<PAGE>
As filed with the Securities and Exchange Commission on June 18, 1999
Registration No. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
LOISLAW.COM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 7374 71-0655999
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
----------------
105 North 28th Street
Van Buren, Arkansas 72956
(501) 471-5581
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
KYLE D. PARKER
Chairman of the Board and Chief Executive Officer
Loislaw.com, Inc.
105 North 28th Street
Van Buren, Arkansas 72956
(501) 471-5581
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Kenn W. Webb, Esq. Lawrence S. Wittenberg, Esq.
Thompson & Knight, P.C. Testa, Hurwitz & Thibeault, LLP
1700 Pacific Avenue, Suite 3300 125 High Street
Dallas, Texas 75201 Boston, Massachusetts 02110
(214) 969-1700 (617) 248-7000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [_]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed Maximum
Aggregate
Title of Each Class of Offering Amount of
Securities to be Registered Price(2) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock ($0.001 par value)............... $75,000,000 $20,850
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</TABLE>
(1) Includes shares that the Underwriters have the option to purchase to cover
any over-allotments.
(2) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. +
+Loislaw.com may not sell these securities until the registration statement +
+filed with the Securities and Exchange Commission is effective. This +
+prospectus is not an offer to sell these securities and it is not soliciting +
+of an offer to buy these securities in any state where the offer or sale is +
+not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION-- , 1999
PROSPECTUS
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Shares
[LOGO] Loislaw.com, Inc.
Common Stock
- --------------------------------------------------------------------------------
Loislaw.com, Inc. is offering shares of its common stock and a selling
stockholder is offering shares of common stock in an initial public
offering. Prior to this offering, there has been no public market for
Loislaw.com's common stock.
Loislaw.com provides comprehensive, affordable and easy-to-use legal and
related information over the Internet and on CD-ROM.
It is anticipated that the public offering price will be between $ and $
per share. The shares of Loislaw.com will be quoted in the Nasdaq National
Market under the symbol "LOIS."
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price...................................... $ $
Underwriting discounts and commissions..................... $ $
Proceeds, before expenses, to Loislaw.com.................. $ $
Proceeds to selling stockholder............................ $ $
</TABLE>
See "Risk Factors" on pages 6 to 13 for factors that you should consider before
investing in the shares of Loislaw.com.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
The underwriters may, under certain circumstances, purchase up to
additional shares from Loislaw.com at the public offering price, less
underwriting discounts and commissions. Delivery and payment for the shares
will be on , 1999.
Prudential Securities
U.S. Bancorp Piper Jaffray
Dain Rauscher Wessels
a division of Dain
Rauscher Incorporated
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary................... 1
Risk Factors......................... 6
Forward-Looking Statements........... 14
Use of Proceeds...................... 15
Dividend Policy...................... 15
Capitalization....................... 16
Dilution............................. 17
Selected Financial Data.............. 18
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 20
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business............................ 29
Management.......................... 40
Certain Transactions................ 46
Principal and Selling Stockholders.. 48
Description of Capital Stock........ 50
Shares Eligible for Future Sale..... 52
Underwriting........................ 54
Legal Matters....................... 55
Experts............................. 55
Available Information............... 56
Index to Financial Statements....... F-1
</TABLE>
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The terms "Loislaw.com", "we", "our" and "us" refer to Loislaw.com, Inc.
unless the context suggests otherwise. The term "you" refers to a prospective
investor.
We have obtained federal trademark registrations for LOIS PROFESSIONAL
LIBRARY(R), N-line(R), PITA(R) and THE TECHNOLOGY COMPANY WITH A LAW
DEGREE(R), and have pending trademark applications for LOIS SM and the LOIS
logo SM. We have also obtained copyright registrations for the following
proprietary software programs: PITA(R), CaseBase: The Arkansas Reports, and
Law Office Information Systems: Master Menu Systems. Other trademarks and
trade names in this prospectus are the property of other owners.
- -------------------------------------------------------------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not authorized anyone to provide you
with different information. We are not making an offer of these securities in
any jurisdiction where the offer or sale is not permitted. You should not
assume that the information contained in this prospectus is accurate as of any
date other than the date on the front cover of this prospectus.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information that
investors should consider before investing in our common stock. You should read
the entire prospectus carefully.
Loislaw.com
Our Business
Loislaw.com provides comprehensive, affordable and easy-to-use legal and
related information to lawyers and law firms over the Internet and on CD Rom.
We offer more than 950 databases that we estimate to contain over 50 million
pages of federal and state law, continuing legal education materials and other
legal information. We believe this is the largest collection of legal databases
in hypertext mark-up language, or HTML, the standard format language used on
the Internet. We offer powerful and intuitive search tools designed to make our
information easily accessible and valuable to our users. Through LOIS LawWatch,
we provide personalized, intelligent search agents that automatically and
continuously search our web site and notify our users when new documents match
their search criteria. Our news feeds provide up to 150,000 news articles a
month from more than 400 domestic and international sources. Our legal
information is available through our web site at loislaw.com or through our CD-
ROM products at a low annual subscription price.
We have historically targeted our marketing efforts to law firms with fewer
than 20 lawyers. Small law firms typically require legal information for the
states in which they practice, while large law firms typically require
information for all 50 states. Currently, we provide statutes, regulations and
rules of court for all state and federal jurisdictions. We also provide
comprehensive court decisions for the U.S. Supreme Court and all federal
circuit courts of appeal. In addition, with the completion of databases for 11
new states in the last six months, we currently provide comprehensive legal
information for 31 of the 50 states. The lawyers in these states represent over
80% of the total number of active practicing lawyers in the U.S. We intend to
complete our state law databases for all 50 states by December 31, 1999. Upon
completion of these databases, we plan to aggressively market to additional
small law firms, large law firms and legal departments of corporations.
Since we launched our web site in 1996, our web-based products have
represented an increasing percentage of our sales. We expect this trend to
continue as we sell more web-based products to existing customers and gain new
customers, and as our existing CD-ROM customers migrate to our web-based
products. During the month of March 1999, we exceeded 1.4 million searches on
our web site compared to 146,000 during March 1998. At March 31, 1999, we had a
total of 7,251 customers of which 2,393 purchased our web-based products and
4,858 purchased our CD-ROM products. The percentage of customers that renewed
their subscriptions to our products was 89.3% in 1998. We generated revenues of
$5.0 million in 1998 and $1.3 million in the first quarter of 1999, and
incurred a net loss of $8.6 million in 1998 and $2.7 million in the first
quarter of 1999. Through March 31, 1999, our accumulated deficit totaled $17.5
million.
Our Market
The market for web-based and other on-line legal, tax and public record
information is large and growing. According to an industry source, the market
for web-based and other on-line legal, tax and public record information was
$1.7 billion in 1998 and is projected to grow to $2.7 billion in 2002,
representing a compound annual growth rate of 12.3%.
We believe that the following are the key drivers of growth in the market
for web-based and other on-line legal information:
.An increase in the number of lawyers;
.An increase in litigation; and
.The growth of the Internet.
1
<PAGE>
Our Strategy
Our objective is to become the leading Internet destination for lawyers, law
students, business people and consumers who need legal and related information.
We developed our core products to serve the research needs of lawyers. As we
expand our product offerings, we plan to address additional needs of lawyers
and offer legal information designed to meet the needs of consumers. To achieve
our business objectives, we plan to do the following:
. Continue to market aggressively to small law firms to expand our small
law firm customer base;
. Complete our state law databases for all 50 states by December 31, 1999,
at which time we intend to aggressively market our products to large law
firms and legal departments of corporations;
. Continue to build the depth and breadth of our databases through internal
development and by licensing and acquiring information from third
parties;
. Continue to promote brand awareness through expansion of our direct sales
force, reliable product offerings, excellent customer service and
effective marketing and promotion;
. Continue to forge alliances with state and national bar associations,
continuing legal education associations and court systems; and
. Develop a new web site linked to our loislaw.com web site that will offer
legal and related information to consumers.
Loislaw.com was incorporated in Arkansas as Law Office Information Systems,
Inc. on October 13, 1987 and reincorporated in the State of Delaware on June
18, 1999. Our principal executive offices are located at 105 North 28th Street,
Van Buren, Arkansas 72956 and our telephone number is (501) 471-5581. Our web
site address is www.loislaw.com. The information contained on our web site is
not a part of this prospectus.
2
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by Loislaw.com................ shares
Shares offered by the selling stockholder.... shares
Total shares outstanding after this
offering.................................... shares
Use of proceeds by Loislaw.com............... For debt reduction, redemption of
preferred stock, continued development
of legal databases, expansion of
marketing and sales activities,
potential acquisitions and other general
corporate purposes.
Proposed Nasdaq National Market symbol....... LOIS
</TABLE>
The common stock to be outstanding after the offering is based on the shares
outstanding as of March 31, 1999 and does not include the following:
. 500,000 shares of common stock reserved for issuance under our employee
stock option plan, of which options to purchase 291,561 shares are
currently outstanding;
. 320,000 shares of common stock that we intend to reserve for issuance
under a stock option plan for nonemployee directors, including shares
that will be covered by options we intend to grant with exercise prices
equal to the initial public offering price;
. shares that we intend to reserve for issuance under an employee
stock purchase plan; and
. 17,768 shares reserved for issuance under outstanding warrants.
Unless otherwise indicated, all information contained in this prospectus
reflects:
. a -for-one stock split to be effected before the completion of this
offering;
. the conversion of Series A convertible preferred stock and Series C
convertible preferred stock into common stock, which will occur
immediately upon the completion of this offering; and
. does not include shares subject to the underwriters' over-allotment
option.
Risk Factors
You should consider the risk factors before investing in Loislaw.com's
common stock, and the impact of various events that could adversely affect our
business.
3
<PAGE>
Summary Financial Data
The summary financial data set forth below should be read in conjunction
with Loislaw.com's financial statements and notes and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
Years Ended December Three Months
31, Ended March 31,
------------------------- ----------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
Statement of Operations Data: (in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Web-based product revenue....... $ 28 $ 208 $ 842 $ 115 $ 499
CD-ROM product revenue.......... 1,855 3,157 3,182 737 837
Other........................... -- -- 1,000 117 --
------- ------- ------- ------- -------
Total revenues................... 1,883 3,365 5,024 969 1,336
------- ------- ------- ------- -------
Costs and expenses............... 5,125 5,574 12,111 2,555 3,484
------- ------- ------- ------- -------
Loss from operations............. (3,242) (2,209) (7,087) (1,586) (2,148)
Other income (expenses).......... (249) (461) (1,507) (278) (592)
------- ------- ------- ------- -------
Net loss......................... (3,491) (2,670) (8,594) (1,864) (2,740)
Accrued preferred stock dividends
and accretion on redeemable
preferred stock and common stock
warrants........................ -- (34) (500) (105) (206)
------- ------- ------- ------- -------
Net loss applicable to common
stock........................... $(3,491) $(2,704) $(9,094) $(1,969) $(2,946)
======= ======= ======= ======= =======
Net loss per share--basic and
diluted......................... $ (0.99) $ (0.76) $ (2.52) $ (0.55) $ (0.75)
======= ======= ======= ======= =======
Weighted average common stock
outstanding--basic and diluted.. 3,529 3,581 3,611 3,590 3,950
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
December 31, March 31,
------------- -------------
1997 1998 1998 1999
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Other Data (unaudited):
Web-based new sales(1)................. $ 485 $1,985 $ 181 $ 608
CD-ROM new sales(1).................... 2,370 2,081 462 256
------ ------ ------ ------
Total new sales(1).................... $2,855 $4,066 $ 643 $ 864
====== ====== ====== ======
</TABLE>
- --------
(1) New sales represent the total contract value of all new product sales to
existing and new customers, excluding renewals of existing subscriptions of
web-based or CD-ROM products.
The Pro Forma column included in the Balance Sheet Data adjusts the numbers
in the Actual column to give effect to:
. the exercise on May 19, 1999 of warrants for 1,056,616 shares of common
stock at $.01 per share;
. the issuance on May 25, 1999 of 2,495,697 shares of Series C convertible
preferred stock and 86,059 shares of common stock, in each case at $5.81
per share, a portion of which was paid for by conversion of the 12.5%
Senior Subordinated Convertible Notes, and the use of the proceeds to
pay accrued interest related to the convertible notes and $555,000 of
costs of issuance; and
. the elimination of the redemption features on 365,346 shares of common
stock.
4
<PAGE>
The Pro Forma as Adjusted column included in the Balance Sheet Data set
forth below adjusts the numbers in the Actual column to give effect to the
proforma adjustments described in the preceding paragraph and:
. the sale of shares of common stock at an assumed public offering
price of $ per share by us in this offering;
. the conversion of 931,044 shares of Series A convertible preferred stock
and 2,495,697 shares of Series C convertible preferred stock into
3,426,741 shares of common stock immediately upon completion of this
offering;
. the elimination of the redemption feature of outstanding warrants for
17,768 shares of common stock; and
. our application of $4,855,385 to redeem 439,589 shares of Series B
redeemable preferred stock and accrued dividends on this stock and $
to repay outstanding debt with a portion of the net proceeds of this
offering.
. the loss or extinguishment of debt attributable to the write-off of
deferred loan costs in the amount of $ as a result of repaying the
related debt.
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------------
Pro Forma
Actual Pro Forma as Adjusted
Balance Sheet Data (unaudited): -------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Cash and cash equivalents..................... $ 20 $12,454 $
Working capital (deficit)..................... (6,341) 6,114
Total assets.................................. 22,016 34,451
Total debt (including capital lease
obligations)................................. 17,589 15,589
Deferred revenues............................. 3,802 3,802
Redeemable equity securities.................. 12,353 25,119
Total stockholders' deficit................... (17,065) (15,375)
</TABLE>
5
<PAGE>
RISK FACTORS
You should consider carefully the following risk factors in addition to the
other information set forth in this prospectus before purchasing shares of
common stock of Loislaw.com. Each of these risk factors could adversely affect
our business, operating results and financial condition as well as adversely
affect the value of an investment in our common stock.
Risks Particular to Loislaw.com
We have operated at a loss in recent periods and may not become profitable
in the future.
We had net operating losses of $3.5 million in 1996, $2.7 million in 1997,
$8.6 million in 1998 and $2.7 million in the three months ended March 31,
1999. These losses have resulted principally from expenses related to data
conversion and the marketing costs incurred with the introduction of our new
products in the various state markets. We expect operating losses and negative
cash flows to continue for the foreseeable future as we continue to incur
significant operating expenses and make capital investments in our business.
We may never generate sufficient revenues to achieve profitability. Even if we
do become profitable, we may not be able to sustain or increase profitability
on a quarterly or annual basis. At March 31, 1999, we had an accumulated
deficit of $17.5 million.
The competition in our industry is intense, our principal competitors have
significantly greater resources than we do and this competition may
adversely affect our financial results.
The market for electronic legal information is currently dominated by
LEXIS/NEXIS, which is owned by Reed-Elsevier, and West Group, a division of
The Thomson Corporation. These competitors are both large, well-established
companies. They offer databases that are similar to or in some cases larger
than the databases that we offer. Our competitors have longer operating
histories, greater name recognition, larger customer bases and significantly
greater financial, technical and marketing resources than Loislaw.com. This
may enable them to undertake more extensive marketing campaigns, to respond
more quickly to new or emerging technologies and changes in customer
requirements, or to devote greater resources to the development, promotion and
sale of their products than we can. LEXIS/NEXIS and West Publishing Company
have significant penetration in the large law firm market, a market in which
we intend to compete.
In addition, we compete with companies that offer fee-based access to
selected legal databases over the Internet. These companies may be more
successful than we may be in capturing market share.
Our results of operations are subject to significant quarterly fluctuations
and may not be a good indicator of future results, which could result in
lower prices for our common stock.
Our quarterly operating results have been affected by the spending patterns
of small law firms, which constitute our primary customers. In the future, our
quarterly results may also be affected by other factors that are beyond our
control, including:
.introduction of new products or pricing programs by our competitors;
.difficulties in managing growth;
.technical difficulties or system downtime affecting our web-based
products;
.other business interruptions;
.increases in selling and marketing expenses, as well as other operating
expenses;
.Year 2000 problems with our technology or the technology of third parties
with which we do business;
6
<PAGE>
.the amount and timing of costs associated with the development and
introduction of new database products;
. economic conditions specific to the Internet or to the legal profession,
as well as general economic conditions; and
.costs and risks associated with potential acquisitions.
In addition, a substantial portion of our expenses, including most product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our projected revenue does not meet our expectations,
then our operating profit (loss) may fall short of our expectations. Further,
we may change our pricing strategy for our products due to the rapidly evolving
market for electronic legal information, and this may affect our quarterly
results.
Any one or more of these factors could affect our business, financial
condition and results of operations, and this makes the prediction of results
of operations on a quarterly basis unreliable. As a result, we believe that
period-to-period comparisons of our historical results of operations are not
necessarily meaningful and that you should not rely on them as an indication of
future performance. Also, due to these and other factors, it is possible that
our quarterly results of operations may be below the expectations of public
market analysts and investors. This could adversely affect the price of our
common stock.
We could be subject to legal liability relating to the information on our
web site.
Although we perform extensive quality control tests on information we
include in our databases, we cannot achieve 100% accuracy. We may be subject to
claims based on negligence or other theories relating to the information we
distribute. These types of claims could be time-consuming and expensive to
defend and could result in the diversion of our management's time and
attention. We maintain business liability insurance and provide no express or
implied warranties to our customers, but our insurance and our contracts with
customers may not fully protect us against these types of claims.
Rapid growth could strain our operational and financial resources.
