officers' liability
insurance policies maintained by the Company, for amounts paid in settlement if
the independent counsel has approved the settlement.
(b) The Company will not settle any proceeding in a manner that
would impose any penalty or limitation on Indemnitee without Indemnitee's
written consent. Neither the Company nor Indemnitee will unreasonably withhold
consent to any proposed settlement. The Company will not be liable to indemnify
Indemnitee under this Agreement for any judicial award if the Company was not
given a reasonable opportunity to participate in the defense of the action. The
Company's liability under this Agreement will not be excused if participation in
the proceeding by the Company was barred by this Agreement.
ESTABLISHMENT OF TRUST
4.
<PAGE> 5
5. (a) In the event of a change in control or a potential change in
control, as defined in Paragraph 5(b), below, the Company will, on Indemnitee's
written request, create a trust for Indemnitee's benefit ("the Trust"), and from
time to time on Indemnitee's written request will fund the trust in an amount
sufficient to satisfy any and all expenses reasonably anticipated at the time of
each request to be incurred in connection with investigating, preparing for,
participating in, and defending any proceeding relating to an indemnifiable
event. The amount to be deposited will be determined by the reviewing party. The
terms of the Trust will provide that on a change of control:
(1) The Trust will not be revoked or the principal invaded
without the Indemnitee's written consent.
(2) The Trustee will be chosen by Indemnitee subject to
the Company's approval. The Trustee will advance, within 10 days after
Indemnitee's request, all expenses to the Indemnitee, provided that Indemnitee
agrees to reimburse the Trust under the same circumstances for which Indemnitee
would be required to reimburse the Company under Paragraph 1(d), above.
(3) The Trust will continue to be funded by the Company in
accordance with the funding obligation set forth in this Paragraph 5.
(4) The Trustee will promptly pay Indemnitee all amounts
to which Indemnitee is entitled as indemnification under this Agreement or
otherwise.
(5) All unexpended funds in the Trust will revert to the
Company on a final determination by the reviewing party or a court of competent
jurisdiction that Indemnitee has been fully indemnified under the terms of this
Agreement.
(b) The term "potential change in control" used in Paragraph
5(a), above, refers to a state of affairs that will be deemed to have occurred
if:
(1) The Company enters into an agreement or arrangement,
the consummation of which would result in a change of control;
(2) Any person, including the Company, publicly announces
an intention to take or to consider taking action that, if consummated, would
constitute a change in control;
(3) Any person who is or becomes the beneficial owner,
directly or indirectly, of securities of the Company representing 10 percent or
more of the combined voting power of the Company's then-outstanding voting
securities, increases that beneficial ownership of those securities by 5 percent
or more over the percentage owned by that person on the date of this Agreement;
or
(4) The board of directors adopts a resolution to the
effect that, for purposes of this Agreement, a potential change in control has
occurred.
(c) Nothing in this Paragraph 5 relieves the Company of any of
its obligations under this Agreement. All income earned on the assets held in
the Trust will be reported as
5.
<PAGE> 6
income by the Company for all tax purposes. The Company will pay all costs of
establishing and maintaining the Trust and will indemnify the Trustee against
any and all expenses, including attorneys' fees, claims, liabilities, loss, and
damages arising out of or relating to this Agreement or the establishment and
maintenance of the Trust.
NONEXCLUSIVE RIGHTS
6. Indemnitee's rights under this Agreement are in addition to any other
rights Indemnitee may have under the Company's articles of incorporation or
bylaws, or otherwise. To the extent that change in applicable law permits
greater indemnification by agreement than would be afforded currently under the
Company's articles of incorporation or bylaws, applicable law, or this
Agreement, it is the intent of the parties that Indemnitee enjoy by this
Agreement the greater benefits afforded by the change.
LIABILITY INSURANCE
7. To the extent the Company maintains an insurance policy providing
director's and officers' liability insurance, Indemnitee will be covered by the
policy, in accordance with its terms, to the maximum extent of the coverage
available for a Company director or officer.
PERIOD OF LIMITATIONS
8. No legal action will be brought, and no cause of action will be
asserted, by or on behalf of the Company or its affiliates, against Indemnitee,
Indemnitee's spouse, heirs, executors, assigns, or representatives after two
years from the date of accrual of the cause of action, or longer period as may
be required by state law. Any claim or cause of action of the Company or its
affiliate will be extinguished and deemed released unless asserted by the timely
filing of a legal action within that period. However, if any shorter period of
limitations is applicable to any cause of action, that shorter period will
govern.
SUBROGATION
9. If payment is made under this Agreement, the Company will be
subrogated to the extent of the payment to all the Indemnitee's rights of
recovery, who will execute all papers required and will do everything else
necessary to secure those rights, including executing documents necessary to
enable the Company to effectively bring suit to enforce those rights.
DUPLICATION OF PAYMENT
10. The Company will not be liable under this Agreement to make any
payment in connection with any claim made against Indemnitee to the extent
Indemnitee has otherwise received payment (by insurance policy, bylaw, or
otherwise) of the amounts otherwise indemnifiable under this Agreement.
BINDING EFFECT
11. This Agreement will be binding on and inure to the benefit of, and
be enforceable by, the parties and their successors, assigns, spouses, heirs,
and personal and legal representatives. The Company will require and cause any
successor to all, substantially all,
6.
<PAGE> 7
or a substantial part of the business or assets of the Company, by written
agreement, to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform as
if no such succession had occurred. The indemnification provided under this
Agreement will continue for Indemnitee for any action taken or not taken while
serving an indemnified capacity pertaining to an indemnifiable event even though
Indemnitee may have ceased to serve in that capacity at the time of any
proceeding.
AMENDMENT AND WAIVER
12. No supplement, modification, or amendment of this Agreement will be
binding unless executed in writing by both of the parties to this Agreement.
Waiver of any provision of this Agreement will not operate as a waiver of any
other provision of the Agreement. Waiver of a provision of this Agreement will
not operate as a continuing waiver. Except as specifically provided in this
Agreement, failure to exercise, or delay in exercising, any right or remedy
under this Agreement will not constitute a waiver of the right or remedy.
ENTIRE AGREEMENT
13. This Agreement constitutes the entire agreement between the parties
concerning the Company's indemnification of Indemnitee for services as an
officer or director of the Company. Any agreement or representation not
expressly set forth in this Agreement is of no effect.
SEVERABILITY
14. If any portion of this Agreement is held by a court of competent
jurisdiction to be invalid, void, or otherwise unenforceable, the remaining
portions will remain enforceable to the full extent permitted by law. In
addition, to the fullest extent possible, the provisions of this Agreement will
be construed so as to give effect to the intent manifested by any provision held
invalid, void, or unenforceable.
NOTICES
15. Any notices or other communications required or permitted under this
Agreement must be in writing, and will be deemed to have been properly given if
made by personal delivery, or by mail, registered or certified, postage prepaid,
with return receipt requested. Mailed notice must be addressed to the Company at
703 Rancho Conejo Blvd., Newbury Park, CA 91320, and to the Indemnitee at
__________________________________.
GOVERNING LAW
16. This Agreement will be governed by and construed in accordance with
the laws of the State of California.
7.
<PAGE> 8
Executed at Newbury Park, California, on the date set forth below.
COMPANY
PACIFIC SOFTWORKS, INC., a California
corporation
Dated: By:
--------------------- ------------------------------------
Indemnitee
Dated:
--------------------- ---------------------------------------
8.
<PAGE> 1
Exhibit 10.2
PACIFIC SOFTWORKS, INC.
1998 EQUITY INCENTIVE PROGRAM
ADOPTED APRIL 17, 1998
APPROVED BY STOCKHOLDERS APRIL 30, 1998
TERMINATION DATE: DECEMBER 31, 2008
1. PURPOSES.
(A) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive
Stock Awards are the Employees, Directors and Consultants of the
Company and its Affiliates.
(B) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a
means by which eligible recipients of Stock Awards may be given
an opportunity to benefit from increases in value of the Common
Stock through the granting of the following Stock Awards: (i)
Incentive Stock Options, (ii) Non-Statutory Stock Options, (iii)
Stock Appreciation Rights, (iv) Stock Bonuses, and (v) Rights to
Acquire Restricted Stock.
(C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of the group of persons eligible to receive
Stock Awards, to secure and retain the services of new members
of this group and to provide incentives for such persons to
exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation of the Company, whether now or hereafter existing,
as those terms are defined in Section 424(3) and (f),
respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
(f) "COMPANY" means Pacific Softworks, Inc., a California
corporation.
(g) "CONSULTANT" means any person, including an advisor, (1) engaged
by the Company, or an Affiliate, to render consulting or
advisory services and who is compensated for such services or
(2) who is a member of the Board of Directors of an Affiliate.
However, the term "Consultant" shall not include either
Directors of the Company who are not
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<PAGE> 2
compensated by the Company for their services as Directors or
Directors of the Company who are merely paid a director's fee by
the Company for their services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with
the Company, or an Affiliate, whether as an Employee, Director
or Consultant, is not interrupted or terminated. The
Participant's Continuous Service shall not be deemed to have
terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate
as an Employee, Consultant or Director or a change in the entity
for which the Participant renders such service, provided that
there is no interruption or termination of the Participant's
Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a
Director of the Company will not constitute an interruption of
Continuous Service. The Board or the Chief Executive Officer of
the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in
the case of any leave of absence approved by that party,
including sick leave, military leave or any other personal
leave.
(i) "COVERED EMPLOYEE" means the Chief Executive Officer and the
four (4) other highest compensated officers of the Company for
whom total compensation is required to be reported to
stockholders under the Exchange Act, as determined for purposes
of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the
Company.
(k) "DISABILITY" means the permanent and total disability of a
person within the meaning of Section 22(e) (3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company, or an
Affiliate. Mere service as a Director or payment of a director's
fee by the Company or an Affiliate shall not be sufficient to
constitute "employment" by the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the
Nasdaq SmallCap Market, the Fair Market Value of a share
of Common Stock shall be the closing sales price of such
stock (or the closing bid, if no sales were reported) as
quoted on such exchange or market (or the exchange or
market with the greatest volume of trading in the Common
Stock) on the last market trading day prior to the day
of determination, as reported in The Wall Street Journal
or such other source as the Board deems reliable.
(ii) The absence of such markets for the Common Stock, the
Fair Market Value shall be determined in good faith by
the Board.
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<PAGE> 3
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of
the Code and the regulations promulgated thereunder.
(p) "NON-EMPLOYEE DIRECTOR" means a Director of the Company who
either (i) is not a current Employee or Officer of the Company
or its parent or a subsidiary, does not receive compensation
(directly or indirectly) from the Company or its parent or a
subsidiary for services rendered as a consultant or in any
capacity other than as a Director (except for an amount as to
which disclosure would not be required under Item 404(a) of
Regulation S-K of the Securities and Exchange commission
("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item
404(a) of Regulation S-K and is not engaged in a business
relationship as to which disclosure would be required under Item
404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(q) "NON-STATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(s) "OPTION" means an Incentive Stock Option or a Non-Statutory
Stock Option granted pursuant to the Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and the Optionee evidencing the terms and conditions of an
individual Option grant. Each Option Agreement shall be subject
to the terms and conditions of the Plan.
(u) "OPTIONEE" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an
outstanding Option.
(v) "OUTSIDER DIRECTOR" means a Director of the Company who either
(i) is not a current employee of the Company or an "affiliated
corporation" (within the meaning of Treasury Regulations
promulgated under Section 162(m) of the Code), is not a former
employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an
"affiliated corporation" at any time and is not currently
receiving direct or indirect remuneration from the Company or an
"affiliated corporation" for services in any capacity other than
as a Director or (ii) is otherwise considered an "outside
director" for purposes of Section 162(m) of the Code.
(w) "PARTICIPANT" means a person to whom a Stock Award is granted
pursuant to the Plan or, if applicable, such other person who
holds an outstanding Stock Award.
(x) "PLAN" means this Pacific Softworks, Inc. 1998 Equity Incentive
Plan.
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<PAGE> 4
(y) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act
or any successor to Rule 16b-3, as in effect from time to time.
(z) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(aa) "STOCK AWARD" means any right granted under the Plan, including
an Option, a stock appreciation right, a stock bonus and a right
to acquire restricted stock.
(bb) "STOCK AWARD AGREEMENT" means a written agreement between the
Company and a holder of a Stock Award evidencing the terms and
conditions of an individual Stock Award grant. Each Stock Award
Agreement shall be subject to the terms and conditions of the
Plan.
(cc) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed
to own pursuant to Section 424(d) of the Code) stock possessing
more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any of its
Affiliates.
2. ADMINISTRATION
(a) ADMINISTRATION OF THE BOARD. The Board will administer the Plan
unless and until the Board delegates administration to a
Committee, as provided in Subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons
eligible under the Plan shall be granted Stock Awards;
when and how each Stock Award shall be granted; what
type of combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted
(which need not be identical), including the time or
times when a person shall be permitted to receive stock
pursuant to a Stock Award; and the number of shares with
respect to which a Stock Award shall be granted to each
such person.
(ii) To construe and interpret the Plan and Stock Awards
granted under it, and to establish, amend and revoke
rules and regulations for its administration. The Board,
in the exercise of this power, may correct any defect,
omission or inconsistency in the Plan or in any Stock
Award Agreement, in a manner and to the extent it shall
deem necessary or expedient to make the Plan fully
effective.
(iii) To amend the Plan or a Stock Award as provided in
Section 12.
(iv) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to
promote the best interests of the Company which are not
in conflict with the provisions of the Plan.