Since we began delivering our legal information databases over the Internet
in July 1996, we have experienced rapid growth in our operations. This growth
has placed a strain on our operational and financial resources. Any increase in
the volume of users of our computer system could strain the capacity of our
software or hardware, which could lead to slower response times or system
failures. Any future growth may require us, among other things, to:
. expand and upgrade our hardware and software systems;
. expand and improve our operational and financial procedures, systems and
controls;
. improve our financial and management information systems;
. expand, train and manage a larger workforce; and
. improve the coordination among our technical, sales and marketing,
financial, accounting and management personnel.
We cannot assure you that our personnel, systems and controls will be
adequate to support future growth, if any. Our inability to manage growth
effectively or to maintain the quality of our products and services could
materially and adversely affect our business, results of operations and
financial condition.
If we do not increase awareness of our brand name, our ability to reach new
customers will be limited.
Our future success will depend, in part, on our ability to increase
awareness of our brand name and our loislaw.com web site by potential
customers. In order to do so, we must succeed in our marketing efforts, provide
high-quality products and services and increase traffic to our web site. We
intend to increase our marketing budget substantially as part of our brand-
building efforts. If our marketing efforts are unsuccessful or if we cannot
increase our brand awareness, our business, financial condition and results of
operations will be materially and adversely affected.
7
<PAGE>
Our inability to penetrate the large law firm, corporate legal department
and consumer markets could adversely affect our business.
Substantially all of our revenues to date have been generated by sales of
our products to law firms having 20 or fewer lawyers. Our business plan calls
for increased sales to large law firms and legal departments of corporations
and the development of a consumer-oriented web site. The large law firm market
for electronic legal information is dominated, and is likely to be dominated
for the near future, by West Group and LEXIS-NEXIS, our two principal
competitors. Moreover, we have little experience designing products and serving
the needs of large law firms, legal departments of corporations or consumers.
In addition, if we do not complete our comprehensive state law databases for
all 50 states by December 31, 1999, it could have a material adverse effect on
our ability to penetrate the large law firm, and corporate legal department
markets. Our inability to market our products to large law firms, legal
departments of corporations or consumers successfully would prevent us from
carrying out our business plan.
The loss of our relationships with courts and legislatures could adversely
affect our business by increasing the time and expense required to convert
legal data.
Loislaw.com maintains databases consisting of court decisions, statutes,
regulations, administrative decisions and other legal information that has been
provided to us by various courts and legislatures. We have formal agreements
with some but not all of these data providers. Our ability to maintain our
relationships with courts and legislatures and to build new relationships with
additional data providers is critical to the success of our business. If we
were not able to obtain data directly from courts and legislatures, we would
have to obtain it in printed format, which would significantly increase the
time and expense required to convert the information into the format we use for
our products. We obtain data from most courts and legislatures free of charge
or at nominal costs. If any of them began to charge us significant fees for
providing court decisions, statutes and other data, our costs of data
acquisition could increase significantly. The loss of any relationships with
data providers, or any significant increase in data acquisition costs, could
materially and adversely affect our business, operating results or financial
condition.
System failures could interrupt delivery of our web site service and
adversely affect our business.
The continued and uninterrupted performance of our computer system is
critical to our success. Any system failure that causes interruptions in our
ability to deliver our products to our customers, including failures that
affect our ability to collect information from our data providers, could reduce
customer satisfaction and, if sustained or repeated, would reduce the
attractiveness of our services. We also face the risk of a security breach of
our computer system which could disrupt the distribution of our legal
information. The number of visits to our web site has been increasing, and we
have had to purchase additional computer equipment to handle the increased
traffic. Further increases in traffic on our web site could strain our systems
and increase the likelihood of system failures. Any of these problems could
materially and adversely affect our business, results of operations and
financial condition.
Our operations are dependent on our ability to protect our computer system
against damage from computer viruses, fire, power loss, telecommunications
failures, vandalism and other malicious acts, and similar unexpected adverse
events. In addition, a failure of our telecommunication providers to provide
the data communications capacity in the time frame required by us for any
reason could cause interruptions in the delivery of our products. Substantially
all of our computer and communications hardware is located at a single facility
in Van Buren, Arkansas, and the loss of this hardware or the data it contains
would cause us not to be able to operate our business for a substantial period
of time. Unanticipated problems could interrupt or delay access to our web-
based products. Although we carry general liability insurance, our insurance
may not cover any claims by dissatisfied subscribers or may not be adequate to
indemnify us for any liability we may incur if we are sued. Any system failure,
security breach or other damage that interrupts or delays our operations could
materially and adversely affect our business, results of operations and
financial condition.
8
<PAGE>
Our reliance on third parties for critical products and services creates
risks of business interruption.
We rely on third parties to convert some of our printed materials into
electronic format, which we then edit and code into our legal databases. Our
ability to expand our product offering depends upon the simultaneous expansion
of our legal databases. Any interruption or termination of our arrangements
with third-party data converters could result in increased costs to us or a
slow-down in our expansion and product introduction plans while we locate
alternative sources for the data conversion or increase our own conversion
capabilities. Our three primary third-party data converters are located in
foreign countries. There are numerous risks related to our business with
foreign companies, including the adoption of laws and changes in political and
economic conditions that could restrict or eliminate our ability to do business
in certain jurisdictions.
We depend heavily on our management team, which has little experience
working together or in managing a public company.
Our success depends, to a significant extent, upon the efforts and abilities
of Kyle D. Parker, our Chairman of the Board and Chief Executive Officer, Mark
O. Beyland, our President and Chief Financial Officer, and other members of
senior management. Loss of their services could materially and adversely affect
our business, results of operations and financial condition. In addition, the
rapid growth of our operations has strained our managerial resources. Until
recently, Mr. Parker also performed the duties of president and chief financial
officer. We hired Mr. Beyland in May 1999 to serve as our President and Chief
Financial Officer. The short period of time that our senior officers have
worked together, or their inability to work successfully together, may
adversely affect our ability to manage growth. Moreover, none of our officers
has ever been a senior executive of a public company. Our management team may
not be able to manage future growth, if any, or the demands of successfully
operating a public company.
There is intense competition for qualified personnel necessary to the
success of our business.
Our future success also depends upon our ability to attract and retain
qualified computer programmers and other technical personnel and sales and
marketing personnel. We do not have employment agreements with any of our
employees, other than senior management. Competition for talented personnel,
particularly technical personnel, is intense. This competition could increase
the costs of hiring and retaining personnel. We may not be able to attract,
retain and adequately motivate our personnel or to integrate new personnel into
our operations successfully. Our failure to do so could adversely affect our
business.
If our software becomes defective, it could be costly for us to correct.
Complex software such as the software we develop for our products may
contain errors or defects, especially when first implemented, that may be
costly to correct. Defects or errors also could result in downtime and our
business could suffer significantly from potential adverse customer reaction,
negative publicity and harm to our reputation.
We may not be able to protect our proprietary technology and we may
infringe the proprietary rights of others.
Our services are highly dependent upon proprietary technology. We rely on
contracts, copyright, trademark and trade secrecy laws and confidentiality
agreements to protect our proprietary rights in our technology. We have also
obtained several trademark registrations for our various product names. These
measures may not be adequate to protect our proprietary technology. Our
competitors or potential competitors may independently develop technologies
that are substantially equivalent or superior to our technology. We have
developed many of our software programs in-house. These programs interact with
and perform numerous functions similar to software available from third
parties. Therefore, although we do not believe we infringe any proprietary
rights, we could be subject to claims that our technology infringes the
proprietary rights of third parties. These claims, even if without merit, could
subject us to costly litigation and could divert the time and attention of our
technical and management teams.
9
<PAGE>
Potential problems related to the Year 2000 may decrease use of Internet
services, cause harm to our reputation and adversely affect our business.
Our business could be adversely affected if the systems on which we depend
to conduct our operations are not Year 2000 compliant. Our potential areas of
exposure include products purchased from third parties and computers, software,
telephone systems and other equipment used internally. If any of our
significant hardware or software systems are not Year 2000 compliant, our web
site could be unavailable and we would not be able to deliver products to our
users over the Internet. Many third parties with which our computer systems
interact have not responded to our inquiries about their Year 2000 compliance.
Any failure by us to address our Year 2000 compliance issues successfully, or
of our suppliers and other third parties with which we conduct business to
address their Year 2000 issues successfully, could materially and adversely
affect our business, operating results and financial position.
We may be unable to make attractive acquisitions or integrate acquired
companies, and our inability to do so may disrupt our business.
Our business strategy calls for acquisitions of businesses or technologies
that complement our current business. We cannot assure you that we will be able
to identify attractive acquisition opportunities. Even if we do identify
attractive candidates, we cannot assure you that we will be able to complete
the acquisition of them or do so on commercially acceptable terms. If we
acquire another business, we could have difficulty integrating its operations,
systems, management and other personnel and technology with our own. These
difficulties could disrupt our ongoing business, distract our management and
employees, increase our expenses and adversely affect our results of
operations. Even if these difficulties could be overcome, we cannot assure you
that the anticipated benefits of any acquisition would be realized. In
addition, we may incur debt or issue equity securities to pay for any future
acquisitions. The issuance of equity securities could be dilutive to our
existing stockholders.
Risks Related to Our Industry
Our market is new and rapidly evolving and we may not be able to accurately
predict and respond to market developments.
The market for web-based distribution of electronic legal information has
only recently begun to develop and it is rapidly evolving. This makes it
difficult to predict demand and market acceptance for our products as well as
an appropriate pricing strategy for our products. We cannot guarantee that the
market for our products will grow, that our products will become widely
accepted or that our pricing strategy will be successful. If the market for our
products does not develop as quickly as we expect, if our products are not
accepted by customers or if our pricing strategy is not successful our future
financial results will be adversely affected.
Availability of free information from Internet portal companies may lessen
the demand for our products.
We compete with Internet portal companies that offer free access to
government sponsored sites that provide some of the same information that we
provide. These companies often expect to achieve high
10
<PAGE>
enough usage to allow them to achieve profitability by selling advertising on
their sites. Substantial amounts of free legal information is also available
over the Internet and from other sources, such as courts and other government
agencies. This free information may lessen the demand for our products.
If we do not respond to rapid technological change and evolving industry
standards, we will be at a competitive disadvantage.
The market for web-based products and services is characterized by rapid
technological developments, evolving industry standards and customer demands
and frequent new product and service introductions and enhancements. As a
result, our success depends upon our ability to improve the performance,
content and reliability of our products in response to both evolving demands of
the legal community and competitive product offerings. We cannot assure you
that we will be able to do so successfully or that any enhancements or new
products that we introduce will gain acceptance in the marketplace.
A downturn in the legal industry could adversely affect our business.
Our business depends on the continued demand for legal information in
electronic format. Therefore, any downturn in business for the legal profession
could materially and adversely affect our business, results of operations and
financial condition.
Our success is tied to the adequacy of the Internet infrastructure and the
continued growth and commercial viability of the Internet.
Loislaw.com's success depends in large part on the maintenance of the
Internet infrastructure as a reliable network backbone that provides adequate
speed, data capacity and security. Our success also depends on the timely
development of products, such as high-speed modems, that enable reliable
Internet access and services. The Internet may continue to experience
significant growth in the number of users, frequency of use and amount of data
transmitted. The Internet infrastructure may not be able to support the demands
placed on it and the performance or reliability of the Internet may be
adversely affected by this continued growth. In addition, the Internet could
lose its commercial viability if the number of people who use the Internet does
not continue to grow. A number of factors, including unreliable service or
concerns about security, could impede this growth. The infrastructure or
complementary products and services necessary to maintain the Internet as a
viable commercial medium may not be developed, and the Internet may not
continue to be a viable commercial medium for Loislaw.com.
Changes in government regulations could adversely affect our business by
increasing costs.
Currently there are few laws or regulations that specifically regulate
communications or commerce on the Internet. However, laws and regulations may
be adopted that address issues such as pricing and the characteristics of
products and services. In addition, several telecommunications companies have
petitioned the Federal Communications Commission to regulate Internet and on-
line service providers in a manner similar to long distance telephone carriers
and to impose access fees on them. This could increase the cost of transmitting
data over the Internet. Finally, state tax laws and regulations relating to the
provision of products and services over the Internet are still developing. A
few states have tried to impose taxes on products and services provided over
the Internet. If additional states try to do so, the cost of our products may
increase and we may not be able to increase the price that we charge for our
products to cover these costs. Most states impose sales taxes on sales of
information delivered in CD-ROM format. Any new laws or regulations or new
interpretations of existing laws and regulations relating to the Internet, or
any increases in taxes imposed on CD-ROM sales, could adversely affect our
business.
11
<PAGE>
Risks Related to This Offering
You will suffer immediate and substantial dilution of your investment in
Loislaw.com.
You will experience an immediate and substantial dilution of $ per share
in the net tangible book value per share of common stock from the initial
public offering price. Assuming an initial public offering price of $ per
share of common stock, our net tangible book value as of June , 1999, after
giving effect to this offering, is $ per share. See "Dilution" for more
detailed information about the dilution that you will incur.
Existing stockholders will continue to control Loislaw.com.
Following this offering, Kyle D. Parker, Mark O. Beyland, Capital Resource
Lenders III, L.P., CRP Investment Partners III, LLC, Sandler Capital Partners
IV, L.P., Sandler Capital Partners IV, FTE, L.P., Exeter Capital Partners IV,
L.P., Rowland Moriarty and Dublind Partners Inc. will beneficially own % of
our outstanding common stock ( % if the underwriters' over-allotment option is
exercised in full). If these persons acted together, they would have sufficient
voting power to control the outcome of corporate actions submitted to the
stockholders for approval and to control the management and affairs of the
company. In addition, our existing stockholders have agreed that for so long as
each of (a) Capital Resource Lenders III, L.P. and (b) Sandler Capital Partners
IV, L.P. and Sandler Capital Partners IV, FTE, L.P. own at least 10% of the
common stock of Loislaw.com, they will vote their shares of common stock in
favor of the election to our Board of Directors of one representative
designated by Capital Resource Lenders III, L.P. and one representative
designated by the Sandler parties pursuant to an Amended and Restated
Stockholders' Agreement dated May 25, 1999.
There has been no prior public market for our stock and our stock price may
be extremely volatile.
Prior to this offering, there has not been a public market for our common
stock. We intend to include the common stock for quotation in the Nasdaq
National Market. We do not know the extent to which investor interest in
Loislaw.com will lead to the development of a trading market for the common
stock or how the common stock will trade in the future. The public offering
price will be determined by negotiations among us, the selling stockholder and
the representatives of the underwriters. You may not be able to resell your
shares at or above the initial public offering price.
The price at which our common stock will trade depends upon a number of
factors, including our historical and anticipated operating results and general
market and economic conditions, some of which are beyond our ability to
control. Factors such as fluctuations in our financial and operating results
and developments affecting us and the markets or industry in which we compete
could also cause the market price of our common stock to fluctuate
substantially. In addition, the stock market, and the technology sector of the
stock market, have from time to time experienced extreme price and volume
fluctuations. These market fluctuations may adversely affect the market price
of our common stock.
The large number of shares of our stock eligible for future sale, and
registration rights we have granted to third parties, may cause the price
of our common stock to drop.
After this offering, we will have outstanding shares of common stock
( shares if the underwriters' over-allotment option is exercised in full).
This includes the shares we are selling in this offering ( shares if the
underwriters' over-allotment option is exercised in full), which may be resold
in the public market immediately without restrictions under the Securities Act,
except for any shares purchased by "affiliates" of Loislaw.com (as defined in
Rule 144 under the Securities Act). All of our officers, directors and current
stockholders, including the selling stockholder, option holders and warrant
holders, who collectively own the remaining 8,829,091 shares of our common
stock, have entered into lock-up agreements pursuant to which they have agreed
not to offer or sell any shares of common stock for a period of 180 days after
the date
12
<PAGE>
of this prospectus without the prior written consent of Prudential Securities,
on behalf of the underwriters. Prudential Securities may, at any time and
without notice, waive the terms of these lock-up agreements specified in the
underwriting agreement. Upon expiration of the lock-up period, these 8,829,091
shares may be sold in the future subject to compliance with the volume
limitations and other restrictions of Rule 144. See "Underwriting."
We have granted to certain stockholders the right to require us to file with
the Securities and Exchange Commission a registration statement covering the
resale of their 3,444,509 shares of common stock. These stockholders purchased
preferred stock from Loislaw.com that will be converted into common stock
immediately upon completion of this offering. In addition, if we register
common stock for sale in the future, these stockholders and several other
stockholders who purchased common stock from us, or who have warrants to
purchase common stock, have the right to include their shares of common stock
in the registration. See "Description of Capital Stock."
The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that they could occur.
These factors could also make it more difficult to raise funds through future
offerings of common stock.
You should not expect to receive dividends from us.
We do not expect to declare or pay any cash dividends in the near future. In
addition, our agreement with Fleet National Bank, N.A., with whom we have lines
of credit, prohibits us from paying dividends.
Our management has broad discretion over the use of the net proceeds from
this offering and may allocate these net proceeds in ways in which you do
not agree.
A significant portion of the anticipated net proceeds to Loislaw.com from
this offering have not been designated for specific uses. Accordingly,
management will have broad discretion with respect to the use of these funds.
Our charter and the Delaware General Corporation Law may inhibit a
takeover.
Certain provisions of our certificate of incorporation and bylaws may make
it more difficult for a third party to acquire Loislaw.com, or may discourage
acquisition bids for Loislaw.com and could limit the price that certain
investors might be willing to pay in the future for shares of our common stock.
For example, we have a classified board and after the completion of this
offering and the conversion of the Series A convertible preferred stock and the
Series C convertible preferred stock into common stock, and after the
redemption of the Series B redeemable preferred stock, the Board of Directors
of Loislaw.com will have the authority to issue up to 10,000,000 additional
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions of those shares without any further vote or action by the
stockholders.