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<PAGE> 5
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the
Plan to a Committee or Committees of one or more members
of the Board, and the term "Committee" shall apply to
any person or persons to whom such authority has been
delegated. If administration is delegated to a
Committee, the Committee shall have, in connection with
the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate
to a subcommittee any of the administrative powers the
Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the
Committee or subcommittee), subject, however, to such
resolutions, not inconsistent with the provisions of the
Plan, as may be adopted from time to time by the Board.
The Board may abolish the Committee at any time and
revest in the Board the administration of the Plan.
(ii) COMMITTEE COMPOSITION. As long as the Common Stock is
publicly traded, in the discretion of the Board, a
Committee may consist solely of two or more Outside
Directors, in accordance with Section 16(m) of the Code,
and/or solely of two or more Non-Employee Directors, in
accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (i) delegate
to a committee of one or more members of the Board who
are not Outside Directors, the authority to grant Stock
Awards to eligible persons who are either (a) not then
Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting
from such Stock Award or (b) not persons with respect to
whom the Company wishes to comply with Section 162(m) of
the Code and/or (ii) delegate to a committee of
authority to grant Stock Awards to eligible persons who
are not then subject to Section 16 of the Exchange Act.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE REVERSE. Subject to the provisions of Section 11 relating
to adjustments upon changes in stock, the stock that may be
issued pursuant to Stock Awards shall not exceed in the
aggregate Ten Percent (10%) of the outstanding shares of the
Company's Common Stock.
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<PAGE> 6
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award
shall for any reason expire or otherwise terminate, in whole or
in part, without having been exercised in full (or vested in the
case of Restricted Stock), the stock not acquired under the
Stock Award shall revert to and again become available for
issuance under the Plan. Shares subject to stock appreciation
rights exercised in accordance with the Plan shall not be
available for subsequent issuance under the Plan. If any Common
Stock acquired pursuant to the exercise of an Option shall for
any reason be repurchased by the Company under an unvested share
repurchase option provided under the Plan, the stock repurchased
by the Company under such repurchase option shall not revert to
and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options
may be granted only to Employees. Stock Awards other than
Incentive Stock Options may be granted to Employees, Directors
and Consultants.
(b) TEN PERCENT STOCKHOLDERS. No Ten Percent (10%) Stockholder shall
be eligible for the grant of an Incentive Stock Option unless
the exercise price of such Option is at least one hundred ten
percent (110%) of the Fair Market Value of the Common Stock at
the date of grant and the Option is not exercisable after the
expiration of five (5) years from the date of grant.
(c) SECTION 162(m) LIMITATION. Subject to the provisions of Section
11 relating to adjustments upon changes in stock, no employee
shall be eligible to be granted Options covering more than
(______) shares of the Common Stock during any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be
separately designated Incentive Stock Options or Non-Statutory Stock
Options at the time of grant, and a separate certificate or
certification will be issued for shares purchased on exercise of each
type of Option. The provisions of separate Options need not be
identical, but each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance
of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b) regarding Ten
Percent Stockholders, no Incentive Stock Option shall be
exercisable after the expiration of ten (10) years from the date
it was granted.
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the
provisions
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<PAGE> 7
of subsection 5(b) regarding Ten Percent Stockholders, the
exercise price of each Incentive Stock Option shall be not less
than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, an Incentive Stock Option may be
granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) EXERCISE PRICE OF A NON-STATUTORY STOCK OPTION. The exercise
price of each Non-statutory Stock Option shall be not less than
eighty-five percent (85%) of the Fair Market Value of the stock
to the Option on the date the Option was granted.
Notwithstanding the foregoing, a Non-statutory Stock Option may
be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an
assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(d) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable
statutes and regulations, either (i) in cash at the time the
Option is exercised or (ii) at the discretion of the Board at
the time of the grant of the Option (or subsequently in the case
of Non-Statutory Stock Option) by delivery to the Company of
other Common Stock, according to a deferred payment or other
arrangement (which may include, without limiting the generality
of the foregoing, the use of other Common Stock) with the
Participant or in any other form of legal consideration that may
be acceptable to the Board; provided, however, that at any time
the Company is incorporated in California, payment of the Common
Stock's "par value", as defined in the California General
Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall
be compounded at least annually and shall be charged at the
minimum rate of interest necessary to avoid the treatment as
interest, under any applicable provisions of the Code, of any
amounts other than amounts stated to be interest under the
deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws
of descent and distribution and shall be exercisable during the
lifetime of the Optionee only by the Optionee. Notwithstanding
the foregoing provisions of this subsection 6(e), the Optionee
may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the
event of the death of the Optionee, shall thereafter be entitled
to exercise the Option.
(f) TRANSFERABILITY OF A Non-Statutory STOCK OPTION. A Non-Statutory
Stock Option shall be transferable to the extent provided in the
Option Agreement. If the Non-Statutory Stock Option does not
provide for transferability, then the Non-Statutory Stock Option
shall not be transferable except by will or by the laws of
descent and distribution
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<PAGE> 8
and shall be exercisable during the lifetime of the Optionee
only by the Optionee. Notwithstanding the foregoing provisions
of this subsection 6(f), the Optionee may, by delivering written
notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the
Optionee, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock
subject to an Option may, but need not, vest and therefore
become exercisable in periodic installments which may, but need
not, be equal. The Option may be subject to such other terms and
conditions on the time or times when it may be exercised (which
may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options
may vary. The provisions of this subsection 6(g) are subject to
any Option provisions governing the minimum number of shares as
to which an Option may be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionee's
Continuous Service terminates (other than upon the Optionee's
death or disability), the Optionee may exercise his or her
Option (to the extent that the Optionee was entitled to exercise
it as of the date of termination) but only within such period of
time ending on the earlier of (i) the date thirty (30) days
following the termination of the Optionee's Continuous Service
(or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as
set forth in the Option Agreement. If, after termination, the
Optionee does not exercise his or her Option within the time
specified in the Option Agreement, the Option shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionee's Option Agreement
may also provide that if the exercise of the Option following
the termination of the Optionee's Continuous Service (other than
upon the Optionee's death or disability) would be prohibited at
any time solely because the issuance of the shares would violate
the registration requirements under the Securities Act, then the
Option shall terminate on the earlier of (i) the expiration of
the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of thirty (30) days after the termination
of the Optionee's Continuous Service during which the exercise
of the Option would not be in violation of such registration
requirements.
(j) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Service terminates as a result of the Optionee's Disability, the
Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the
earlier of (i) the date twelve (12) months following such
termination (or such longer or shorter period specified in the
Option Agreement) or (ii) the expiration of the term of the
Option as set forth in the Option Agreement. If, after
termination, the Optionee does not exercise his or her Option
within the time specified herein, the Option shall terminate.
(k) DEATH OF OPTIONEE. In the event (i) an Optionee's Continuous
Service terminates
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<PAGE> 9
as a result of the Optionee's death or (ii) the Optionee dies
within the period (if any) specified in the Option Agreement
after the termination of the Optionee's Continuous Service for a
reason other than death, then the Option may be exercised (to
the extent the Optionee was entitled to exercise the Option as
of the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the Option
upon the Optionee's death pursuant to subsection 6(e) or 6(f),
but only within the period ending on the earlier of (1) the date
eighteen (18) months following the date of death (or such longer
or shorter period specified in the Option Agreement) or (2) the
expiration of the term of such Option as set forth in the Option
Agreement. If, after death, the Option is not exercised within
the time specified herein, the Option shall terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time before the
Optionee's Continuous Service terminates to exercise the Option
as to any part or all of the shares subject to the Option prior
to the full vesting of the Option. Any unvested shares so
purchased may be subject to an unvested share repurchase option
in favor of the Company or to any other restriction the Board
determines to be appropriate.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such
form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of stock bonus
agreements may change from time to time, and the terms and
conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through
incorporation of provisions hereof by reference in the agreement
or otherwise) the substance of each of the following provisions:
(i) CONSIDERATION. A stock bonus shall be awarded in
consideration for past services actually rendered to the
Company or for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock
bonus agreement may, but need not, be subject to a share
repurchase option in favor of the Company in accordance
with the vesting schedule to be determined by the Board
of Directors.
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<PAGE> 10
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the
Company may reacquire any or all of the shares of Common
Stock held by the Participant which have not vested as
of the date of termination under the terms of the stock
bonus agreement.
(iv) TRANSFERABILITY. Rights to acquire shares under the
stock bonus agreement shall be transferable by the
Participant only upon such terms and conditions as set
forth in the stock bonus agreement, as the Board shall
determine in its discretion, so long as stock awarded
under the stock bonus agreement remains subject to the
terms of the stock bonus agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase
agreement shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The terms and
conditions of the restricted stock purchase agreements may
change from time to time, and the terms and conditions of
separate restricted stock purchase agreements need not be
identical, but each restricted stock purchase agreement shall
include (through incorporation of provisions hereof by reference
in the agreement or otherwise) the substance of each of the
following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted
stock purchase agreement shall be such amount as the
Board shall determine and designate in such restricted
stock purchase agreement. The purchase price shall not
be less than eighty-five percent (85%) of the stock's
Fair Market Value on the date such award is made or at
the time the purchase is consummated.
(ii) CONSIDERATION. The purchase price of stock acquired
pursuant to the restricted stock purchase agreement
shall be paid either: (i) in cash at the time of
purchase; (ii) at the discretion of the Board, according
to a deferred payment or other arrangement with the
Participant; or (iii) in any other form of legal
consideration that may be acceptable to the Board in its
discretion; provided, however, the at any time that the
Company is incorporated in California, payment of the
Common Stock's "par value," as defined in the California
General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Shares of Common Stock acquired under the
restricted stock purchase agreement may, but need not,
be subject to a share repurchase option in favor of the
Company in accordance with the vesting schedule to be
determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the
event a Participant's Continuous Service terminates, the
Company may repurchase or otherwise reacquire any or all
of the shares of Common Stock held by the Participant
which have not vested as of the date of termination
under the terms of the restricted stock purchase
agreement.
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<PAGE> 11
(v) TRANSFERABILITY. Rights to acquire shares under the
restricted stock purchase agreement shall be
transferable by the Participant only upon such terms and
conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its
discretion, so long as stock awarded under the
restricted stock purchase agreement remains subject to
the terms of the restricted stock purchase agreement.
(c) STOCK APPRECIATION RIGHTS.
(i) AUTHORIZED RIGHTS. The following three types of stock
appreciation rights shall be authorized for issuance
under the Plan:
(1) TANDEM RIGHTS. A "Tandem Right" means a stock
appreciation right granted appurtenant to an Option
which is subject to the same terms and conditions
applicable to the particular Option grant to which it
pertains with the following exceptions: The Tandem Right
shall require the holder to elect between the exercise
of the underlying Option for shares of Common Stock and
the surrender, in whole or in part, of such Option for
an appreciation distribution. The appreciation
distribution payable on the exercised Tandem Right shall
be in cash (or, if so provided, in an equivalent number
of shares of Common Stock based on the Fair Market Value
on the date of the Option surrender) in an amount up to
the excess of (A) the Fair Market Value (on the date of
the Option surrender) of the number of shares of Common
Stock covered by that portion of the surrendered Option
in which the Optionee is vested over (B) the aggregate
exercise price payable for such vested shares.
(2) CONCURRENT RIGHTS. A "Concurrent Right" means a stock
appreciation right granted appurtenant to an Option
which applies to all or a portion of the shares of
Common Stock subject to the underlying Option and which
is subject to the same terms and conditions applicable
to the particular Option shall be exercised
automatically at the same time the underlying Option is
exercised with respect to the particular shares of
Common Stock to which the Concurrent Right pertains. The
appreciation distribution payable on an exercised
Concurrent Right shall be in cash (or, if so provided,
in an equivalent number of shares of Common Stock based
on Fair Market Value on the date of the exercise of the
Concurrent Right) in an amount equal to such portion as
determined by the Board at the time of the grant of the
excess of (A) the aggregate Fair Market Value (on the
date of the exercise of the Concurrent Right) of the
vested shares of Common Stock purchased under the
underlying Option which have Concurrent Rights
appurtenant to them over (B) the aggregate exercise
price paid for such shares.
(3) INDEPENDENT RIGHTS. An "Independent Right" means a stock
appreciation right granted independently of any Option
but which is subject to the same terms and conditions
applicable to a Non-Statutory Stock Option with the
following exceptions: An Independent Right shall be
denominated in share equivalents. The
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<PAGE> 12
appreciation distribution payable on the exercised
Independent Right shall be not greater than an amount
equal to the excess of (a) the aggregate Fair Market
Value (on the date of the exercise of the Independent
Right) of a number of shares of Company stock equal to
the number of share equivalents in which the holder is
vested under such Independent Right, and with respect to
which the holder is exercising the Independent Right on
such date, over (b) the aggregate Fair Market Value (on
the date of the grant of the Independent Right) of such
number of shares of Company stock. The appreciation
distribution payable on the exercised Independent Right
shall be in cash, or if so provided, in an equivalent
number of shares of Common Stock based on Fair Market
Value on the date of the exercise of the Independent
Right.
(ii) RELATIONSHIP TO OPTIONS. Stock appreciation rights
appurtenant to Incentive Stock Options may be granted
only to Employees. The "Section 162(m) Limitation"
provided in subsection 5(c) and any authority to reprice
Options shall apply as well to the grant of stock
appreciation rights.