13
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of
risks, uncertainties and assumptions including, among other things:
. General economic and business conditions, both nationally and in our
markets;
. Assumed growth in usage of the Internet;
. Assumed growth in the number of lawyers;
. Our expectations and estimates concerning future financial performance,
financing plans and the impact of competition;
. The impact of year 2000 problems;
. Anticipated trends in our business;
. Existing and future regulations affecting our business;
. Our acquisition opportunities; and
. Other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe", "may", "will",
"estimate", "continue", "anticipate", "intend", "expect" and similar
expressions, as they relate to Loislaw.com, our business or our management, are
intended to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-
looking statements.
14
<PAGE>
USE OF PROCEEDS
The net proceeds to Loislaw.com from the sale of common stock by us in this
offering, assuming a public offering price of $ per share, are estimated to
be $ ($ if the underwriters exercise their over-allotment option in
full), after deducting underwriting discounts and commissions and estimated
offering expenses of $ . We intend to use these net proceeds for the
following purposes:
. We intend to use approximately $10.2 million of the net proceeds to us to
repay principal and interest on three senior subordinated notes issued by
us to Capital Resource Lenders III, L.P., CRP Investment Partners III,
L.P. and Rowland Moriarty. These notes bear interest at a rate of 12.5%
per year and are due November 30, 2003, unless accelerated upon the
occurrence of any one of several events;
. We will use approximately $5.0 million of the net proceeds to us to
redeem the 439,589 shares of Series B redeemable preferred stock plus
accrued dividends held by Melissa Parker. For more information, see
"Certain Transactions";
. We intend to use a significant amount of the net proceeds to us to
continue to develop our legal databases;
. We will repay $1.2 million outstanding under our secured converting
equipment line of credit and $3.1 million under our two secured lines of
credit for database development with Fleet National Bank, N.A. Amounts
outstanding under these lines of credit bear interest at a rate of prime
plus 1.5%;
. We will pay $250,000 to Dublind Partners, Inc. for financial advisory
services; and
. We intend to use a significant portion of the net proceeds to us to
expand our marketing and sales activities.
We have broad discretion regarding the use of some of the proceeds to us
from this offering. We intend to use the remaining net proceeds for general
corporate purposes, including working capital. We may also use a portion of the
net proceeds to acquire or invest in complementary businesses or products or to
obtain the right to use complementary technologies.
Pending these uses, we may invest the net proceeds temporarily in short-
term, investment grade, interest-bearing securities or guaranteed obligations
of the U.S. government. We will not receive any proceeds from the sale of
common stock by the selling stockholder.
DIVIDEND POLICY
We have not declared or paid and do not anticipate declaring or paying any
dividends on our common stock in the near future. Any future payment of
dividends will be at the discretion of our Board of Directors and will depend
on then existing conditions, including our financial condition, results of
operations, contractual restrictions, capital requirements, business prospects
and other factors as our Board of Directors deems relevant. Moreover, we have
an existing line of credit with Fleet National Bank, N.A., that prohibits us
from declaring any dividend on any class of our stock, including the common
stock.
15
<PAGE>
CAPITALIZATION
The following table displays our Actual, Pro Forma and Pro Forma as Adjusted
capitalization as of March 31, 1999. Capitalization consists of long-term debt,
including the current portion, redeemable equity securities and stockholders'
equity (deficit). Our Pro Forma capitalization reflects (a) the issuance on May
25, 1999 of 2,495,697 shares of Series C convertible preferred stock and 86,059
shares of common stock, in each case at $5.81 per share, a portion of which was
paid for by conversion of the 12.5% Senior Subordinated Convertible Notes, and
the use of the proceeds to pay accrued interest related to the convertible
notes and $555,000 of costs of issuance; (b) the elimination of the redemption
features on 365,346 shares of common stock and (c) the exercise on May 19, 1999
of warrants for 1,056,616 shares of common stock at $.01 per share. Our Pro
Forma As Adjusted capitalization reflects the pro forma adjustments described
in the previous sentence and: (a) the conversion of 931,044 shares of Series A
convertible preferred stock and 2,495,697 shares of Series C convertible
preferred stock into 3,426,741 shares of common stock immediately upon
completion of this offering; (b) the sale of shares of common stock at an
assumed public offering price of $ per share by us in this offering; (c) the
elimination of the redemption feature of warrants for 17,768 shares of common
stock; (d) our application of $4,855,385 to redeem 439,589 shares of Series B
redeemable preferred stock and accrued dividends on this stock and $ to
repay outstanding debt with a portion of the net proceeds of this offering; and
the loss or extinguishment of debt attributable to the write-off of deferred
loan costs in the amount of $ as a result of repaying the related debt.
<TABLE>
<CAPTION>
March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term debt, including current portion:
12.5% Senior Subordinated Notes.............. $ 10,000 $ 10,000 $
12.5% Senior Subordinated Convertible Note... 2,000 --
Notes payable due in monthly installments.... 4,222 4,222
Revolving line of credit..................... 1,336 1,336
Capital lease obligation..................... 32 32
-------- -------- ---
Total long-term debt....................... 17,590 15,590
-------- -------- ---
Redeemable equity securities:
Series A preferred........................... 2,674 2,674
Series B preferred, including accrued
dividends................................... 4,855 4,855
Series C preferred........................... -- 13,964
Common stock................................. 1,208 3,566
Common stock warrants........................ 3,616 60
-------- -------- ---
12,353 25,119
-------- -------- ---
Stockholders' equity (deficit)(1):
Common stock, $.001 par value; 10,000,000
shares authorized; 3,955,346 shares issued
and 5,098,021 and shares issued pro
forma and pro forma as adjusted,
respectively................................ 4 5
Additional paid-in capital................... 1,638 5,685
Accumulated deficit.......................... (17,483) (17,483)
Redeemable common stock...................... (1,208) (3,566)
Treasury stock at cost, 5,000 common shares.. (16) (16)
-------- -------- ---
Total stockholders' equity (deficit)....... (17,065) (15,375)
-------- -------- ---
Total capitalization....................... $ 12,878 $ 25,334 $
======== ======== ===
</TABLE>
- --------
(1) Excludes 500,000 shares of common stock reserved for issuance under our
incentive stock option plan, of which options to purchase 291,561 shares
are currently outstanding, 320,000 shares of common stock that we intend to
reserve for issuance under a stock option plan for nonemployee directors,
and shares of common stock that we intend to reserve for issuance under
an employee stock purchase plan. Also excludes 17,768 shares reserved for
issuance pursuant to outstanding warrants.
16
<PAGE>
DILUTION
Purchasers of the common stock in this offering will experience immediate
and substantial dilution in the net tangible book value of the common stock
from the initial public offering price. Net tangible book value per share
represents the amount of the total tangible assets less total liabilities of
Loislaw.com, divided by the number of shares of common stock outstanding. At
June , 1999, Loislaw.com had a net tangible book value of $ million or $
per share of common stock. After giving effect to the sale of shares of
common stock offered by Loislaw.com at an assumed initial public offering price
of $ per share and after the deduction of underwriting discounts and
commissions and estimated offering expenses payable by us, the pro forma net
tangible book value of Loislaw.com at June , 1999 would have been $ million
or $ per share. This represents an immediate increase in net tangible book
value of $ per share to existing stockholders and an immediate and
substantial dilution of $ per share to new investors purchasing common stock
in this offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price............................. $
Net tangible book value as of June , 1999...................... $
Increase attributable to new investors.......................... $
Pro forma net tangible book value after this offering.............
----
Dilution in pro forma net tangible book value to new investors.... $
====
</TABLE>
The following table summarizes, on the pro forma basis set forth above as of
June , 1999, the differences between existing stockholders and new investors
in this offering with respect to the number of shares of common stock purchased
from us, the total consideration paid and the average consideration paid per
share (before the deduction of underwriting discounts and commissions and
offering expenses payable by us):
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------- ---------------------- Price
Number Percent Amount Percent Per Share
-------- -------- ---------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders... % $ % $
New investors........... % %
-------- -------- ---------- --------- ----
Total................. 100% $ 100% $
======== ======== ========== ========= ====
</TABLE>
The foregoing tables assume no exercise of the options or warrants
outstanding to purchase an additional shares of common stock at a weighted
average exercise price of $ per share. To the extent that these options or
warrants are exercised, there will be further dilution to new stockholders in
the net tangible book value of their shares. For more information, see
"Management--Equity Plans." In addition, the second table does not reflect the
sale of shares by the selling stockholder in this offering. These sales
will reduce the shares held by existing stockholders to of the total shares
of common stock to be outstanding after this offering, and will increase the
number of shares to be purchased by the new stockholders to of the total
shares of common stock to be outstanding after this offering. Finally, the
number of shares disclosed for existing stockholders includes 3,426,741 shares
of common stock expected to be issued immediately upon the completion of this
offering upon conversion of the outstanding Series A convertible preferred
stock and Series C convertible preferred stock. For more information, see
"Principal and Selling Stockholders."
17
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data set forth below should be read in conjunction
with our financial statements and notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations," appearing elsewhere
in this prospectus. The Statement of Operations data for the years ended
December 31, 1996, 1997 and 1998, and the Balance Sheet Data as of December 31,
1997 and 1998, have been derived from our audited financial statements and
notes appearing elsewhere in this prospectus. The balance sheet data as of
December 31, 1996 has been derived from our audited balance sheet that does not
appear in this prospectus. The statements of operations data and balance sheet
data as of and for the two years ended December 31, 1994 and 1995 have been
derived from our unaudited financial statements that do not appear in this
prospectus. The statement of operations data and balance sheet data as of and
for the three-month periods ended March 31, 1998 and 1999 are derived from
unaudited financial statements appearing elsewhere in this prospectus. In the
opinion of management, all unaudited financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of our financial position and results of operations for the
periods presented. The historical results are not necessarily indicative of the
operating results to be expected in the future.
<TABLE>
<CAPTION>
Three Months
Years Ended December 31, Ended March 31,
------------------------------------------ ----------------
1994 1995 1996 1997 1998 1998 1999
------ ------- ------- ------- ------- ------- -------
(unaudited) (unaudited)
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Web-based products.... $ -- $ -- $ 28 $ 208 $ 842 $ 115 $ 499
CD-ROM products....... 93 1,742 1,855 3,157 3,182 737 837
Other................. 1,381 -- -- -- 1,000 117 --
------ ------- ------- ------- ------- ------- -------
Total revenues...... 1,474 1,742 1,883 3,365 5,024 969 1,336
------ ------- ------- ------- ------- ------- -------
Costs and expenses:
Database cost......... 738 1,442 1,850 2,013 5,527 1,165 1,066
Costs of other
revenues............. 600 -- -- -- 393 46 --
Selling and
marketing............ 208 935 2,153 2,363 4,414 750 1,706
General and
administrative....... 301 289 1,071 1,150 1,331 451 525
Product development... 27 108 51 48 446 143 187
------ ------- ------- ------- ------- ------- -------
Total costs and
expenses........... 1,874 2,774 5,125 5,574 12,111 2,555 3,484
------ ------- ------- ------- ------- ------- -------
Loss from operations.... (400) (1,032) (3,242) (2,209) (7,087) (1,586) (2,148)
------ ------- ------- ------- ------- ------- -------
Other income (expenses):
Interest, net......... 13 (69) (251) (455) (1,549) (278) (593)
Other, net............ (74) 5 2 (6) 42 -- 1
------ ------- ------- ------- ------- ------- -------
(61) (64) (249) (461) (1,507) (278) (592)
------ ------- ------- ------- ------- ------- -------
Loss before income
taxes.................. (461) (1,096) (3,491) (2,670) (8,594) (1,864) (2,740)
Income tax benefit...... (99) (259) -- -- -- -- --
------ ------- ------- ------- ------- ------- -------
Net loss................ (362) (837) (3,491) (2,670) (8,594) (1,864) (2,740)
Accrued preferred stock
dividends and accretion
on redeemable preferred
stock and common stock
warrants .............. -- -- -- (34) (500) (105) (206)
------ ------- ------- ------- ------- ------- -------
Net loss applicable to
common stock........... $ (362) $ (837) $(3,491) $(2,704) $(9,094) $(1,969) $(2,946)
====== ======= ======= ======= ======= ======= =======
Net loss per share--
basic and diluted...... $(0.10) $ (0.24) $ (0.99) $ (0.76) $ (2.52) $ (0.55) $ (0.75)
====== ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding--
basic and diluted...... 3,500 3,500 3,529 3,581 3,611 3,590 3,950
====== ======= ======= ======= ======= ======= =======
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
December 31, March 31,
------------- -------------
1997 1998 1998 1999
------ ------ ------ ------
(in thousands)
<S> <C> <C> <C> <C>
Other Data (unaudited):
Web-based new sales(1).............................. $ 485 $1,985 $ 181 $ 608
CD-ROM new sales(1)................................. 2,370 2,081 462 256
------ ------ ------ ------
Total new sales(1)................................ $2,855 $4,066 $ 643 $ 864
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
As of
As of December 31, March 31,
-------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
------ ----- ------ ------ ------- ------ -------
(unaudited) (unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 40 318 102 3,233 99 3,621 20
Working capital
(deficit).............. (37) (629) (3,397) (514) (4,751) (177) (6,341)
Total assets............ 2,011 3,476 5,799 16,067 17,012 17,443 22,016
Total debt (including
capital lease
obligations)........... 116 1,744 3,963 4,107 12,272 7,099 17,589
Deferred revenues....... -- 157 1,754 3,522 3,928 3,616 3,802
Redeemable equity
securities............. -- -- -- 11,216 11,720 11,322 12,353
Total stockholders'
equity (deficit)....... 1,592 755 (2,436) (4,990) (14,100) (6,960) (17,065)
</TABLE>
- --------
(1) New sales represent the total contract value of all new product sales to
existing and new customers, excluding renewals of existing subscriptions of
web-based or CD-ROM products.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the "Selected Financial Data" and the accompanying financial statements and
related notes included elsewhere in this prospectus. The following discussion
contains forward-looking statements that reflect our plans, estimates and
beliefs. Our actual results may differ materially from those anticipated in
these forward-looking statements as a result of a number of factors, including
but not limited to those set forth under "Risk Factors" and included elsewhere
in this prospectus.
Overview
Loislaw.com provides comprehensive, affordable and easy-to-use legal and
related information over the Internet. We offer more than 950 databases that we
estimate to contain over 50 million pages of federal and state law, continuing
legal education materials and other legal information.
Since our inception in 1987, and our release of the first known
comprehensive legal research CD-ROM in 1989, we have concentrated on producing
high quality, comprehensive coverage of state and federal legal information.
Our first CD-ROM product contained legal information for Arkansas, and we have
added legal databases each year since then. From August 1991 to July 1994,
Thomson Legal Publishing Company marketed our products pursuant to an exclusive
marketing agreement. Substantially all of our other revenues of $1.4 million in
1994 represent payments made to us by Thomson in connection with this
agreement. This agreement was terminated by mutual consent in 1994. In August
1994, we began marketing our own CD-ROM products. At that time, we had 42
databases containing legal information for five states.
We generate revenues from the sale of web-based products and CD-ROM
products. Sales of web-based products and CD-ROM products consist primarily of
fixed annual subscription fees. The list price for unlimited Internet access to
substantially all federal and state law databases is $1,176 per seat per year.
The list price for unlimited Internet access to substantially all state law for
one state is $720 per seat per year. Continuing legal education and bar
materials are available for purchase at an additional charge. The list prices
for annual subscriptions for our CD-ROM products range from $300 to $700 per
state or federal jurisdiction. Pricing discounts on CD-ROM products are offered
mainly to customers who also purchase our web-based products. Our pricing
strategy may change as a result of our evolving market.
Upon the sale of a new subscription, the total amount of the subscription
fee is accounted for as deferred revenue. Revenues from subscription sales are
then recognized and charged against deferred revenue on a monthly basis over
the subscription period, which is typically one year. Subscription fees are
paid up front in cash or on a monthly basis by electronic funds transfer.
Revenues from CD-ROM products also include a small amount of revenue from one-
time sales of certain bar association publications.
Database costs consist primarily of database production costs that support
both our web-based products and our CD-ROM products. Since January 1, 1996, we
have spent more than $20 million on our database development. Database
development costs represent amounts incurred for data acquisition and
conversion, editing, coding and quality control of legal information, related
salaries and benefits, facilities cost allocation and related expenses
associated with computers for data processing. We capitalize costs related to
the production of databases containing court decisions. Court decisions
establish legal precedent that is valid until the decision is reversed by the
court or overruled by a higher court. Many court decisions are never reversed
or overruled. Therefore, court decisions, particularly those of the U.S. and
state supreme courts, have significant value for long periods of time or
indefinitely. We amortize our court decision databases over 20 years. We
expense as incurred costs related to the production of databases containing
statutes and regulations, the value of which declines rapidly if they are not
continually updated. We also expense as incurred database maintenance and
updating costs.
20
<PAGE>
During 1995, 1996 and 1997, substantially all of our new sales were sales of
CD-ROM products. We launched our web site, loislaw.com, in July 1996 and began
selling subscriptions to our web-based products in October 1996. Since then, we
have experienced a significant shift in the mix of new sales. New sales
represent the total contract value of all new product sales to existing and new
customers, excluding renewals of existing subscriptions of web-based or CD-ROM
products. In 1997, web-based products produced 17.0% of new sales and CD-ROM
products produced 83.0% of new sales. In 1998, web-based products produced
48.8% of new sales and CD-ROM products produced 51.2% of new sales. In the
first quarter of 1999, web-based products generated 70.4% of new sales, while
CD-ROM products fell to 29.6% of new sales. We expect that this trend will
continue and that sales of subscriptions to our web-based products will
represent an increasing percentage of new sales in future periods. This trend
in new sales, together with the continuing migration of existing CD-ROM
customers to our web-based products, will ultimately result in a larger portion
of total revenues being attributable to subscriptions to our web-based products
than to subscriptions to our CD-ROM products. Internet searches have also
increased rapidly. During the month of March 1999, we exceeded 1.4 million
searches on our web site compared to 146,000 during March 1998.