(iii) EXERCISE. To exercise any outstanding stock appreciation
right, the holder shall provide written notice of
exercise to the Company in compliance with the
provisions of the Stock Award Agreement evidencing such
right. Except as provided in subsection 5(c) regarding
the "Section 162(m) Limitation," no limitation shall
exist on the aggregate amount of cash payments that the
Company may make under the Plan in connection with the
exercise of the stock appreciation right.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards,
the Company shall keep available at all times the number of
shares of Common Stock required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over
the Plan such authority as may be required to grant Stock Awards
and to issue and sell shares of Common Stock upon exercise of
the Stock Awards; provided, however, that this undertaking shall
not require the Company to register under the Securities Act the
Plan, any such Stock Award or any stock issued or issuable
pursuant to any such Stock Award. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory
commission or agency the authority which counsel for the Company
deems necessary for the lawful issuance and sale of stock under
the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Stock
Awards unless and until such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
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<PAGE> 13
Proceeds from the sale of stock pursuant to Stock Awards shall
constitute general funds of the Company.
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have
the power to accelerate the time at which a Stock Award may
first be exercised or the time during which the Stock Award or
any part thereof will vest in accordance with the Plan,
notwithstanding the provisions in the Stock Award stating the
time at which a Stock Award or any part thereof will vest in
accordance with the Plan, notwithstanding the provisions in the
Stock Award stating the time at which it may first be exercised
or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the
holder of, or to have any of the rights of a holder with respect
to, any shares subject to such Stock Award unless and until such
Participant has satisfied all requirements for exercise of the
Stock Award pursuant to its terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or
any instrument executed or Stock Award granted pursuant thereto
shall confer upon any Participant or other holder of Stock
Awards any right to continue to serve the Company or an
Affiliate in the capacity in effect at the time the Stock Award
was granted or shall affect the right of the Company or an
Affiliate to terminate (i) the employment of an Employee with or
without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement
with the Company or an Affiliate or (iii) the service of a
Director pursuant to the Bylaws of the Company or an Affiliate,
and any applicable provisions of the corporate law of the state
in which the Company or the Affiliate is incorporated, as the
case may be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that
the aggregate Fair Market Value (determined at the time of
grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any
calendar year (under all plans of the Company and its
Affiliates) exceeds one hundred thousand dollars ($100,000), the
Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as
Non-Statutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as
a condition of exercising or acquiring stock under any Stock
Award, (i) to give written assurances satisfactory to the
Company as to the Participant's knowledge and experience in
financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters
and that he or she is capable of evaluating, alone or together
with the purchaser representative, the merits and risks of
exercising the Stock Award; and (ii) to give written assurances
satisfactory to the Company stating that the Participant is
acquiring the stock subject to the Stock Award for the
Participant's own account and not with any present
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<PAGE> 14
intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to
such requirements, shall be inoperative if (iii) the issuance of
the shares upon the exercise or acquisition of stock under the
Stock Award has been registered under a then currently effective
registration statement under the Securities Act or (iv) as to
any particular requirement, a determination is made by counsel
for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The
Company may, upon advise of counsel to the Company, place
legends on stock certificates issued under the Plan as such
counsel deems necessary or appropriate in order to comply with
applicable securities laws, including, but not limited to,
legends restricting the transfer of the stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of
a Stock Award Agreement, the Participant may satisfy any
federal, state or local tax withholding obligation relating to
the exercise or acquisition of stock under a Stock Award by any
of the following means (in addition to the Company's right to
withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash
payment; (ii) authorizing the Company to withhold shares from
the shares of the Common Stock otherwise issuable to the
participant as a result of the exercise of acquisition of stock
under the Stock Award; or (iii) delivering to the Company owned
and unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option, without the receipt of consideration by
the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in
property other than cash, stock split, liquidating dividend,
combination of shares, exchange of shares, change in corporate
structure or other transaction not involving the receipt of
consideration by the Company), the Plan and the outstanding
Options will be appropriately adjusted in the class(es) and
number of securities and price per share of stock subject to
such outstanding Options. Such adjustments shall be made by the
Board, the determination of which shall be final, binding and
conclusive. (The conversion of convertible securities, cashless
exercise of options and net exercise of warrants shall not be
treated as transactions "without receipt of consideration" by
the Company.)
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is
not the surviving corporation; or (3) a reverse merger in which
the Company is the surviving corporation but the shares of the
Company's common stock outstanding immediately preceding the
merger are converted by virtue of the merger into other
property, whether in the form of securities, cash or otherwise,
then subject to paragraph (c) of this Section 11, at the sole
discretion of the Board and to the extent permitted by
applicable law: (i) any surviving corporation shall assume any
Options outstanding under the Plan or shall substitute similar
Options for those outstanding under the Plan, (ii) such Stock
Awards shall continue in full force and effect, or (iii) the
time during which such Stock Awards become vested or may be
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<PAGE> 15
exercised shall be accelerated and any outstanding unexercised
rights under any Stock Awards terminated if not exercised prior
to such event. In the event any surviving corporation or
acquiring corporation refuses to assume such Options or to
substitute similar Options for those outstanding under the Plan,
then with respect to Options held by Optionees whose Continuous
Service has not terminated, the vesting shall be accelerated in
full, and the Options shall terminate if not exercised at or
prior to such event. With respect to any other Options
outstanding under the Plan, such Options shall terminate if not
exercised prior to such event.
(c) In the event of either (i) the acquisition by any person, entity
or group within the meaning of Section 13(d) or 14(d) of the
Exchange Act or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or
maintained by the Company or an Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable successor
rule) of securities of the Company representing at least fifty
percent (50%) of the combined voting power entitled to vote in
the election of directors, which acquisition has not been
approved by resolution of the Company's Board of Directors, or
(ii) a change in a majority of the membership of the Company's
Board of Directors within a twenty-four (24) month period where
the selection of such majority either (A) was not approved by a
majority of the members of the Board of Directors at the
beginning of such twenty-four (24) month period or (B) occurred
as a result of an actual or threatened "Election Contest" (as
described in Rule 14a-11 promulgated under the Exchange Act) or
other actual or threatened solicitation of proxies or consents
by or on behalf of any person other than the Board (a "Proxy
Contest"), including by reason of any agreement intended to
avoid or settle any Election Contest or Proxy Contest, then to
the extent not prohibited by any applicable law, the time during
which options outstanding under the Plan may be exercised shall
be accelerated prior to such event, but only to the extent that
such options would have become exercisable within thirty (30)
months of the date of such event, and the options terminated if
not exercised after such acceleration and at or prior to such
event.
12. TIME OF GRANTING OPTIONS.
The date of grant of an Option shall, for all purposes, be the date on
which the Board makes the determination granting such Option. Notice of
the determination shall be given to each Employee or Consultant to whom
an Option is so granted within a reasonable time after the date of such
grant.
13. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem
advisable.
(b) EFFECT OF AMENDMENT OR TERMINATION. Options granted before
amendment of the Plan shall not be impaired by any amendment
unless mutually agreed otherwise
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<PAGE> 16
between the Optionee and the Company, which agreement must be in
writing and signed by the Optionee and the Company.
14. SECURITIES LAW COMPLIANCE.
Notwithstanding any provisions relating to vesting contained herein or
in an Option, no Option granted hereunder may be exercised unless the
shares issuable under exercise of such Option are then registered under
the Securities Act of 1933, as amended.
15. RESERVATION OF SHARES.
The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficient to satisfy
the requirements of the Plan.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel
to be necessary to the lawful issuance and sale of any Shares hereunder,
shall relieve the Company of any liability in respect of the failure to
issue or sell such Shares as to which such requisite authority shall not
have been obtained.
16. OPTION AGREEMENT.
Options shall be evidenced by written Option Agreements in such form or
forms as the Board or the Committee shall approve.
17. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11
relating to adjustments upon changes in stock, no amendment
shall be effective unless approved by the stockholders of the
Company to the extent stockholder approval is necessary to
satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval,
including but not limited to, amendments to the Plan intended to
satisfy the requirements of section 162(m) of the Code and the
regulations thereunder regarding the exclusion of
performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive
officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the
Board may amend the Plan in any respect the Board deems
necessary or advisable to provide eligible Employees with the
maximum benefits provided or to be provided under the provisions
of the Code and the regulations promulgated thereunder relating
to the Incentive Stock Options and/or to bring the Plan and/or
Incentive Stock Options granted under it into
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<PAGE> 17
compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted
before amendment of the Plan shall not be impaired by any
amendment of the Plan unless (i) the Company requests the
consent of the Participant and (ii) the Participant consents in
writing.
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time
to time, may amend the terms of any one or more Stock Awards;
provided, however, that the rights under any Stock Award shall
not be impaired by any such amendment unless (i) the Company
requests the consent of the Participant and (ii) the Participant
consents in writing.
18. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the
day before the tenth (10th) anniversary of the date the Plan is
adopted by the Board or approved by the stockholders of the
Company, whichever is earlier. No Stock Awards may be granted
under the Plan while the Plan is suspended or after it is
terminated.
(b) NO IMPAIRMENT OF RIGHTS. Rights and obligations under any Stock
Award granted while the Plan is in effect shall not be impaired
by suspension or termination of the Plan, except with the
written consent of the Participant.
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19. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Stock
Award shall be exercised (or, in the case of a stock bonus, shall be
granted) unless and until the Plan has been approved by the stockholders
of the Company, which approval shall be within twelve (12) months before
or after the date the Plan is adopted by the Board.
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EXHIBIT__
PACIFIC SOFTWORKS, INC.
INCENTIVE STOCK OPTION
(1998 EQUITY PLAN)
________________________, Optionee:
PACIFIC SOFTWORKS, INC. (The "Company"), pursuant to its 1998 EQUITY
INCENTIVE PLAN (the "Plan"), has granted to you, the Optionee named above, an
option to purchase shares of the Common Stock of the Company ("Common Stock").
This Option is not intended to qualify as and will not be treated as an
"Incentive Stock Option" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
The details of the Option are as follows:
1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number
of shares of Common Stock subject to this Option is
_______________________ (_____________).
2. VESTING. Subject to the limitations contained herein, 1/4th of
the shares covered by this Option will vest (become exercisable)
on _______________ , 19__ (12 months after the date of grant)
and 1/48th of the shares will then vest each month thereafter
until either (i) you cease to provide services to the Company
for any reason, or (ii) this Option becomes fully vested.
3. EXERCISE PRICE AND METHOD OF PAYMENT.
(a) EXERCISE PRICE. The exercise price of this Option is
_____________ ($________) per share, being not less that
85% of the Fair Market Value of the Common Stock on the
date of grant of this Option.
(b) METHOD OF PAYMENT. Payment of the exercise price per
share is due in full upon exercise of all or any part of
each installment that has accrued to you. You may elect,
to the extent permitted by applicable statutes and
regulations, to make payment of the exercise price under
one of the following alternatives:
(i) Payment of the exercise price per share in cash
(including check) at the time of exercise.
(ii) Payment pursuant to a program developed under
Regulation T as promulgated by the Federal
Reserve Board which, prior to the issuance of
Common Stock, results in either the receipt of
cash (or check) by the Company or the receipt of
irrevocable instructions to pay the aggregate
exercise price to the Company from the sales
proceeds;
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<PAGE> 20
(iii) Provided that at the time of exercise the
Company's Common Stock is publicly traded and
quoted regularly in the Wall Street Journal,
payment by delivery of already-owned shares of
Common Stock, held for the period required to
avoid a charge to the Company's reported
earnings, and owned free and clear of any liens,
claims, encumbrances or security interests,
which Common Stock shall be valued at its Fair
Market Value on the date of exercise; or
(iv) Payment by a combination of the methods of
payment permitted by subsection 3(b) (i) through
3(b) (ii) above.
4. WHOLE SHARES. This Option may not be exercised for any number of
shares that would require the issuance of anything other than
whole shares.
5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the
contrary contained herein, this Option may not be exercised
unless the shares issuable upon exercise of this Option are then
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or if such shares are not then so registered,
the Company has determined that such exercise and issuance would
be exempt from the registration requirements of the Securities
Act.
6. TERM. The term of this Option commences on _____________, 19__ ,
the date of grant, and expires at midnight on the ____________,
19__ , (the "Expiration Date," which is the day before the tenth
(10th) anniversary from the date of grant), unless this Option
expires sooner as set forth below or in the Plan. In no event
may this Option be exercised on or after the Expiration Date.
This Option shall terminate prior to the Expiration Date of its
term as follows: three (3) months after the termination of your
Continuous Service as an Employee, Director or Consultant (as
defined in the Plan) with the Company or an Affiliate of the
Company unless one of the following circumstances exists:
(a) If your termination of Continuous Status as an Employee,
Director or Consultant is due to your permanent
disability (within the meaning of Section 422(c) (6) of
the Code), then this Option will then expire on the
earlier of the Expiration Date set forth above or twelve
(12) months following such termination.
(b) If your termination of Continuous Status as an Employee,
Director or Consultant is due to your death or your
death occurs within thirty (30) days following such
termination, then this Option will then expire on the
earlier of the Expiration Date set forth above or
eighteen (18) months after your death.
(c) If during any part of such thirty (30) day period you
may not exercise your Option solely because of the
conditions set forth in Section 5 above, then your
Option will not expire until the earlier of the
Expiration Date set forth above or until the Option
shall have been exercisable for an aggregate period of
thirty (30) days after your termination of Continuous
Status as an Employee, Director or Consultant.
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However, this Option may be exercised following termination of
Continuous Service as an Employee, Director or Consultant only as to
that number of shares to which it was exercisable on the date of such
termination under the schedule set forth in Section 2 of this Option.
7. EXERCISE.
(a) This Option may be exercised, to the extent specified
above, by delivering a notice of exercise (in a form
designated by the Company) together with the exercise
price to the Secretary of the Company, or to such other
person as the Company may designate, during regular
business hours, together with such additional documents
as the Company may then require pursuant to subsection
10(e) of the Plan.