As of March 31, 1999, we had deferred loan costs of $3.8 million. These
deferred loan costs relate to debt that we plan to pay off with the net
proceeds from this offering. In the period that the debt is paid off, the
related deferred loan costs will be expensed and accounted for as an
extraordinary item.
Results of Operations
Comparison of Results for the Quarters Ended March 31, 1999 and 1998
Revenues. Total revenues increased 37.8% to $1.3 million for the quarter
ended March 31, 1999 from $969,000 for the quarter ended March 31, 1998.
Revenues from web-based products increased 332.8% to $499,000 for the quarter
ended March 31, 1999 from $115,000 for the quarter ended March 31, 1998. We
believe the increase in revenues from web-based products was due primarily to
the addition of new state-law databases, the increase in marketing efforts and
the expansion of our sales staff. We expect that this trend will continue and
that web-based product revenues will represent an increasing percentage of
total revenues in future periods. Revenues from CD-ROM products increased 11.3%
to $837,000 for the quarter ended March 31, 1999 from $737,000 for the quarter
ended March 31, 1998. This increase was less than the increase in web-based
product revenues due to the migration of some CD-ROM customers to our web-based
products and to the high percentage of new sales generated by web-based
products. Other revenues of $117,000 and costs of other revenues of $46,000 in
the first quarter of 1998 related to a customized database project that did not
recur in the first quarter of 1999.
Database costs. Total database costs decreased 8.6% to $1.1 million for the
quarter ended March 31, 1999 from $1.2 million for the quarter ended March 31,
1998. The decline in the costs in the first quarter of 1999 compared to the
first quarter of 1998 is attributable to our production of more court decision
databases, which we capitalized, in 1999, compared to our production of more
statute and regulation databases, which we expensed, in 1998.
Selling and Marketing Expense. Selling and marketing expense increased
127.5% to $1.7 million for the quarter ended March 31, 1999 from $750,000 for
the quarter ended March 31, 1998. This was principally due to a 93% increase in
compensation expense associated with an increase in the number of sales and
marketing personnel to 128 at March 31, 1999 from 60 at March 31, 1998. Selling
and marketing expense consists primarily of:
. employee salaries and benefits for marketing and customer support
personnel;
. sales commissions paid to our sales force;
. advertising expenses;
. the cost of direct marketing promotional materials; and
. facilities cost allocation and related expenses.
21
<PAGE>
We pay sales commissions when subscription agreements are signed. We record
commissions as prepaid commissions and amortize them ratably over the term of
the contract, typically one year, as we recognize the associated revenues. We
do not pay commissions on renewals of subscriptions. We expense all other
selling and marketing costs as incurred.
General and Administrative Expense. General and administrative expense
increased 16.4% to $525,000 for the quarter ended March 31, 1999 from $451,000
for the quarter ended March 31, 1998. This increase resulted primarily from an
increase in our number of employees and executive recruiting costs in the first
quarter of 1999. General and administrative expense consists primarily of
employee salaries and benefits, facilities cost allocation and related expenses
associated with our management, finance, human resources, management
information systems and administrative groups.
Product Development Expense. Product development expense increased 30.7% to
$187,000 for the quarter ended March 31, 1999 from $143,000 for the quarter
ended March 31, 1998. This increase was due to an increase in personnel
performing product development functions. Product development expense consists
primarily of employee salaries and benefits, facilities cost allocation and
expenses related to the development and enhancement of core software supporting
our products. Product development expense does not include the cost of
acquiring or converting the data that we include in our databases.
Interest Expense, Net. Interest expense, net of interest income, increased
113.1% to $593,000 for the quarter ended March 31, 1999 from $278,000 for the
quarter ended March 31, 1998. This increase was due primarily to an increase in
borrowings to support the rapid expansion of database production and the
related increase in selling and marketing efforts.
Comparison of Results for the Years Ended December 31, 1998 and December 31,
1997
Revenues. Total revenues increased 49.3% to $5.0 million in 1998 from $3.4
million in 1997. Revenues from web-based products increased 304.2% to $842,000
in 1998 from $208,000 in 1997. The increase in web-based revenues was due in
part to an increase in the number of legal databases we offered to 517 at
December 31, 1998 from 323 at December 31, 1997, expanded sales and marketing
efforts and the migration of some CD-ROM customers to our web-based products.
In addition, in October 1998 we changed our pricing strategy by eliminating the
requirement that customers purchase at least three "seats," or concurrent user
licenses. This change made our products more affordable to small law firms and
sole practitioners, and we believe it positively impacted sales of web-based
products in late 1998. By eliminating the package pricing associated with the
mandatory three-seat license, we also increased the average price of a single
seat. Revenues from CD-ROM products remained relatively flat at $3.2 million in
1998 and in 1997. Other revenues of $1.0 million and costs of other revenue of
$393,000 in 1998 resulted from a customized database development project for a
publishing company that was started and completed in 1998. We earned no revenue
from customized database development projects in 1997.
Database Costs. Total database costs increased 174.5% to $5.5 million in
1998 from $2.0 million in 1997. The increase in costs for 1998 compared to 1997
is attributable to our production of more databases containing statutes and
regulations, the costs of which we expensed as incurred, in 1998, compared to
our production of more databases containing court decisions, the costs of which
we capitalized, in 1997.
Selling and Marketing Expense. Selling and marketing expense increased 86.8%
to $4.4 million in 1998 from $2.4 million in 1997. This increase was
principally due to a 21.9% increase in sales commissions due to increased
product sales and a 124.0% increase in compensation expense associated with an
increase in the number of sales and marketing personnel to 87 at December 31,
1998 from 44 at December 31, 1997.
General and Administrative Expense. General and administrative expense
increased 15.7% to $1.3 million in 1998 from $1.2 million in 1997. This
increase primarily resulted from an increase in the number of employees
performing general and administrative functions.
22
<PAGE>
Product Development Expense. Product development expense increased 840.2% to
$446,000 in 1998 from $47,000 in 1997. The increase was due to an increase in
personnel performing development functions.
Interest Expense, Net. Interest expense, net of interest income, increased
240.7% to $1.5 million in 1998 from $455,000 in 1997. The increase was due
primarily to an increase in borrowings to support the rapid expansion of
database production and the related increase in selling and marketing efforts.
Comparison of Results for the Years Ended December 31, 1997 and December 31,
1996
Revenues. Total revenues increased 78.7% to $3.4 million in 1997 from $1.9
million in 1996. Revenues from web-based products increased to $208,000 in 1997
from $28,000 in 1996. We launched our loislaw.com web site in July 1996 and
began selling subscriptions to our web-based products in October 1996. Revenues
from CD-ROM products increased 67.7% to $3.2 million in 1997 from $1.9 million
in 1996. The increase in total revenues was due in part to a significant
increase in the number of legal databases we offered. At December 31, 1997, we
had 323 databases, compared to 223 at December 31, 1996.
Database costs. Total database costs increased 8.9% to $2.0 million in 1997
from $1.8 million in 1996. The increase in cost of revenues is attributable to
our production of more databases.
Selling and Marketing Expense. Selling and marketing expense increased 9.8%
to $2.4 million in 1997 from $2.2 million in 1996. This increase was
principally due to an increase in sales commissions due to increased product
sales and an increase in compensation expense associated with an increase in
the number of sales and marketing personnel. Prior to June 1996, we outsourced
selling and marketing to a third party.
General and Administrative Expense. Although general and administrative
expense remained relatively unchanged at $1.1 million in 1997 and in 1996, bad
debt expense declined from $525,000 in 1996 to $94,000 in 1997. This is
attributable primarily to the transfer of our sales, billing and collection
functions from third parties to in-house personnel in June 1996. This was
offset by the settlement of a lawsuit with a third party to which we outsourced
administrative tasks, consulting fees paid for the development of our
enterprise systems and an increase in the number of employees performing
general and administrative functions.
Product Development Expense. Product development expense remained relatively
unchanged at $47,000 in 1997 and $52,000 in 1996 as production personnel
efforts were focused primarily on development of databases in both 1996 and
1997.
Interest Expense, Net. Interest expense, net of interest income, increased
81.2% to $455,000 in 1997 from $251,000 in 1996. The increase was due primarily
to an increase in borrowings to support the rapid expansion of database
production and the related increase in selling and marketing efforts.
23
<PAGE>
Quarterly Results of Operations and Other Data
The following Statement of Operations Data table sets forth a summary of our
unaudited quarterly operating results for each of the five quarters in the 15-
month period ended March 31, 1999. This information has been derived from
unaudited interim financial statements that, in the opinion of management, have
been prepared on a basis consistent with the financial statements appearing
elsewhere in this prospectus and include all adjustments, consisting of only
normal recurring adjustments, necessary for a fair statement of this
information when read in conjunction with our financial statements and notes.
Our operating results and other data for any quarter do not necessarily
indicate what the results for any future period may be.
<TABLE>
<CAPTION>
1998 1999
------------------------------------------- --------
March 31 June 30 September 30 December 31 March 31
-------- ------- ------------ ----------- --------
(Unaudited, in thousands)
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues:
Web-based products..... $ 115 $ 157 $ 257 $ 313 $ 499
CD-ROM products........ 737 778 801 866 837
Other.................. 117 236 255 392 --
------- ------- ------- ------- -------
Total revenues....... 969 1,171 1,313 1,571 1,336
------- ------- ------- ------- -------
Costs and expenses:
Database costs......... 1,165 700 1,362 2,300 1,066
Costs of other
revenues.............. 46 101 102 144 --
Selling and marketing.. 750 1,035 1,228 1,402 1,706
General and
administrative........ 451 350 243 287 525
Product development.... 143 192 77 34 187
------- ------- ------- ------- -------
Total costs and
expenses............ 2,555 2,378 3,012 4,167 3,484
------- ------- ------- ------- -------
Loss from operations..... (1,549) (1,207) (1,699) (2,596) (2,148)
------- ------- ------- ------- -------
Costs and other income
(expense)............... (278) (364) (410) (455) (593)
------- ------- ------- ------- -------
Net loss................. $(1,864) $(1,571) $(2,109) $(3,051) $(2,740)
======= ======= ======= ======= =======
Other Data:
Web-based new sales(1)... $ 181 $ 552 $ 444 $ 807 $ 608
CD-ROM new sales(1)...... 462 626 593 401 256
------- ------- ------- ------- -------
Total new sales(1)... $ 643 $ 1,178 $ 1,037 $ 1,208 $ 864
======= ======= ======= ======= =======
</TABLE>
- --------
(1) New sales represent the total contract value of all new product sales to
existing and new customers, excluding renewals of existing subscriptions of
web-based or CD-ROM products.
Our quarterly revenues and results of operations have fluctuated
significantly in the past, and we expect them to continue to fluctuate
significantly in the future. Other revenues in all four quarters of 1998
resulted from a customized database development project for a publishing
company that was started and completed in 1998. Database costs have fluctuated
because during certain quarters we have had more costs related to statutes and
regulations that we expensed and in other quarters we have had more costs
related to court decisions that we capitalized. Other causes of quarterly
fluctuations have included and may include, among other factors:
.introduction of new products or pricing programs by our competitors;
24
<PAGE>
. difficulties in managing growth;
. technical difficulties or system downtime affecting our web-based
products;
. other business interruptions;
. changes in pricing strategy;
. increases in selling and marketing expenses, as well as other operating
expenses;
. Year 2000 problems with our technology or the technology of third parties
with which we do business;
. amount and timing of the costs associated with the development and
introduction of new database products;
. economic conditions specific to the Internet or to the legal profession,
as well as general economic conditions; and
. costs and risks associated with potential acquisitions.
Our quarterly operating results have also been subject to seasonal
fluctuations. Our results are affected by the spending patterns of small law
firms, which constitute our primary customers. These timing variations can
cause our revenues to fall short of our expectations and have an adverse effect
on our operating results.
In addition, we must incur a substantial portion of our expenses, including
certain product development and selling and marketing expenses in advance of
revenue generation. If our projected revenue does not meet our expectations,
then our operating profit (loss) is likely to fall even shorter of our
expectations.
Liquidity and Capital Resources
We have used substantial amounts of cash in the growth of our company.
Operating activities provided $199,000 in cash during 1996. Operating
activities used cash of $1.9 million in 1997 and $7.2 million in 1998,
primarily resulting from our net losses, reduced by depreciation and
amortization during those years. Although our net loss was $2.7 million in the
three months ended March 31, 1999, we used only $905,000 of cash in operations
due to longer payment terms with our third-party data converters. We expect to
continue to incur significant database production costs for the foreseeable
future. The continued development of new databases is expected to generate
losses for 1999 through the end of 2000.
Investing activities used cash of $2.8 million in 1996, $1.9 million in
1997, $4.0 million in 1998 and $4.5 million during the three months ended March
31, 1999. In 1996 and 1997, the primary use of cash was the payment of our
database development costs, which are capitalized. In 1998, $2.6 million of
these expenditures was for the payment of our database development costs, which
we capitalized, and $1.2 million was for property and equipment purchased to
support the growth of our business. In the first quarter of 1999, $3.5 million
of these expenditures was for the payment of our database development costs,
which we capitalized, and $860,000 of these expenditures was for property and
equipment purchased to support the growth of our business.
To finance our operations and continued expansion we have obtained
additional capital through a private placement of debt and equity and from
related party and bank financing. Total financing, net of repayments, was
approximately $2.4 million in 1996, $6.9 million in 1997 and $8.1 million in
1998 and $5.3 million during the three months ended March 31, 1999. Subsequent
to March 31, 1999, we have obtained additional financing from a private
placement of common stock and convertible preferred stock in the amount of
$15.0 million.
During the final nine months of 1999, we are obligated to pay $1.2 million
to a third party for data conversion services. During the final nine months of
1999, we anticipate spending significant amounts for data conversion costs in
connection with updating existing and acquiring new databases, for the purchase
of property and equipment and in connection with the development of a shadow
site fully equivalent to our current web site. We believe the recent private
placement of equity, available borrowings under our bank credit facility, cash
generated by operations and the proceeds of this offering will be adequate to
meet our anticipated cash needs for working capital and capital expenditures
for at least the next 12 months.
25
<PAGE>
As part of our growth strategy, we may consider acquiring companies or
businesses, and any acquisition could significantly increase our cash
requirements. We are not currently involved in any negotiations relating to any
acquisition. An acquisition, or any other increase in our anticipated cash
requirements, could require us to obtain additional financing. We cannot assure
you that additional financing would be available to us or, if available, that
we would be able to obtain it on terms we considered satisfactory. If we raise
capital through the issuance of additional equity securities, you may suffer
additional dilution in the value of the common stock you purchase in this
offering.
Our credit agreement with Fleet National Bank dated August 20, 1998, as
amended, establishes the following:
. a working capital revolving line of credit in the maximum principal
amount of $2.5 million;
. an equipment line of credit in the maximum principal amount of $1.0
million;
. a second equipment line of credit in the maximum principal amount of
$1.5 million; and
. a line of credit to finance the development of our databases in the
maximum principal amount of $7.0 million.
Each of these lines bears interest at a floating rate equal to a specified
percentage above the bank's prime rate. We must pay a commitment fee with
respect to the revolving line of credit in the amount of $6,250 per fiscal
quarter. In addition, the Fleet credit facility contains certain restrictive
covenants that obligate us to meet certain requirements and that, without the
prior written consent of the bank, prohibit us from incurring indebtedness
(other than certain permitted indebtedness) or declaring or paying dividends or
other distributions. As of March 31, 1999, we were in technical default under
the credit facility for failing to meet specified financial ratios. The bank
waived these covenants for the 12 months ended March 31, 1999 and, as of the
date of this prospectus, we are in compliance with the financial covenants
under the credit facility as amended on May 25, 1999. As of March 31, 1999, we
had outstanding borrowings under the credit facility as follows:
. $1.3 million under the revolving line of credit,
. $722,000 under the first equipment line,
. $0 under the second equipment line, and
. $3.5 million under the line of credit for database development costs.
All borrowings under the credit facility are secured by a pledge of most of
our assets.
Net Operating Loss
Since 1994, we have incurred significant net losses. Through March 31, 1999,
our accumulated deficit totaled $17.5 million. At December 31, 1998, we had net
operating loss carry-forwards of approximately $17.3 million for federal income
tax purposes that begin to expire in 2010 and state net operating loss carry-
forwards of approximately $19.0 million that begin to expire in 2000. We cannot
assure you that we will have income, if any, that is sufficient to allow us to
use these loss carry-forwards.
Year 2000 Disclosure
The Year 2000 issue is the result of computer programs being written using
two rather than four digits to define the applicable year. The arrival of the
year 2000 poses a unique worldwide challenge to the ability of systems to
recognize the date change from December 31, 1999 to January 1, 2000. The Year
2000 issue could result in system failures or miscalculations causing
disruptions of operations. Among other things, our customers may temporarily be
unable to access our databases or we may be unable to engage in other normal
business activities. For purposes of this discussion, the terms "computer
equipment" and "software" include systems that are commonly thought of as IT
systems, including accounting, data processing, data conversion
26
<PAGE>
and telephone/PBX systems, as well as systems that are not commonly thought of
as IT systems, such as heating and air conditioning systems, fax machines, or
other miscellaneous systems. Both IT and non-IT systems may contain embedded
technology, which complicates our identification, assessment, remediation and
testing efforts.
We have taken various steps intended to ensure that our computer equipment
and software will function properly on January 1, 2000 and thereafter. We have
completed assessments of our IT systems and our non-IT systems, which consist
primarily of minor office equipment. Based upon our identification and
assessment of our IT systems, we have replaced or modified certain computer
equipment and software including our telephone/PBX system. Based upon our
identification and assessment of our non-IT systems, we have not identified any
equipment or software requiring replacement or modification. In addition, in
the ordinary course of replacing computer equipment and software, we only
purchase replacement parts that manufacturers represent are Year 2000
compliant. Using both internal and external resources to identify and assess
needed Year 2000 remediation, we currently anticipate that our Year 2000
identification, assessment, remediation and testing efforts, which began in
August 1997, will be completed by November 1999, and that these efforts will be
completed prior to any currently anticipated impact on our computer equipment
and software. At June 15, 1999, we had completed approximately 85 percent of
our Year 2000 initiatives and the remaining ones are in process and we expect
them to be completed on or about November 1, 1999. Our remediation of central
system issues is 85% complete and we expect it to be completed by July 1, 1999.
Our remediation of desktop and individual systems is 85% complete and we expect
it to completed by November 1, 1999.
We have mailed letters to our overseas data convertors to determine the
extent to which their IT and Non-IT systems are vulnerable to Year 2000 issues.
Based on their responses, we believe that these data converters are year 2000
compliant. We do not believe that there are any Year 2000 issues with respect
to the electronic data we receive from our third party data providers. We
typically receive the data in both electronic and printed form and believe that
if a Year 2000 issue should arise with respect to the electronic data, we could
convert the same data from printed form with minimal delay.
In addition, we are in the process of mailing letters to significant vendors
and service providers to determine the extent to which our interfaces with them
are vulnerable to Year 2000 issues and whether the products obtained from and
services provided by them are Year 2000 compliant. A follow-up telephone survey
to significant vendors and service providers that do not initially respond, or
whose responses we deem unsatisfactory, will be completed by July 30, 1999,
with responses due by August 16, 1999.
We believe the total cost of our Year 2000 identification, assessment,
remediation and testing efforts, as well as costs we expect to incur with
respect to Year 2000 issues of our third party IT vendors, will not exceed
$200,000, which will be funded from operating cash flows. As of May 27, 1999,
we had incurred costs of approximately $35,000 related to our Year 2000
program. All of this amount relates to analysis, repair or replacement of
existing software, upgrades of existing software, or evaluation of information
received from significant vendors, service providers or customers. This amount
represents approximately 6.0% of our total actual and anticipated IT
expenditures for fiscal 1999. Other non-Year 2000 IT efforts have not been
materially delayed or impacted by Year 2000 projects. We believe that the Year
2000 issue will not pose significant operational problems for us. However, if
we do not properly identify all Year 2000 issues, do not successfully complete
remediation and testing with respect to problems that we identify, or do not do
so in a timely manner, we cannot assure you that the Year 2000 issue will not
materially adversely affect our relationships with customers, vendors or
others. Additionally, we cannot assure you that the Year 2000 issues of other
entities will not have a material adverse impact on our systems or business.
We have begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from our and certain third parties' failure to
achieve Year 2000 compliance on a timely basis. We have not yet developed a
contingency plan for dealing with the most reasonably likely worst case
scenario, and we have not yet clearly identified the worst case scenario. We
plan to complete the worst case scenario analysis and contingency planning by
November 1, 1999.
27
<PAGE>
We do not plan to engage an independent expert to evaluate our Year 2000
identification, assessment, remediation and testing efforts. However, we have
engaged a third party to perform an overall review and assessment of our web
site architecture, and that review will include Year 2000 compliance of the
systems included in the review. We expect this review to be completed by August
1999. In addition, the firm that provided installation, training and certain
other services in connection with our new accounting and sales force management
software is reviewing Year 2000 issues related to that software. Certain
problems have been identified and are being corrected. We expect this review
and related remediation to be completed by July 1999.
The costs of our Year 2000 identification, assessment, remediation and
testing efforts and the dates on which we believe we will complete those
efforts are based upon our management's best estimates, which were made using
numerous assumptions regarding future events, including the continued
availability of certain resources, third-party remediation plans and other
factors. We cannot assure you that these estimates will prove to be accurate
and actual results could differ materially from those we currently anticipate.
Specific factors that could cause such material differences include, but are
not limited to, the availability and cost of personnel trained in Year 2000
issues, the ability to locate and correct all relevant computer codes, and the
ability to identify, assess, remediate and test all embedded technology and
similar uncertainties.
Recently Issued Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 establishes the
accounting for costs of software products developed or purchased for internal
use, including when such costs should be capitalized. We do not expect SOP 98-
1, which is effective for Loislaw.com beginning January 1, 1999, to have a
material effect on our financial condition or results of operations.
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in a new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for Loislaw.com's 1999 financial statements and we do not
expect its adoption to have a material effect on our financial condition or
results of operations.
Quantitative and Qualitative Disclosures About Market Risk
We do not engage in commodity futures trading or hedging activities and do
not enter into derivative financial instrument transactions for trading or
other speculative purposes. We also do not engage in transactions in foreign
currencies or in interest rate swap transactions that could expose us to market
risk.
We are subject to some interest rate risk in connection with our bank credit
facility. This facility permits us to borrow up to $12.0 million, consisting of
up to $2.5 million under a secured working capital revolving line of credit, up
to $2.5 million under two secured equipment lines of credit and up to $7.0
million under a secured line of credit to develop our databases. All amounts
that we borrow under the credit facility bear interest at floating rates. At
March 31, 1999, the outstanding principal balance under the credit facility was
$5.6 million, and during 1998 the average outstanding principal balance was
$2.9 million.
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BUSINESS
Overview
Loislaw.com provides comprehensive, affordable and easy-to-use legal and
related information to lawyers and law firms over the Internet and on CD-Rom.
We offer more than 950 databases that we estimate to contain over 50 million
pages of federal and state law, continuing legal education materials and other
legal information. We believe this is the largest collection of legal databases
in hypertext mark-up language, or HTML, the standard format language used on
the Internet. We offer powerful and intuitive search tools designed to make our
information easily accessible and valuable to our users. Through LOIS LawWatch,
we provide personalized, intelligent search agents that automatically and
continuously search our web site and notify our users when new documents match
their search criteria. Our news feeds provide up to 150,000 news articles a
month from more than 400 domestic and international sources. Our legal
information is available through our web site at loislaw.com or through our CD-
ROM products at a low annual subscription price.
At March 31, 1999, we had a total of 7,251 customers of which 2,393
purchased our web-based products and 4,858 purchased our CD-ROM products. The
percentage of customers that renewed their subscriptions to our products was
89.3% in 1998. We have historically targeted our sales to small law firms with
fewer than 20 lawyers. Currently, we provide statutes, regulations and rules of
court for all state and federal jurisdictions. We also provide comprehensive
court decisions for the U.S. Supreme Court and all federal circuit courts of
appeal. In addition, with the completion of databases for 11 new states in the
last six months, we currently provide comprehensive legal information for 31 of
the 50 states, representing over 80% of the total number of active practicing
lawyers in the U.S. Small firms typically require legal information for the
states in which they practice, while large firms typically require legal
information for all 50 states. We intend to complete our state law databases
for all 50 states by December 31, 1999. Upon completion of these databases, we
plan to aggressively market to additional small law firms, large law firms and
legal departments of corporations.
Our objective is to become the leading Internet destination for lawyers, law
students, business people and consumers who need legal and related information.
We developed our core products to serve the research needs of lawyers. As we
expand our product offerings, we plan to address additional needs of lawyers
and offer legal information in a format designed to meet the needs of
consumers.
Industry Overview
The market for web-based and other on-line legal, tax and public record
information is large and growing. According to an industry source, the market
for web-based and other on-line legal, tax and public record information was
$1.7 billion in 1998 and is projected to grow to $2.7 billion in 2002,
representing a compound annual growth rate of 12.3%.
We believe that the following are the key drivers of growth in the market
for web-based and other on-line legal information:
. An increase in the number of lawyers;
.An increase in litigation; and
.The growth of the Internet.
Users of legal information include lawyers, law students, business people
and consumers. Lawyers are the largest users of legal information. According to
an industry analyst, there were approximately 980,000 lawyers in the United
States as of December 31, 1998 and this number is projected to grow to
1,065,000 in 2002.
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In recent years the number of lawsuits has increased. According to a report
by the National Center for State Courts, from 1984 to 1997 the number of civil
lawsuits grew by 28% and criminal caseloads increased by 55% in the state court
systems.
The explosive growth of the Internet is rapidly transforming the market for
legal information. The Internet is an increasingly significant medium for
distributing, collecting and manipulating information. This growth is being
driven by, among other things, the increased use of personal computers and
modems, lower cost access to the Internet, increased awareness of the Internet
and more compelling interactive content available on the Internet. These
factors are also fueling the growth of Internet use in law firms. According to
a February 1998 survey by the American Bar Association, nearly 99% of large law
firms surveyed had Internet access.
Increasingly, Internet use has penetrated small law firms with fewer than 20
lawyers, which we believe represent approximately 55% of all lawyers in the
U.S. According to the February 1998 American Bar Association survey, nearly 80%
of small law firms surveyed had Internet access and 37% of small firms without
Internet access planned to obtain it in 1998. Although Internet access at small
law firms has increased, many lawyers at small law firms continue to rely on
books and reference guides for their legal research needs. Books and reference
guides are inefficient, cumbersome and sometimes not updated in a timely manner
to reflect changes in the law. Moreover, the capital investment required to
acquire a printed law library is substantial, and prohibitive for many small
law firms. As a result, lawyers in small law firms often must travel to local
law libraries to conduct legal research. Electronic legal information has
emerged as an alternative to printed legal information because it can be more
rapidly updated, more easily stored and more quickly searched than printed
legal information.
The dominant providers of electronic legal information have been LEXIS-NEXIS
and West Group. Until recently, they have provided their information through
closed networks accessed through a dial-up modem. These traditional electronic
legal information providers built their network infrastructures based upon
mainframe computer systems. Recently, these traditional providers have offered
an Internet gateway to their closed systems. However, the source information in
their legal databases is generally not organized in HTML, the standard format
language used on the Internet. Databases that are not organized in HTML or
another Internet-based language are not designed to provide full functionality
and ease of use over the Internet. In addition, we believe these traditional
electronic legal information providers' infrastructures, computer systems,
business models and distribution methods have resulted in pricing that has
traditionally made their products too expensive for many small firms.
Currently, there are other providers of legal information on the Internet.
However, we believe that most of them do not provide comprehensive and current
legal information required by lawyers and business professionals. Most legal
Internet sites act as portals to free legal information that is on government-
sponsored sites. These legal sites are simply aggregators of information, which
often is not edited or reviewed to ensure the integrity of the information.
Furthermore, the information may not be in a format that allows researchers to
complete tasks in a timely manner. While some of this information may be an
improvement over law books, it generally does not match the functionality of
traditional electronic legal databases.
Traditional electronic legal information providers, book publishers and
Internet portal companies do not adequately meet the information needs of many
legal professionals in today's highly litigious and competitive legal
environment. We believe there is a significant opportunity to provide
comprehensive, easy-to-use, web-based legal information to meet the needs of
law firms, corporations and other consumers of legal information.
The Loislaw.com Solution
Through our web site, loislaw.com, we provide comprehensive, affordable and
easy-to-use legal information on the Internet. We believe that we were the
first company to provide this comprehensive
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information on the Internet and that we have the largest collection of
databases of federal and state law in HTML. We offer an attractive alternative
to law firms, legal departments of corporations, government bodies and law
schools that previously could only choose between law books and expensive
electronic legal information.
Internet delivery model
Our Internet delivery model allows us to provide easily accessible legal
information in a user-friendly format. To access our legal information, a
subscriber needs only an Internet connection. Our databases are based on
standard Internet technology and our customers need no additional installation
or systems support and have full access to the databases at all times and from
anywhere via the Internet.
Price leadership
Access to our loislaw.com web site is available at a fixed annual
subscription price that is significantly less than the fees charged by
traditional electronic legal information providers for full access to their
networks. Our fixed price model encourages lawyers to use our web site as
needed without concern for additional charges.
Advanced Functionality
Our loislaw.com web site provides advanced functionality. For example, we
provide:
. simultaneous searching of multiple databases and fields using
sophisticated search technology that employs both traditional and plain
language searches;
. the ability to save multiple searches for an indefinite period of time;
. summaries of documents produced by a search that gives a user the ability
to determine the relevance of the search results prior to reviewing the
full text;
. automatic notification by email of new information matching the user's
specified search criteria;
. HTML formatting, which permits hyperlinking, cutting-and-pasting and
printing;
. pop-up abilities, which permit simultaneous review of original and
hyperlinked documents; and
. complete multi-media tutorials.
Breadth of Information
We have more than 950 databases that we estimate to contain over 50 million
pages of federal and state law, continuing legal education materials and other
legal information. We provide statutes, regulations and rules of court for all
state and federal jurisdictions. We currently provide comprehensive court
decisions for the U.S. Supreme Court, all federal circuit courts of appeal and
31 states as well as a limited number of court decisions for the remaining 19
states. Over 80% of lawyers in the U.S. practice in states in which we have
comprehensive legal databases. We expect to provide comprehensive court
decisions for all 50 states by December 31, 1999 and for bankruptcy courts, tax
courts and selected federal district courts by the second quarter of 2000.
Through Loislaw.com news feeds, we also provide access to up to 150,000 news
articles per month extracted from more than 400 domestic and international
sources of legal, business, financial, health, technology and political news.
Timeliness
Our infrastructure and relationships with data providers enable us to meet
or exceed the industry standards in timeliness. We have relationships with over
500 governmental entities and independent publishers from
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whom we receive court decisions, statutes, regulations and administrative
decisions. We have over 200 employees in our production department who process
this legal information and make it available on our web site. We are usually
able to make newly-released legal information available on our web site within
24 hours after we receive it in electronic format and within 72 hours after we
receive it in print.
Accuracy
We maintain databases consisting of court decisions, statutes, regulations
and administrative decisions that we have tested to a 99.995% rate of accuracy.
We believe this rate is comparable to the accuracy rates of our principal
competitors and is substantially better than the typical accuracy rates of many
legal web sites accessed through Internet portal companies. To achieve our
accuracy standards, we follow a strict quality control process involving 56
testing procedures.
Strategy
Our goal is to gain a significant share of the market for web-based and
other on-line legal information and to become the leading Internet destination
for legal and related information. The key elements of our strategy include:
. Expand Current Loislaw.com Customer Base. We believe that substantially
all of our existing customer base is small law firms. We believe this
segment of the market is underserved by traditional electronic legal
information providers and, as a result, we intend to continue to market
aggressively to small law firms to expand our small firm customer base.
We believe there are substantial opportunities to expand our presence in
this underserved segment through completion of databases in new states,
increased sales to our current customer base, aggressive marketing to
potential new customers and continued conversion of our CD-ROM customers
to web-based customers.
. Aggressively Market Products to Large Law Firms and Legal Departments of
Corporations. After we complete our state law databases for all 50
states, we intend to aggressively market our products to large law firms
and legal departments in corporations. We have not focused our marketing
efforts on these potential customers to date because they generally
require access to comprehensive court decisions from all 50 states. We
expect to complete databases of comprehensive court decisions for all 50
states by December 31, 1999. We believe our ability to provide low-cost,
comprehensive and easy-to-use legal information will present an
attractive alternative or complement to information currently purchased
from traditional providers of legal information.
. Expand Content and Features. We intend to continue to build the depth
and breadth of our databases through internal development and by
licensing and acquiring information from third parties. For example, in
addition to completing the state law databases for the remaining 19
states by December 31, 1999, we intend to add tax court and bankruptcy
court and selected federal district court decisions by the second
quarter of 2000. In addition to expanding content, we intend to expand
features available through our web site and are currently developing
personalized database management capabilities and tools for personalized
customer homepages.
. Build Brand Awareness. We believe it is critical to continue to build
brand awareness in order to market our products to large law firms and
legal departments of corporations as well as to our existing small law
firm customer base. We intend to continue to promote brand awareness
through expansion of our direct sales force, reliable product offerings,
excellent customer service and effective marketing and promotion.
Further, in an effort to increase law student awareness of Loislaw.com,
we instituted a program of introducing our products to law librarians at
law schools across the U.S. Currently, we provide law librarians at law
schools free training as well as access to our Internet product for a
nominal charge. We have entered into similar relationships with many
state bar associations and continuing legal education associations
offering lawyers who are members of these
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associations the opportunity to learn about and try our products at
reduced rates. We intend to pursue relationships with additional state
bar associations and continuing legal education organizations.
. Form Strategic Alliances and Make Acquisitions. We intend to continue to
forge alliances with state and national bar associations, continuing
legal education associations and court systems. Moreover, we may seek
additional information sources, distribution channels or technology
through selective acquisitions or strategic alliances.
. Enter the Consumer Market. We are currently developing a new web site
linked to Loislaw.com that will offer legal information and related
services to nonlawyers. We intend to leverage the content on our current
web site, together with our experience in the legal market, to enter
this new market. We expect that this new web site will include news
feeds, selected legal information from our current web site and legal
forms. In addition, the web site may include attorney referrals, an ask-
an-attorney service and other services.
Products
Loislaw.com Web Site
Our web site offers Internet access to federal and state law, continuing
legal education materials, current news feeds and other legal information. We
have more than 950 databases that we estimate to contain over 50 million pages
of information.
. Federal Law. The following table sets forth the content of our federal
law databases. In addition, by the second quarter of 2000 we intend to
offer bankruptcy court, tax court and selected federal district court
decisions.
Description of Federal Law Databases
--------------------------------------------------------
U.S. Reports (official court decisions of the U.S.
Supreme Court) 1899-present
U.S. Constitution
U.S. Code (federal statutory law)
U.S. Code of Federal Regulations and Federal Register
U.S. Federal Reports (official court decisions of all
13 U.S. Circuit Courts of Appeal) 1971-present
Rules of the U.S. Supreme Court
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. State Law. We currently offer 31 comprehensive state law databases and
intend to complete the databases for the remaining 19 states by December
31, 1999. Over 80% of the lawyers in the U.S. practice in states in
which we have comprehensive legal databases. A comprehensive state
database provides all statutes, regulations, acts and court rules as
well as at least 45 years of court decisions. The map and table below
depict the states for which we provide comprehensive databases and the
years in which they were completed.