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<PAGE> 22
(b) By exercising this Option you agree that, as a
precondition to the completion of any exercise of this
Option, the Company may require you to enter an
agreement providing for the payment by you to the
Company of any tax withholding obligation of the Company
arising by reason of (1) the exercise of this Option;
(2) the lapse of any substantial risk of forfeiture to
which the shares are subject at the time of exercise; or
(3) the disposition of shares acquired upon such
exercise.
8. TRANSFERABILITY. This Option is not transferable, except by will
or by the laws of descent and distribution, and is exercisable
during your life only by you. Notwithstanding the foregoing, by
delivering written notice to the Company, in a form satisfactory
to the Company, you may designate a third party who, in the
event of your death, shall thereafter be entitled to exercise
this Option.
9. OPTION NOT A SERVICE CONTRACT. This Option is not an employment
contract and nothing in this Option shall be deemed to create in
any way whatsoever any obligation on your part to continue in
the employ of the Company or an Affiliate, or of the Company or
an Affiliate to continue your employment. In addition, nothing
in this Option shall obligate the Company or any Affiliate of
the Company, or their respective stockholders, Board of
Directors, officers or employees to continue any relationship
that you might have as a Director or Consultant for the Company
or Affiliate.
10. NOTICES. Any Notices provided for in this Option or the Plan
shall be given in writing and shall be deemed effectively given
upon receipt or, in the case of notices delivered by the Company
to you, five (5) days after deposit in the United States mail,
postage prepaid, addressed to you at the address specified below
or at such other address as you hereafter designate by written
notice to the Company.
11. CHANGE OF CONTROL.
(a) In the event of (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the
Company is not the surviving corporation; or (3) a
reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock
outstanding immediately preceding the merger are
converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise,
then, subject to paragraph (c) of this Section 11, at
the sole discretion of the Board and to the extent
permitted by applicable law: (i) any surviving
corporation shall assume any Options outstanding under
the Plan or shall substitute similar Options for those
outstanding under the Plan, (ii) such Stock Awards shall
continue in full force and effect, or (iii) the time
during which such Stock Awards become vested or may be
exercised shall be accelerated and any outstanding
unexercised rights under any Stock Awards terminated if
not exercised prior to such event. In the event any
surviving corporation or acquiring corporation refuses
to assume such Options or to substitute similar Options
for those outstanding under the Plan, then with respect
to Options held by Optionee
-22-
<PAGE> 23
whose Continuous Service has not terminated, the vesting
shall be accelerated in full, and the Options shall
terminate if not exercised at or prior to such event.
With respect to any other Options outstanding under the
Plan, such Options shall terminate if not exercised
prior to such event.
(b) In the event of either (i) the acquisition by any
person, entity or group within the meaning of Section
13(d) or 14(d) of the Exchange Act or any comparable
successor provisions (excluding any employee benefit
plan, or related trust, sponsored or maintained by the
Company or an Affiliate of the Company) of the
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act, or comparable
successor rule) of securities of the Company
representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election
of directors, which acquisition has not been approved by
resolution of the Company's Board of Directors, or (ii)
a change in the majority of the membership of the
Company's Board of Directors within a twenty-four (24)
month period where the selection of such majority either
(A) was not approved by a majority of the members of the
Board of Directors at the beginning of such twenty-four
(24) month period or (B) occurred as the result of an
actual or threatened "Election Contest" (as described in
Rule 14a-11 promulgated under the Exchange Act or other
actual or threatened solicitation of proxies or consents
by or on behalf of any person other than the Board (a
"Proxy Contest"), including by reason of any agreement
intended to avoid or settle any Election Contest or
Proxy Contest, then to the extent not prohibited by
applicable law, the time during which options
outstanding under the Plan may be exercised shall be
accelerated prior to such event, but only to the extent
that such options would have become exercisable within
thirty (30) months of the date of such event, and the
options terminate if not exercised after such
acceleration and at or prior to such event.
12. GOVERNING PLAN DOCUMENT. This Option is subject to all the
provisions of the Plan, a copy of which is attached hereto and
its provisions are hereby made a part of this Option, including
without limitation the provisions of Section 6 of the Plan
relating to option provisions and Section 13 relating to
adjustments upon changes in stock, and is further subject to all
interpretations, amendments, rules and regulations which may
from time to time be promulgated and adopted pursuant to the
Plan. In the event of any conflict between the provisions of
this Option and those of the Plan, the provisions of the Plan
shall control.
Dated this _________ day of ____________________ , 19 ___.
Very truly yours,
PACIFIC SOFTWORKS, INC.
-23-
<PAGE> 24
By
-------------------------------
Duly Authorized on Behalf of
the Board of Directors
ATTACHMENTS:
Pacific Softworks, Inc. 1998 Equity Incentive Plan
Notice of Exercise
The Undersigned:
(a) Acknowledges receipt of the foregoing Option and the
attachments referenced therein and understands that all
rights and liabilities with respect to this Option are
set forth in the Option and the Plan; and
-24-
<PAGE> 25
(b) Acknowledges that as of the date of grant of this
Option, it sets forth the entire understanding between
the undersigned Optionee and the Company and its
Affiliates regarding the acquisition of stock in the
Company under this Option and supersedes all prior oral
and written agreements on that subject with the
exception of (i) the options previously granted and
delivered to the undersigned under stock option plans of
the Company, and (ii) the following agreements only:
None ____________________
(Initial)
Other ________________________________________
________________________________________
______________________________________
OPTIONEE
Address:_______________________________
______________________________________
-25-
<PAGE> 1
Exhibit 10.5
[LOGO]
Pacific Softworks Incorporated
Invention Assignment and Proprietary Information Agreement.
In consideration of my employment or continued employment by Pacific Softworks
Inc. (the "Company"), In any capacity, I hereby represent and agree as follows:
1. I understand that the Company is engaged in a continuous program of
research, development, production, and marketing in connection with its
business, and that as an essential part of my employment with the
Company, I am expected to make new contributions to and create
inventions of value for the Company.
2. I will promptly disclose in confidence to the company all inventions,
improvements, original works of authorship, formulas, processed,
computer programs, databases, and trade secrets ("Inventions"), whether
or not patentable or copyrightable or protectable as trade secrets, that
are made or conceived or first reduced to practice or created by me,
either alone or jointly with others, during the period of my employment,
whether or not in the course of my employment.