[U.S. MAP APPEARS HERE]
Comprehensive State Legal Information Coverage
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999 (1)
<S> <C> <C> <C> <C> <C>
-------------- --------- -------------- ------------- -------- ------------
Colorado Missouri South Carolina Kansas Indiana Maryland
Arkansas Wisconsin Massachusetts Rhode Island Florida Illinois
North Carolina Georgia Oklahoma New Hampshire Arizona Michigan
Louisiana New York Washington
Connecticut Texas California
Nebraska Pennsylvania
New Jersey
Alabama
Virginia
Tennessee
Ohio
</TABLE>
(1) Represents coverage through June 15, 1999.
. Continuing Legal Education. Under cooperative marketing alliances with
state bar associations and continuing legal education associations, we
provide continuing legal education and bar materials to lawyers in over
10 states. We provide more than 280 databases related to the continuing
legal education programs administered by these groups.
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. Loislaw.com News Feeds. Our web site provides news feeds of up to
150,000 news articles per month from more than 400 domestic and
international sources of legal, business, financial, health, technology
and political news. The news feeds can be filtered to reflect the user's
personal search criteria or interests. Ninety days of news is stored in
our servers and can be searched by the user.
A subscription to the products we offer on our web site includes the
following features and benefits:
. LOIS LawWatch. Our web site provides personalized, intelligent search
agents that automatically and continuously search our federal and state
law databases and news feeds. LOIS LawWatch delivers results of these
searches to users by email or by saving search results on users'
personalized homepages on our web site. LOIS LawWatch is in an easy-to-
use format with on-screen tutorials to guide users in establishing
ongoing, personalized search instructions.
. Advanced Functionality. We offer intuitive search tools designed to make
our information easily accessible and valuable to our users. Users may
search for information in any combination of multiple jurisdictions
simultaneously and may do so simply by entering a string of words.
Moreover, all of our data is hyperlinked to enable the user to retrieve
a second document and view it simultaneously with the initial document.
Loislaw.com also offers a time clock to assist lawyers in timekeeping as
well as a citation checking service that allows a user, among other
things, to confirm that a court decision has not been overruled.
. Exceptional Service. Our web site is user friendly, offering tips and
navigational instructions on each page. In addition, we provide our
subscribers with 24-hour customer telephone and email support and
provide company field sales representatives who will assist with
training.
We sell our web-based products through annual subscriptions. Unlimited
Internet access to substantially all federal and state law databases lists for
$1,176 per seat per year. Unlimited Internet access to substantially all state
law for one state lists for $720 per seat per year. Continuing legal education
and bar materials are available for purchase at an additional charge.
CD-ROM Products
Prior to our introduction of the loislaw.com web site in 1996, we
distributed federal and state law databases exclusively on CD-ROM. We expect to
continue to produce and sell CD-ROMs as long as customer demand exists. In
addition, we will continue to provide our CD-ROM customers with an updating
service called N-Line that allows users to receive weekly electronic updates
via modem. N-Line integrates these updates with existing information to permit
users to use a single search to find old and new law. We expect our CD-ROM
customers to continue to transition to our web-based products. The list prices
for annual subscriptions for our CD-ROM products range from $300 to $700 per
state or federal jurisdiction.
Production of Databases
Our customers require access to highly accurate, searchable and up-to-date
legal databases. Accordingly, the process of producing our databases is
critical to our success.
We generally receive all statutes, court decisions, regulations and rules
directly from official sources within each jurisdiction. We convert this
information into standard mark-up language, or SGML, and hypertext mark-up
language, or HTML, to make it easy for users to search the databases. By using
HTML and SGML programming languages we require fewer lines of code than
mainframe computer language and thereby reduce our costs.
When we initially establish a database of legal information, we typically
must convert large amounts of historical information from printed text to
electronic form. Currently, we have agreements with three foreign companies to
convert this data. We pay these companies based on the number of characters
converted, the accuracy of the converted data and the timeliness of the
conversion. After the information is converted to electronic format, it is
forwarded to us for further processing.
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We continually update our databases by adding new court decisions,
statutes, regulations and other legal information. We receive this new
information in both electronic and printed format. For information delivered
to us in printed format, we scan the printed text on imaging equipment,
convert it to an electronic format and run macros to correct errors.
With respect to both electronic data converted overseas and electronic data
received or converted by us, we perform extensive quality control and editing
functions including:
. spell checks;
. translation of information into SGML and HTML;
. input of page numbers, carriage returns and line feeds, reference lines
and other information; and
. assembly of the information into logical blocks.
After the editing process, our paralegals code the information using up to 30
different codes, such as parties' names, dates and judges' names, to provide
fields for accurately searching the information in each database.
To complete this process, we perform both automated and manual quality
control tests to assure that we have completed the imaging/scanning, editing
and coding processes successfully. We compile and index the information and
then submit it to a final, more stringent, quality control test. If the
information does not satisfy our accuracy standards, we send the information
back to editing or coding to restart the entire process. If the information
passes the second quality control test, we place it on our Internet server.
This quality control process includes 56 testing procedures and results in
data that we have tested to an accuracy rate of 99.995%.
The following graphic depicts these database production processes:
[Graph containing six horizontal rows of boxes with arrows pointing downward
from each box (other than the box on the bottom row) to a box or boxes below
it. The top row contains one box with text: "Receive Print from Data
Providers." The arrow from this box points downward to a box in the second row
(which is the third box from the left, of three total), which contains text:
"Convert Print to Electronic Data." The other two boxes on the second row
(from left to right) contain text: "Receive Electronic Data From Third Party
Converters" and "Receive Electronic Data From Data Providers." There is an
arrow pointing downward from each box on this row to the single box on the
third row, which contains text: "Editing." There is an arrow pointing downward
from this box to the single box in the fourth row, which contains text:
"Coding." There is an arrow pointing downward from this box to the single box
in the fifth row, which contains text: "Quality Assurance." There are two
arrows pointing downward from this box to the two boxes in the sixth row,
which contain text (from left to right): "CD-ROM Products" and "Web-based
Products."]
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We have committed significant resources to establish our production
capabilities and processes. At March 31, 1999, our production staff included
128 converters and editors, 37 coders and 39 quality control specialists. As a
result, we usually are able to make updated legal information available to our
Internet users within 24 hours of receipt in electronic format and within 72
hours of receipt in paper format.
We have been producing data since 1989. From January 1, 1996 through March
31, 1999, we spent over $20 million on database production, including costs of
converting, editing, coding and quality control.
Product Development
In addition to enhancing content, we conduct product development efforts
focused on continuously improving the search capabilities, tools and
applications available at our loislaw.com web site. At March 31, 1999, we had
five employees devoted to this aspect of product development. We will continue
to add new features to our products, such as searchable tables of contents and
personal email, that will make our sites easier and more enjoyable to use.
We intend to offer subscribers to our loislaw.com web site the ability to
convert word processing, billing and other electronic files into personal
databases stored at our web site. These databases may include all types of
documents, such as briefs, motions, interrogatories, memoranda, contracts,
correspondence and other forms, and will be searchable in the same manner as
the law databases. Access to the databases will be password-protected and can
be shared among, for example, a law firm and specific clients or co-counsel.
We are currently developing a consumer web site. This web site will be free
of charge and will offer, among other products, limited access to some of our
existing databases.
Sales and Marketing
We sell our products through a sales force that as of March 31, 1999
included 79 company field sales representatives based in 25 states and 42
inside sales representatives. Our sales force is compensated with a base salary
plus a commission. In addition, we have a marketing department that at March
31, 1999 consisted of seven people responsible for direct mail, advertising and
cooperative marketing programs.
We also market our products by seeking endorsements from organizations that
are likely to influence lawyers' purchasing decisions. We offer our products
for a nominal per-student charge to law schools and to state bar associations
and courts. Eleven state bar associations have agreed to promote our products.
We provide free CD-ROM products to the supreme courts of 12 states. We also
develop relationships with individual leaders of the legal community in cities
throughout the country, as we believe recommendations of respected peers and
mentors significantly influence many lawyers' purchasing decisions.
After we complete our state law databases for all 50 states we intend to
hire additional sales professionals and to aggressively market our products to
large law firms and legal departments of corporations.
Customers
At March 31, 1999, we had a total of 7,251 customers of which 2,393
purchased our web-based products and 4,858 purchased our CD-ROM products. At
December 31, 1998, we had a total of 6,976 customers of which 1,841 purchased
our web-based product and 5,135 purchased our CD-ROM products. A customer
represents a single account, which in many cases includes subscriptions for
multiple seats or concurrent users. Substantially all of our customers are law
firms having fewer than 20 lawyers.
Customer Support
We provide telephone and email support for our clients 24 hours a day, 365
days a year. Our customer service employees assist customers with preparing
searches and our technical support employees assist
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customers with technical issues. At March 31, 1999, we had eight customer
service employees and 13 technical support employees. In addition, our field
sales representatives provide on-site support.
Web Site Architecture and Operations
We currently host our loislaw.com web site at our office in Van Buren,
Arkansas. We have designed our web site architecture to be flexible, scalable
and reliable. Our web site operates using Verity searching software, Microsoft
NT Operating System software and Novell Networking software that runs on
Hewlett-Packard servers. Our databases and searching software are platform
independent and could be moved to another operating system, if necessary.
Our web site architecture is designed to be able to expand easily by adding
additional servers. We currently have two information servers that we use to
maintain identical versions of our legal information. Each information server
is connected to three search servers that use the Verity database searching
software to process search queries. Our server system is redundant and employs
load balancing router technology ahead of the servers to enhance the
distribution of incoming user requests. We believe our servers have sufficient
capacity to support our planned growth over the next 12 months; nevertheless,
we have ordered two additional information servers to create additional system
capacity.
We currently have backup systems in place to protect our data and we intend
to create additional backup systems. Our legal databases are backed up on
temporary tapes each night and backed up on permanent tapes once a week. The
weekly backup tapes are kept in a safety deposit box at a local commercial
bank. We currently have enough battery power to operate our web site for one
hour if there is a power outage at our facility. In addition, we are in the
process of installing a power generator that should be operational in the next
several months. We are also currently analyzing alternatives for a shadow site
fully equivalent or live web site. This shadow web site would be fully
operational and could completely replace the operations of our existing web
site, if necessary.
We selected industry-standard hardware and software components to provide
the maximum amount of flexibility going forward. Internet connectivity is
provided by AT&T and is currently scheduled to increase from one to four T1
connections within the next few months. AT&T monitors our service and provides
a watchdog function to lock out unauthorized access 24 hours a day, 365 days a
year.
Monitoring of the web site is a continuous process. Monitoring software
watches for key service problems of the various servers and reports to our
Information Systems staff by email and pager if any of the servers stop
responding. Additional software is in place to analyze server activity to
profile the performance and usage of the web site.
Trademarks and Copyrights
We have obtained federal trademark registrations for LOIS PROFESSIONAL
LIBRARY(R), N-line(R), PITA(R) and THE TECHNOLOGY COMPANY WITH A LAW DEGREE(R),
and have pending trademark applications for LOIS SM and the LOIS logo SM. We
use the service mark LOIS LAWWATCH SM and claim common law service mark rights
in this mark. We have also obtained copyright registrations for the following
proprietary software programs: PITA(R), CaseBase: The Arkansas Reports, and Law
Office Information Systems: Master Menu Systems. Other trademarks and trade
names in this prospectus are the property of other owners.
Competition
The market for electronic legal information is intensely competitive.
Historically, this market has been dominated by West Publishing Company, which
is owned by Thomson Corporation, and LEXIS-NEXIS, which is owned by Reed-
Elsevier. Our competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical and marketing resources than we do. See "Risk
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Factors--The competition in our industry is intense, our principal competitors
have significantly greater resources than we do and this competition may
adversely affect our financial results."
The principal competitive factors in our industry are:
. price;
. quality and accuracy of data;
. comprehensiveness of data;
. ease of use;
. support and training required; and
. performance characteristics of the database.
As a new entrant in a market dominated by these major corporations, we are
in the position of having to ease customer concerns over accuracy and
reliability. Furthermore, our products are not as comprehensive as those of
LEXIS-NEXIS or the West Group because we do not provide as many forms of legal
commentary and analysis and other specialized legal information as they provide
and we do not yet provide comprehensive court decisions for all 50 states or
federal district court decisions.
We also compete with a few smaller Internet portal companies that offer free
access to government sponsored sites that provide some of the same information
that we provide. A few offer fee-based access to selected legal databases. We
do not believe that any of these companies are comparable to Loislaw.com with
respect to breadth and depth of coverage, reliability and quality of data or
sophistication of functionality.
Employees
We had 399 full-time employees at March 31, 1999, including five in product
development, 79 in field sales, 42 in inside sales, seven in marketing, 165 in
converting and production, 39 in quality assurance, 25 in technical support and
MIS, eight in customer service, 15 in finance and 15 in administration. Our
employees are not represented by any collective bargaining organization. We
have never experienced a work stoppage and we believe that our relationships
with our employees are good.
Facilities
Our corporate headquarters are located in a 36,200 square foot leased
facility in Van Buren, Arkansas, under a lease expiring in May 2004, with an
option to renew for two, five-year periods. The lessor of our headquarters is
The Parker Law Firm, an entity owned by Kyle D. Parker and Douglas W. Parker,
Sr. We believe that these facilities and additional or alternative space
available to us will be adequate to meet our needs for the foreseeable future.
Litigation
Loislaw.com is not a party to any material litigation.
39
<PAGE>
MANAGEMENT
Executive Officers and Directors
The following table sets forth information with respect to the executive
officers and directors of Loislaw.com as of June , 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Kyle D. Parker(1)....... 42 Chief Executive Officer and Chairman of the Board
Mark O. Beyland(2)...... 49 President, Chief Financial Officer and Director
W. Clark Wigley......... 46 Vice President of Business Development
Reves W. Dillon, Jr. ... 45 Vice President of Operations
Jay Scott Thompson...... 41 Chief Technology Officer
Pamela G. Rogers........ 39 Controller
Douglas W. Parker,
Sr. ................... 74 Secretary
Robert C. Ammerman(1)... 45 Director
D. Randy Laney(2)....... 45 Director
Hannah C. Stone(1)(2)... 34 Director
</TABLE>
- --------
(1) Member of compensation committee.
(2) Member of audit committee.
Kyle D. Parker founded Loislaw.com in 1987 and has served as Chief Executive
Officer and Chairman of the Board since that time. Mr. Parker served as
President of Loislaw.com from 1987 to May 1999. Since 1985 Mr. Parker has been
a partner at the Parker Law Firm in Fort Smith, Arkansas. Mr. Parker served on
the Legal Automation Committee of the Arkansas Bar Association and the American
Association of Law Librarian's Task Force on Citation Formats. Mr. Parker holds
a J.D., with highest honors, from Franklin Pierce Law Center and a B.A., cum
laude, from Arkansas Tech University. Mr. Parker is the son of Douglas W.
Parker, Sr.
Mark O. Beyland joined Loislaw.com as President, Chief Financial Officer and
a Director in May 1999. Prior to joining Loislaw.com, Mr. Beyland served as
President and Chief Executive Officer of Reed Technology and Information
Services, Inc. a subsidiary of Reed-Elsevier from September 1993 to March 1998.
Mr. Beyland holds a B.S. in Business and Science from Ohio State University and
an M.B.A. from the University of Dayton.
W. Clark Wigley joined Loislaw.com as Chief Operating Officer in February
1995 and became Vice President of Business Development in April 1998. Prior to
joining Loislaw.com, Mr. Wigley served as Vice President at Barclays Law
Publishers in California from 1993 to February 1995, a legal publishing
company. From 1990 to 1993, Mr. Wigley was a Vice President and a general
manager at Thomson Electronic Publishing, a division of Thomson Legal
Publishing, a legal publishing company. Mr. Wigley holds a B.S. and an M.S. in
Engineering from Lehigh University and an M.B.A. from U.C.L.A.
Reves W. Dillon, Jr. joined Loislaw.com in September 1989 as a scanning and
editing operator. Mr. Dillon served as Director of Production from May 1994 to
November 1997 and served as Chief Operations Officer from November 1997 to May
1999. Mr. Dillon became Vice President of Operations in May, 1999. Mr. Dillon
has over 25 years of experience serving in production management capacities in
various industries.
Jay Scott Thompson joined Loislaw.com in April 1992 as assistant MIS
Director. Mr. Thompson served as Director of Information Systems from February
1995 to November 1997. Mr. Thompson became Chief Technology Officer in December
1998. Mr. Thompson has over 15 years of experience in the electronics industry.
Pamela G. Rogers joined Loislaw.com as Controller in October 1997. Prior to
joining Loislaw.com, Ms. Rogers served as Controller for Stapleton Corporation,
a manufacturing company, from March 1997 to October
40
<PAGE>
1997. Ms. Rogers also served as Controller for Exsorbet Administration, Inc.,
an environmental remediation company, from January 1996 to February 1997 and
Controller for Consolidated Environmental Services, Inc., an environmental
consulting company from January 1995 to January 1996. Ms. Rogers holds a B.A.
in Accounting from the University of Central Arkansas and is a certified public
accountant.
Douglas W. Parker, Sr. has served as Secretary of Loislaw.com since October
1987. Prior to June 1999, he served as Director and Treasurer of Loislaw.com
from October 1987 to June 1999. Mr. Parker practiced law at the Parker Law Firm
for over 36 years. Mr. Parker is the father of Kyle D. Parker. Mr. Parker holds
a B.S. from the University of Arkansas and an L.L.B. from LaSalle University.
Robert C. Ammerman has served as a Director of Loislaw.com since November
1997. Since 1987 Mr. Ammerman has served as Treasurer of Capital Resource
Management, Inc., a private capital investment firm, and as general partner of
several private capital funds affiliated with Capital Resource Management. Mr.
Ammerman holds a B.A. and an M.S. from Carnegie Mellon University.
D. Randy Laney has served as a Director of Loislaw.com since June 1999.
Since October 1998 Mr. Laney has served as Chief Executive Officer, President
and Chairman of BAV Software, Inc., a web-enabling supply chain software
development company. From August 1995 to October 1998, Mr. Laney served as a
partner of Bentonville Associates Ventures, LLC, a financial and business
consulting company. In addition, Mr. Laney was employed by Wal-Mart from 1980
to 1993 and served as Vice President of Finance and Treasurer for a portion of
that time. He holds a B.S. and a J.D. from the University of Arkansas.
Hannah C. Stone has served as a Director of Loislaw.com since June 1999. In
1993 Ms. Stone joined Sandler Capital Management, a private capital investment
firm, and she is a general partner of various partnerships associated with
Sandler Capital Management. She holds a B.A. from Stanford University and an
M.B.A. from Harvard Business School. She is also a director of Millbrook Press.
Election of Officers and Directors
The executive officers of Loislaw.com are elected by the Board of Directors
on an annual basis and serve until their successors are duly elected and
qualified. Under an Amended and Restated Stockholders' Agreement dated as of
May 25, 1999, as long as each of (a) Capital Resource Lenders III, L.P. and (b)
Sandler Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P.
collectively hold at least 10% of the outstanding shares of common stock of
Loislaw.com, the existing stockholders of Loislaw.com have agreed to vote their
shares to elect one representative of Capital Resource Lenders III, L.P. and
one representative of the Sandler parties to the Board of Directors of
Loislaw.com. Mr. Ammerman will continue as a director and Ms. Stone was
selected as a director of Loislaw.com pursuant to this agreement. For more
information, see "Certain Transactions."
Board Composition
The Board of Directors of Loislaw.com is divided into three classes. The
Board currently consists of one Class I Director (Ms. Stone), two Class II
Directors (Mr. Laney and Mr. Ammerman) and two Class III Directors (Messrs.
Parker and Beyland). At each annual meeting of stockholders, a class of
directors will be elected for a three-year term to succeed the directors of the
same class whose terms are then expiring. The terms of the Class I Director,
Class II Directors and Class III Directors will expire upon the election and
qualification of successor directors at the annual meeting of stockholders to
be held during calendar years 2000, 2001 and 2002, respectively.
41
<PAGE>
Committees of the Board of Directors
The Board of Directors has appointed a compensation committee consisting of
Messrs. Ammerman and Parker and Ms. Stone. The compensation committee reviews
and evaluates the compensation and benefits of all officers of Loislaw.com,
reviews general policy matters relating to compensation and benefits of
Loislaw.com employees and makes recommendation concerning these matters to the
Board of Directors. The compensation committee also administers Loislaw.com's
1996 Stock Option Plan and its Employee Stock Purchase Plan. For more
information, see "--Equity Plans."
The Board of Directors has also appointed an audit committee consisting of
Messrs. Laney and Beyland and Ms. Stone. The audit committee reviews, with
Loislaw.com's independent auditors, the scope and timing of the auditors'
services, the auditors' report on Loislaw.com's financial statements following
completion of their audit, and Loislaw.com's policies and procedures with
respect to internal accounting and financial controls. In addition, the audit
committee will make annual recommendations to the Board of Directors for the
appointment of independent auditors for the ensuing year.
Compensation of Directors
Loislaw.com pays each non-employee director an annual fee of $10,000 and
reimburses each director for reasonable expenses incurred in attending board
meetings. In addition, directors who are not officers or employees of
Loislaw.com are eligible to receive options under our stock option plan for
nonemployee directors.
Nonemployee Directors Stock Option Plan. We intend to adopt a nonqualified
stock option plan for nonemployee directors before the completion of this
offering. The nonemployee directors plan will provide for the issuance of a
maximum of 320,000 shares of common stock. See "Equity Plans."
Compensation Committee Interlocks and Insider Participation
The compensation committee is comprised of Messrs. Ammerman and Parker and
Ms. Stone. Mr. Parker is an executive officer of Loislaw.com. No member of the
compensation committee serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving as a member of Loislaw.com's Board of Directors or compensation
committee.
Executive Compensation
Summary Compensation
The following table sets forth the compensation paid by Loislaw.com for the
fiscal year ended December 31, 1998 to our Chief Executive Officer and the one
other executive officer of Loislaw.com whose compensation exceeded the
threshold for inclusion in the table:
Summary Compensation Table for Last Fiscal Year
<TABLE>
<CAPTION>
Annual Compensation
----------------------
Name and Principal Position Salary Bonus Other
- --------------------------- ------------ ---------------
<S> <C> <C> <C>
Kyle D. Parker, Chief Executive Officer........ $ 150,000 $ 0 $ 0
W. Clark Wigley, Vice President of Business
Development................................... $ 144,000 $ 0 $6,000(1)
</TABLE>
- --------
(1) Consists of a monthly car allowance of $500.
42
<PAGE>
Employment Agreements
We have entered or will enter into the following employment agreements with
our Named Executive Officers:
<TABLE>
<CAPTION>
Officer Term Base Salary Position
------- --------------------- ----------- --------------------------------------
<S> <C> <C> <C>
Kyle D. Parker.......... June 1999-June 2002 $225,000 Chairman and Chief Executive Officer
Mark O. Beyland......... June 1999-June 2002 $175,000 President and Chief Financial Officer
W. Clark Wigley......... July 1996-August 1999 $144,000 Vice President of Business Development
</TABLE>
The respective agreements of Messrs. Parker and Beyland entitle each of them
to participate in any bonus or employee benefit plans or arrangements from time
to time in effect. If we terminate the employment of Mr. Parker or Mr. Beyland
without "cause," as defined in the respective agreements, Mr. Parker or Mr.
Beyland, as the case may be, will be entitled to receive payments equal to one
year's annual salary. If such termination of employment is in connection with a
change of control (as defined in the agreement) of Loislaw.com, Mr. Parker and
Mr. Beyland each will be entitled to receive a lump-sum payment equal to two
times his annual salary plus bonuses and continuing coverage under our medical
plan for one year. Under the respective agreements, Messrs. Parker and Beyland
each agree not to engage, directly or indirectly, in certain activities in
competition with Loislaw.com either as an employee, employer, consultant,
agent, principal, partner, stockholder, corporate officer, director, or in any
other individual or representative capacity.
Mr. Wigley's agreement terminates on the earlier of August 1, 1999 or two
years after our initial public offering and it provides for an annual base
salary of $144,000. If we terminate the employment of Mr. Wigley without cause,
Mr. Wigley will be entitled to receive a lump-sum payment of one-half of his
annual salary plus health benefits for six months.
Equity Plans
1996 Stock Option Plan. The Board of Directors and our stockholders adopted
the Loislaw.com 1996 Stock Option Plan on June 17, 1996. We have reserved
500,000 shares of common stock for issuance under the 1996 Plan to employees
and consultants. The 1996 Plan provides for the grant of options that are
intended to qualify as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended, and options not intended
to qualify as incentive stock options. Incentive stock options may be granted
only to employees of Loislaw.com. The maximum number of shares with respect to
which awards may be granted to any employee under the 1996 Plan may not exceed
100,000 shares of common stock during any calendar year.
The Board of Directors, or a committee to which the Board has delegated
authority, administers the 1996 Plan. Options granted under the 1996 Plan are
not transferrable or assignable other than by will or the laws of descent and
distribution and may be exercised during the grantee's lifetime only by the
grantee. Subject to the provisions of the 1996 Plan, the Board of Directors or
the committee appointed by the Board, as the case may be, has the authority to
select the individuals to whom options may be granted and determine the terms
of each award, including the number of shares of common stock subject to any
option, the exercise date and the vesting requirements. Payment of the exercise
price may be made in cash or by shares of common stock valued at the fair
market value on the date of exercise or by a combination of such methods of
payment.
If we merge with or into another corporation or sell all or substantially
all our assets, each outstanding option under the 1996 Plan will automatically
vest and become fully exercisable if the successor corporation does not assume
or provide for the substitution of each outstanding option.
To date, we have granted stock options to purchase an aggregate of 291,561
shares of common stock pursuant to the 1996 Plan. We have not granted any
options under the 1996 Plan to either of the officers named in the Summary
Compensation Table.
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<PAGE>
On May 25, 1999, in connection with our hiring of Mark O. Beyland to serve
as our President and Chief Financial Officer, we granted him incentive stock
options pursuant to the 1996 Plan covering a total of 220,727 shares of our
common stock at an exercise price of $5.81. One-half of these options vested on
the date of grant and the remaining options vest at the rate of 1/48th per
month until fully vested. In addition we intend to grant to of our employees
pursuant to the 1996 plan incentive stock options to purchase a total of
shares at an exercise price equal to the initial public offering price. Twenty-
five percent of each of these options will vest one year from the date of the
grant and the balance of the options will vest at a rate of 1/48th per month
beginning after that first year.
Employee Stock Purchase Plan. We intend to adopt an employee stock purchase
plan before the completion of this offering . The stock purchase plan will
provide for the purchase by employees of a maximum of 300,000 shares of common
stock after the completion of this offering. Shares purchased under the plan
may be newly issued shares of common stock or treasury shares, including shares
purchased by us on the open market for sale under the plan.
A committee of three or more employees appointed by the Board of Directors
will administer the stock purchase plan. All full-time employees of Loislaw.com
who have been employed by us for more than six months on or before the first
day of any payment period and whose customary employment is more than 20 hours
per week will be eligible to participate in the stock purchase plan. Employees
who would own 5% or more of the total combined voting power or value of
Loislaw.com's stock immediately after the grant will not be eligible to
participate in the stock purchase plan. To participate in the stock purchase
plan, an employee must authorize Loislaw.com to deduct an amount (not less than
one percent nor more than ten percent of an employee's total cash compensation)
from his or her pay during six-month payment periods. The first payment period
will commence on the first day of the month following the registration of
Loislaw.com's common stock under the Exchange Act and will end on December 31,
1999. Thereafter, the payment periods will commence on each January 1 and July
1 and end on the following June 30 and December 31, respectively, of each year,
but in no case will an employee be entitled to purchase in any one payment
period a number of shares that has a fair market value (determined at the
beginning of the period) of more than $12,500. The purchase price for the stock
that employees are entitled to purchase in any payment period is equal to the
lesser of 85% of the fair market value of the common stock and the beginning of
the payment period and 85% of the fair market value of the common stock at the
end of the payment period. If an employee is not a participant on the last day
of the payment period, the employee will not be entitled to purchase any shares
for that period, and the amount of his or her accumulated payroll deductions
will be refunded. An employee's rights under the stock purchase plan will
terminate upon his or her voluntary withdrawal from the plan at any time or
upon termination of his or her employment..
1999 Nonqualified Stock Option Plan for Nonemployee Directors. We intend to
adopt a nonqualified stock option plan for nonemployee directors before the
completion of this offering. The nonemployee directors plan will provide for
the issuance of a maximum of 320,000 shares of common stock.
Each nonemployee director will be granted an option to purchase 40,000
shares of common stock at an exercise price that will be equal to the initial
public offering price of the common stock in this offering. Subject to the
director's continued membership on the Board, each option will vest in annual
increments of 25% beginning one year from the date of grant. Directors,
including new members to the Board of Directors after the completion of this
offering, may be granted options at the discretion of the committee of the
Board administering the plan. All options granted to nonemployee directors will
be nonstatutory options with an exercise price equal to 100% of the fair market
value of common stock on the date of grant. The nonemployee directors plan will
be administered by a committee of disinterested directors.
401(k) Plan
We have established a tax-qualified employee savings and retirement plan.
Employees must complete 12 months of service at Loislaw.com before they are
eligible to participate. Employees may contribute a
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<PAGE>
percentage of their pre-tax compensation and Loislaw.com may, in its discretion
from year-to-year, make matching and profit sharing contributions to the
employees. Amounts contributed by Loislaw.com vest over six years.
Limitation of Liability and Indemnification of Officers and Directors
Our certificate of incorporation and by-laws provide that the directors and
officers of Loislaw.com shall be indemnified by Loislaw.com to the fullest
extent authorized by Delaware law, as it now exists or may in the future be
amended, against all expenses and liabilities reasonably incurred in connection
with their service for or on behalf of Loislaw.com. In addition, the restated
certificate of incorporation provides that the directors of Loislaw.com will
not be personally liable for monetary damages to Loislaw.com for breaches of
their fiduciary duty as directors, unless they violated their duty of loyalty
to Loislaw.com or its stockholders, acted in bad faith, knowingly or
intentionally violated the law, authorized illegal dividends or redemptions or
derived an improper personal benefit from their action as directors. Further,
we have entered into indemnification agreements with each of our officers and
directors in which we have agreed to indemnify them in addition to the
indemnification provided for in our certificate of incorporation and by-laws.
These agreements indemnify our directors and officers for certain expenses
(including attorneys' fees and associated legal expenses), judgments, fines and
amounts paid in settlement, actually and reasonably incurred by any such person
in connection with services as a director or officer of Loislaw.com. In order
to receive the indemnification, the director or officer must have acted in good
faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of Loislaw.com or, with respect to any criminal
proceeding, must have had reasonable cause to believe that his or her conduct
was lawful. We intend to obtain insurance that insures the directors and
officers of Loislaw.com against specified losses and that insures Loislaw.com
against specific obligations to indemnify its directors and officers. We
believe these provisions and agreements are necessary to attract and retain
qualified directors and officers.
45
<PAGE>
CERTAIN TRANSACTIONS
Sale of Series C Preferred Stock. Pursuant to a stock purchase agreement, on
May 25, 1999, we sold an aggregate of $14.5 million of Series C Preferred Stock
to Capital Resource Lenders III, L.P., Mark O. Beyland, Sandler Capital
Partners IV, L.P., Sandler Capital Partners IV, FTE, L.P., and Exeter Capital
Partners IV, L.P. and approximately $500,000 of common stock to Dublind
Partners, Inc. In connection with such sale, we entered into an Amended and
Registration Rights Agreement and an Amended and Restated Stockholders
Agreement, both of which are described below. Capital Resource Lenders III,
L.P. is one of our Series A Convertible Preferred stockholders. Mark O. Beyland
is our President and Chief Financial Officer. We paid $475,000 to Dublind
Investments LLC on May 25, 1999 pursuant to the terms of a financial advisory
services contract with Dublind Partners, Inc. and Dublind Securities, Inc.,
affiliates of Dublind Investments LLC . In addition, Capital Resource Lenders
III, L.P. purchased its portion of the Series C Preferred Stock by converting
notes issued to it by us with an aggregate outstanding principal balance of $5
million.
Registration Rights. Pursuant to an Amended and Restated Registration Rights
Agreement dated as of May 25, 1999 among Loislaw.com and certain stockholders
of Loislaw.com, Capital Resource Lenders III, L.P., CRP Investment Partners
III, LLC, Rowland T. Moriarty, Mark O. Beyland, Sandler Capital Partners IV,
L.P., Sandler Capital Partners IV, FTE, L.P., Exeter Capital Partners IV, L.P.
and certain transferees of Dublind Partners, Inc. have the right to require us
to register under the Securities Act all or any part of the shares of
Loislaw.com that they own, and we are required to use our best efforts to cause
such registration to occur, subject to certain limitations and conditions,
including that we shall not be required to effect such a registration (i) more
than one time for the former holders of the Series A Convertible Preferred
Stock, (ii) more than one time for the former holders of Series C Convertible
Preferred Stock and (iii) if the reasonably anticipated aggregate price to the
public will not exceed $5 million. Additionally, if we propose to register
common stock under the Securities Act, the above stockholders as well as
Charles J. Lindsay, George P. Lindsay, Charles M. Dubroff, Nester J. Olivier
and Dublind Partners, Inc., have the right to request the inclusion of their
shares of common stock in the registration, subject to certain limitations and
conditions, among them the right of the underwriters of such registered
offering to exclude or limit the number of their shares included in such
offering. Finally, all former holders of Series A Convertible Preferred Stock
and Series C Convertible Preferred Stock have the right to request any number
of registrations on Form S-3, subject to certain limitations and conditions,
including that the reasonably anticipated aggregate price to the public must
exceed $500,000.
We have agreed to pay the expenses of the registrations described above.
These costs include filing fees, printing expenses, fees of legal counsel
(including up to $10,000 for one counsel for all the selling stockholders) and
other related costs. The selling stockholders will pay any underwriting
discounts and commissions associated with the sale of their securities.
We have agreed that in the event of any registration of securities pursuant
to the Amended and Restated Registration Rights Agreement, we will indemnify
the selling stockholders against certain liabilities incurred in connection
with such registration, including liabilities under the Securities Act. The
selling stockholders will provide a similar indemnity for liabilities incurred
as a result of information furnished in writing to us by any selling
stockholder for inclusion in the registration statement.
Subject to certain limitations and conditions, the registration rights held
by these selling stockholders may be transferred with their securities.
Amended and Restated Stockholders Agreement. On May 25, 1999, we and our
existing stockholders entered into an Amended and Restated Stockholders'
Agreement. After the completion of this offering, this agreement will continue
to provide that the stockholders will vote their shares to elect to the Board
of Directors of Loislaw.com one person designated by each of (a) Capital
Resource Lenders III, L.P. and (b) Sandler Capital Partners IV, L.P. and
Sandler Capital Partners IV, FTE, L.P., so long as they each hold at least 10%
of the outstanding shares of common stock of Loislaw.com. Also, each of Capital
Resource Lenders III, L.P. and the Sandler entities retain observer rights to
attend meetings of our Board of Directors as long as, among other
46
<PAGE>
things, they continue to hold at least 25% of their Series A Preferred Stock
and Series C Preferred Stock, respectively. In addition, these stockholders as
well as the Parker Family Trust, will have co-sale rights entitling them to
include shares of their stock in any sale of a control block of securities of
Loislaw.com or the sale of shares of Loislaw.com by any party to the
stockholders' agreement to a designated competitor of Loislaw.com. Finally, all
stockholders that are parties to this agreement have transfer restrictions on
their shares of capital stock of Loislaw.com in the event that they attempt to
sell their stock in a control block sale or a private sale to a designated
competitor.