3. I agree that all Inventions developed during my employment with the
Company will be the sole and exclusive property of the Company and are
hereby assigned to the Company. I have been notified and understand that
the provisions of this paragraph do not apply to any Invention that
qualifies fully under the provisions of Section 2870 of the California
Labor Code, which states as follows:
(A) ANY PROVISION IN AN EMPLOYMENT AGREEMENT WHICH PROVIDES THAT AN EMPLOYEE
SHALL ASSIGN, OR OFFER TO ASSIGN, ANY OF HIS OR HER RIGHTS IN AN
INVENTION TO HIS OR HER EMPLOYER SHALL NOT APPLY TO AN INVENTION THAT
THE EMPLOYEE DEVELOPED ENTIRELY ON HIS OR HER OWN TIME WITHOUT USING THE
EMPLOYER'S EQUIPMENT, SUPPLIES, FACILITIES, OR TRADE SECRET INFORMATION
EXCEPT FOR THOSE INVENTIONS THAT EITHER: (1) RELATE AT THE TIME OF
CONCEPTION OR DEDUCTION OF PRACTICE OF THE INVENTION TO THE EMPLOYER'S
BUSINESS, OR ACTUAL OR DEMONSTRABLY ANTICIPATED RESEARCH OR DEVELOPMENT
OF THE EMPLOYER; (2) RESULT FROM ANY WORK PERFORMED BY THE EMPLOYEE FOR
THE EMPLOYER.
(B) TO THE EXTENT A PROVISION IN AN EMPLOYMENT AGREEMENT PURPORTS TO REQUIRE
AN EMPLOYEE TO ASSIGN AN INVENTION OTHERWISE EXCLUDED FROM BEING
REQUIRED TO BE ASSIGNED UNDER SUBDIVISION (A), THE PROVISION IS AGAINST
THE PUBLIC POLICY OF THIS STATE AND IS UNENFORCEABLE.
4. I agree to assist the Company in every proper way to obtain for the
Company and enforce patents, copyrights, and other legal protections for
the Company's Inventions and products in any and all countries. I will
execute any documents that the Company may reasonably request for use in
obtaining or enforcing such patents, copyrights and other legal
protections. My obligations under this paragraph will continue beyond
the termination of my employment with the Company, provided that the
<PAGE> 2
Company will compensate me at a reasonable rate after such termination
for time actually spent by me at the Company's request on such
assistance.
5. I understand that my employment by the Company creates a relationship of
confidence and trust with respect to any information of a confidential
or secret nature that may be disclosed to me by the Company that relates
to the business of the Company or to the business of any parent,
subsidiary, affiliate, customer or supplier, or the Company
("Proprietary Information"). Such Proprietary Information includes, but
is not limited to, Inventions, Company products, marketing plans,
product plans, business strategies, financial information, forecasts,
personnel information, and customer lists.
6. I acknowledge that in the course of my employment, I may obtain
confidential and/or proprietary information regarding the Company's
customers ("Customers"), or the customer's affiliates or customers.
"Confidential Information" includes: information relating to development
plans, costs, finances, marketing plans, equipment configurations, data,
access or security codes or procedures utilized or acquired, business
opportunities, names of customers, research, and development; the terms,
conditions and existence of customer Agreements, any information
designated as confidential by the customer in writing or identified as
confidential at the time of disclosure if such disclosure is verbal or
visual/ and any copies of the prior categories or excerpts included in
other material created by the Company. I hereby agree that all
Confidential Information communicated to me by the Company's customers,
its affiliates, or customers, whether before or after the effective date
of the Customer agreement, shall be and was received in strict
confidence, shall be used only for purposes of the Agreement with
customer, and shall not be disclosed by me or the customer without the
prior written consent of the customer. This provision shall not apply to
Confidential Information which is (I) publicly known or becomes publicly
known through no unauthorized act by me; (II) rightfully received from a
third party (other than by the customer) without obligation of
confidentiality; (III) already known by me without an obligation of
confidentiality; (IV) disclosed without similar restrictions by the
customer to a third party (other than the customer or the customer's
customer); or (V) approved by the customer for disclosure. The
provisions of this Section shall survive the term or termination of the
customer's agreement with the Company for any reason.
7. At all times, both during my employment and after its termination, I
will keep all such Proprietary Information in confidence and trust, and
I will not use or disclose any of such Proprietary Information without
the written consent of the Company, except as may be necessary to
perform my duties as an employee of the Company. Upon termination of my
employment with the Company, E will promptly deliver to the Company all
documents, equipment, and materials of any nature pertaining to my work
wit the Company and I will not take with me any documents or materials
or copies thereof containing any Proprietary.
8. I represent that my compliance with all the terms of this Agreement and
my duties as an employee of the Company will not breach an invention
assignment or proprietary information agreement with any former employer
or other party. I represent that I will not bring me to the Company, or
use in the performance of my duties for the Company, any documents or
materials of a former employer that are not generally available to the
public.
9. I hereby authorize the Company to notify others, including without
limitation, customers of the Company of my future employer, any future
employer of the terms of this Agreement and my responsibilities
hereunder.
10. In the event of any violation of this Agreement by me, and in addition
to any relief or remedies to which the Company is entitled, I agree that
the Company shall have the right to an immediate injunction, and shall
have the right to recover the Company's reasonable attorney's fees and
court costs expended in connection with any litigation instituted to
enforce this Agreement.
11. I understand that this Agreement does not constitute a contract of
employment or obligate the Company to employ me for any stated period of
time. This Agreement shall be effective as of the first day of my
employment by the Company, namely: ______________________, 19___.
<PAGE> 3
Employee: Acknowledged and accepted by
Pacific Softworks. Inc.
________________________________ By:_______________________________
Signature
________________________________ Title:_____________________________
Name (Please Print)
<PAGE> 1
EXHIBIT 21.1
PACIFIC SOFTWORKS, INC.
SUBSIDIARY OF THE REGISTRANT
Network Research Corp. Japan, Ltd.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Registration Statement of Pacific
Softworks, Inc. on Form SB-2 of our report dated January 29, 1999, appearing in
the Prospectus, which is a part of such Registration Statement relating to the
consolidated financial statements of Pacific Softworks, Inc. and Subsidiary, and
to the reference to our Firm under the caption "Experts" in such Prospectus.
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Los Angeles, California
March 26, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998
<PERIOD-END> DEC-31-1997 DEC-31-1998
<CASH> 624,952 224,031
<SECURITIES> 0 0
<RECEIVABLES> 374,090 355,302
<ALLOWANCES> 36,400 86,400
<INVENTORY> 0 0
<CURRENT-ASSETS> 1,000,879 551,456
<PP&E> 380,382 430,957
<DEPRECIATION> 311,204 348,761
<TOTAL-ASSETS> 1,071,071 643,326
<CURRENT-LIABILITIES> 239,628 328,979
<BONDS> 0 0
0 0
0 0
<COMMON> 177,858 177,858
<OTHER-SE> 20,562 11,163
<TOTAL-LIABILITY-AND-EQUITY> 1,071,071 643,326
<SALES> 2,929,536 2,479,589
<TOTAL-REVENUES> 3,309,784 2,787,397
<CGS> 116,311 100,336
<TOTAL-COSTS> 3,067,213 3,110,821
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 255,355 50,000
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (129,095) (473,760)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (129,095) (473,760)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (129,095) (473,760)
<EPS-PRIMARY> $(0.04) $(0.14)
<EPS-DILUTED> $(0.04) $(0.14)
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