Series B Preferred Stock. On November 1, 1995, we entered into a promissory
note and loan agreement with Melissa A. Parker, sister-in-law of Kyle D. Parker
and daughter-in-law of Douglas W. Parker, Sr., pursuant to which Loislaw.com
borrowed $2.0 million. We borrowed additional funds from Mrs. Parker such that
as of June 30, 1996 the outstanding principal balance borrowed was $4.0
million. In November 1997, the original $4.0 million loan plus accrued interest
in the amount of $395,891.01 was converted into 439,589 shares of Series B
Redeemable Preferred Stock. These shares earn dividends at a rate of 7.735% per
year and such dividends are paid as and when declared by the Board. We intend
to redeem these shares of Series B Preferred Stock upon the completion of this
offering.
Advisory Fees. On February 5, 1999, Loislaw.com renewed a letter agreement
with Dublind Partners, Inc. and Dublind Services, Inc. originally dated July 8,
1997 pursuant to which the Dublind entities provided financial advisory
services to Loislaw.com relating to private financings and an initial public
offering. We paid Dublind Investments LLC, an affiliate of Dublind Partners,
Inc. and Dublind Securities, Inc., $475,000 on May 25, 1999 in connection with
this letter agreement. Upon the closing of this offering, we will also pay to
Dublind a fee of $250,000 in exchange for financial advisory services provided
to us.
Stockholder Loans. We have borrowed money from Capital Resource Lenders III,
L.P., CRP Investment Partners III, LLC and Rowland T. Moriarty and have
executed three senior subordinated notes, which as of March 31, 1999 had a
combined outstanding principal balance of $10,000,000.00. These notes accrue
interest at a rate of 12.5% per annum and are due on November 30, 2003.
Interest on these notes is payable quarterly in arrears on the last business
day of March, June, September and December of each year. For 1997 and 1998, we
paid interest in the total amounts of $53,000 and $820,000 on these notes.
These notes are subject to the terms and conditions of a Senior Subordinated
Note and Securities Agreement, dated as of November 24, 1997, as subsequently
amended. We intend to repay these notes upon completion of this offering.
Board Members. Robert C. Ammerman, a member of the Board of Directors, is a
managing member of Capital Resource Partners III, L.L.C., the general partner
of Capital Resource Lenders III, L.P., and a managing member of CRP Investment
Partners III, LLC. Hannah C. Stone, a member of the Board of Directors, is a
managing director of Sandler Capital Management, an affiliate of Sandler
Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P. Kyle D.
Parker, Chairman of the Board, Chief Executive Officer and a member of the
Board of Directors, is trustee of the Parker Family Trust. The beneficiaries of
this trust include Kyle D. Parker, Douglas W. Parker, Sr. and Melissa Parker.
Also, W. Clark Wigley has been granted options by this trust covering 140,000
shares of common stock.
Lease. Loislaw.com leases its principal executive office and operations
facility in Van Buren, Arkansas from the Parker Law Firm, of which Douglas W.
Parker, Sr. and Kyle D. Parker are partners. The lease provides for a five-year
term expiring in May 2004 with two five-year renewals. Monthly payments under
the lease were increased to $14,200 during May 1999 as a result of expansion of
space under lease. During 1996, 1997 and 1998, we paid $49,834, $49,834 and
$65,984, respectively, under this lease.
Future Transactions. All future transactions, including loans between us and
our officers, directors, principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
disinterested directors of the Board of Directors, and will be on terms no less
favorable to us than could be obtained from unaffiliated third parties.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Loislaw.com's common stock as of June 18, 1999 and as adjusted to
reflect the completion of this offering by:
. each of our directors,
. each named executive officer listed in the Summary Compensation Table,
. all directors and executive officers of Loislaw.com as a group, and
. each person who is known by us to own beneficially more than five percent
of the outstanding shares of the common stock (including the selling
stockholder).
Unless otherwise indicated, (1) each person or entity named in the table has
sole voting power and investment power (or shares such power with his or her
spouse) with respect to all shares of capital stock listed as beneficially
owned by such person or entity and (2) the address of each beneficial owner is
c/o Loislaw.com, Inc., 105 North 28th Street, Van Buren, Arkansas 72956. The
number of shares of common stock outstanding used in calculating the percentage
for each person listed includes the shares of common stock underlying options
held by such person that are exercisable within 60 days of June 18, 1999, but
excludes shares of common stock underlying options held by any other person.
Percentage of beneficial ownership is based on 8,519,762 shares of common stock
outstanding as of June 18, 1999, after giving effect to the conversion of the
convertible preferred stock, and shares of common stock outstanding after
completion of this offering.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Owned
Prior to the Offering After the Offering
---------------------------- Shares -----------------------
Name of Beneficial Owner Number Percent Offered Number Percent
- ------------------------ ------------- ----------- ------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Kyle D. Parker,
Trustee(1)............. 3,395,000 39.8% 3,395,000
W. Clark Wigley(1)...... 140,000(2) 1.6 0 140,000 *
Mark O. Beyland(3)...... 253,247 2.9 0 253,247
Robert C. Ammerman(4)... 2,832,085 33.2 0 2,832,085
Hannah C. Stone(5)...... 1,118,760 13.1 0 1,118,760
D. Randy Laney.......... 0 * 0 0 *
Capital Resource Lenders
III, L.P.(4)........... 2,832,085 33.2 0 2,832,085
Sandler Capital Partners
IV, L.P.(5)............ 1,118,760 13.1 0 1,118,760
Sandler Capital Partners
IV, FTE, L.P.(5)....... 1,118,760 13.1 0 1,118,760
Douglas W. Parker,
Sr.(1)................. 779,800 9.2
All directors and
executive officers as a
group
(10 persons)........... 7,619,882 87.9 0
</TABLE>
- --------
* Less than 1%
(1) Kyle D. Parker is the trustee of the Parker Family Trust. Under the terms
of the Trust, Mr. Parker has sole voting power of all of the shares held of
record by the trust and he is the beneficiary of 1,559,600 shares. Douglas
W. Parker, Sr. is the beneficiary of 779,800 shares and Melissa Parker is
the beneficiary of 779,800 shares. Further, W. Clark Wigley has been
granted an option by the trust to purchase 140,000 shares, and another
employee of Loislaw.com beneficially owns 135,800 shares held of record by
the trust. Kyle D. Parker holds a right of first refusal to purchase the
135,800 shares held by the employee upon the employee's resignation,
termination, incapacity or death. Kyle D. Parker disclaims beneficial
ownership of such shares, except to the extent of his pecuniary interest
therein.
(2) Consists of (i) an option to purchase 35,000 shares of common stock from
the Parker Trust that vests on the date that we file this registration
statement and (ii) an option to purchase 105,000 shares of common stock
from the Parker Trust that vests on August 1, 1999.
(3) Includes 124,159 shares subject to options held by Mr. Beyland that are
presently exercisable or will be exercisable within 60 days.
48
<PAGE>
(4) Consists of (i) an aggregate of 2,829,771 shares held of record by Capital
Resource Lenders III, L.P. of which 1,056,616 shares are common stock,
915,646 shares are Series A Convertible Preferred Stock and 857,509 shares
are Series C Convertible Preferred Stock; and (ii) an aggregate of 2,314
shares held of record by CRP Investment Partners III, LLC, of which 1,074
shares are Series A Convertible Preferred Stock and 1,240 shares are
covered by a warrant to purchase our common stock. Mr. Ammerman is a
managing member of Capital Resource Partners III, LLC, the general partner
of Capital Resource Lenders III, L.P. Capital Resource Partners III, LLC
has sole voting and investment power with respect to the shares held of
record by Capital Resource Lenders III, L.P. Mr. Ammerman is also a
managing member of CRP Investment Partners III, LLC. Mr. Ammerman shares
with three other managing members the voting and investment power with
respect to the shares held of record by CRP Investment Partners III, LLC.
Mr. Ammerman disclaims beneficial ownership of such shares, except to the
extent of his pecuniary interest therein. The address for Mr. Ammerman,
Capital Resource Lenders III, L.P. and CRP Investment Partners III, LLC is
85 Merrimac Street, Suite 200, Boston, Massachusetts 02114.
(5) Consists of 793,680 shares held of record by Sandler Capital Partners IV,
L.P. and 325,080 shares held of record by Sandler Capital Partners IV, FTE,
L.P. Ms. Stone is a Managing Director of Sandler Capital Management, a
general partnership, the general partner of Sandler Capital Partners IV,
L.P and Sandler Capital Partners IV, FTE, L.P. Ms. Stone shares voting and
investment power with respect to the shares held of record by Sandler
Capital Partners IV, L.P. and Sandler Capital Partners IV, FTE, L.P. with
several other managing directors. Ms. Stone disclaims beneficial ownership
of such shares, except to the extent of her pecuniary interest therein. The
address for Ms. Stone, Sandler Capital Partners IV, L.P. and Sandler
Capital Partners IV, FTE, L.P. is 767 Fifth Avenue, 45th Floor, New York,
New York 10153.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of 50,000,000 shares of common stock,
$.001 par value, and 10,000,000 shares of preferred stock, $.001 par value.
The following summary of the terms and provisions of our capital stock
does not purport to be complete, and we refer you to the certificate of
incorporation and bylaws, which we filed as exhibits to the registration
statement of which this prospectus is a part, and applicable law.
Common Stock
As of June 18, 1999, there were 5,093,021 shares of common stock
outstanding. Based upon the number of shares outstanding as of that date and
giving effect to the issuance of 3,426,741 shares of common stock upon the
conversion of the Series A Convertible Preferred Stock and the Series C
Convertible Preferred Stock upon the completion of this offering, after this
offering, there will be shares of common stock outstanding. Upon
completion, the shares of Series A and Series C convertible preferred stock
will cease to be outstanding and will assume the status of authorized but
unissued shares of preferred stock without designation.
The holders of common stock are entitled to one vote for each share of
common stock held on all matters voted upon by stockholders, including the
election of directors. Subject to the rights of any then outstanding shares of
preferred stock, the holders of the common stock are entitled to such dividends
as may be declared in the discretion of the Board of Directors out of funds
legally available for the payment of dividends. The holders of common stock are
entitled to share ratably in our net assets upon liquidation after we pay or
provide for all liabilities and for any preferential liquidation rights of any
preferred stock then outstanding. The common stockholders have no preemptive
rights to purchase shares of our stock. Shares of common stock are not subject
to any redemption provisions and are not convertible into any of our other
securities. All outstanding shares of common stock are, and the shares of
common stock we sell in this offering will be, fully paid and nonassessable
when we receive payment for such shares.
Preferred Stock
As of June 18, 1999, there were 3,866,330 shares of preferred stock
designated as follows: (i) 931,044 shares were designated as Series A
Convertible Preferred Stock, (ii) 439,589 shares were designated as Series B
Redeemable Preferred Stock, and (iii) 2,495,697 shares were designated as
Series C Convertible Preferred Stock. A total of 1,133,670 shares of preferred
stock are authorized but have not been designated.
Our Board of Directors has the authority, without further action by our
stockholders, to issue shares of undesignated preferred stock from time to time
in one or more series and to fix the related number of shares and the
designations, voting powers, preferences, optional and other special rights,
and restrictions or qualifications of such Preferred Stock. The rights,
preferences, privileges and restrictions or qualifications of different series
of preferred stock may differ with respect to dividend rates, amounts payable
on liquidation, voting rights, conversion rights, redemption provisions,
sinking fund provisions and other matters. The issuance of such preferred stock
could: (i) decrease the amount of earnings and assets available for
distribution to holders of common stock; (ii) adversely affect the rights and
powers, including voting rights, of holders of common stock; and (iii) have the
effect of delaying, deferring or preventing a change in control. We have no
present plans to issue any shares of undesignated preferred stock. We intend to
redeem the outstanding shares of Series B Redeemable Preferred Stock upon the
completion of this offering, and upon such redemption, the Series B Redeemable
Preferred Stock will cease to be outstanding and will assume the status of
authorized but unissued shares of preferred stock without designation.
Delaware Law and Certain Charter and By-Law Provisions, Anti-Takeover Effects
Upon completion of this offering, Loislaw.com will be subject to the
provisions of Section 203 of the General Corporation Law of Delaware. Section
203 prohibits a publicly-held Delaware corporation from
50
<PAGE>
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. A "business combination" includes mergers, asset sales
and other transactions resulting in a financial benefit to the interested
stockholder. Subject to certain exceptions, an "interested stockholder" is a
person who, together with affiliates and associates, owns, or within the prior
three years did own, 15% or more of the corporation's outstanding voting stock.
Our certificate of incorporation and by-laws provide that directors may be
removed only for cause by the affirmative vote of the holders of a majority of
the combined voting power of the then outstanding shares of capital stock of
Loislaw.com entitled to vote. In addition, under the certificate of
incorporation, any vacancy on the board of directors, however occurring,
including a vacancy resulting from an enlargement of the board, may be filled
only by vote of a majority of the directors then in office. The likely effect
of the limitations on the removal of directors and filling of vacancies is an
increase in the time required for the stockholders to change the composition of
the board of directors.
Our by-laws provide that any action required or permitted to be taken by the
stockholders of Loislaw.com at an annual meeting or special meeting of
stockholders may be taken only if Loislaw.com is given proper advance notice of
the action. The by-laws further provide that special meetings of stockholders
may be called only by the board of directors, the chairman of the board of
directors, the president of Loislaw.com. or the holders of a majority of the
outstanding shares of capital stock entitled to vote. The foregoing provisions
could have the effect of delaying until the next stockholders' meeting
stockholder actions that are favored by the holders of a majority of the
outstanding voting securities of Loislaw.com.
The General Corporation Law of Delaware provides generally that the
affirmative vote of a majority of the shares entitled to vote on any matter is
required to amend a corporation's certificate of incorporation or by-laws,
unless a corporation's certificate of incorporation or by-laws, as the case may
be, requires a greater percentage. The majority stockholder vote would be in
addition to any separate class vote that might be required pursuant to the
terms of any series of preferred stock that might be outstanding at the time
any amendments are submitted to stockholders.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock will be .
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, shares of common stock will be outstanding (
shares if the underwriters exercise their over-allotment option in full and
shares if, in addition, common stock is issued upon the exercise of
outstanding options and warrants). See "Capitalization". Of these shares, the
shares ( shares if the underwriters exercise their over-allotment
option in full) sold in this offering will be freely tradeable without
restriction under the Securities Act except for any shares purchased by
"affiliates" of Loislaw.com, as defined in Rule 144 under the Securities Act.
The remaining 8,519,762 shares (8,829,091 shares if common stock is issued upon
the exercise of outstanding options and warrants) are "restricted securities"
within the meaning of Rule 144 under the Securities Act. The restricted
securities generally may not be sold unless they are registered under the
Securities Act or are sold pursuant to an exemption from registration, such as
the exemption provided by Rule 144.
All of our officers, directors, stockholders, including the selling
stockholder, and option holders have entered into lock-up agreements pursuant
to which they have agreed not to offer or sell any shares of common stock for a
period of 180 days after the date of this prospectus without the prior written
consent of Prudential Securities, on behalf of the underwriters. See
"Underwriting". Prudential Securities may, at any time and without notice,
waive any of the terms of these lock-up agreements specified in the
underwriting agreement. Following the lock-up period, these shares will not be
eligible for sale in the public market without registration under the
Securities Act unless such sales meet the conditions and restrictions of Rule
144 as described below.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned shares for a period of at least one year (including the holding period of
any prior owner other than an affiliate of Loislaw.com) is entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then-outstanding shares of common stock and (ii) the
average weekly trading volume in the common stock during the four calendar
weeks immediately preceding the date on which the stockholder files notice of
such sale with the SEC. Sales under Rule 144 are also subject to certain
provisions relating to notice, manner of sale and the availability of current
public information about Loislaw.com. In addition, a person (or persons whose
shares are aggregated) who has not been an affiliate of Loislaw.com at any time
during the 90 days immediately preceding a sale, and who has beneficially owned
the shares for at least two years (including the holding period of any prior
owner other than an affiliate of Loislaw.com), would be entitled to sell such
shares under Rule 144(k) without regard to the volume limitation and other
conditions described above. The foregoing summary of Rule 144 is not intended
to be a complete description.
Rule 701 provides that shares of common stock acquired upon the exercise of
currently outstanding options (or pursuant to other rights granted under our
stock plan) may be resold by persons, other than affiliates, beginning 90 days
after the effective date of the registration statement of which this prospectus
is a part, subject only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144, without compliance with its one-year minimum holding
period requirement, subject to certain limitations. As of the date of this
prospectus, the board of directors has authorized up to 500,000 shares of
common stock for issuance pursuant to our employee stock option plan, up to
320,000 shares of common stock for issuance pursuant to our nonemployee
directors stock option plan and up to shares of common stock for issuance
pursuant to our employee stock purchase plan. At June 30, 1999, 145,015 shares
of common stock were issuable pursuant to outstanding vested options under our
stock option plans, 146,546 shares of common stock are issuable pursuant to
outstanding options that are not yet exercisable, and 208,439 shares of common
stock are available for future grants under our stock option plans.
52
<PAGE>
We intend to file one or more registration statements on Form S-8 under the
Securities Act within 90 days after the date of this prospectus to register all
shares of common stock that are issuable pursuant to our stock option plans and
our employee stock purchase plan. The registration statements are expected to
become effective upon filing. Shares covered by the registration statements on
Form S-8 will be eligible for sale in the public markets, subject to the lock-
up period, and for our affiliates, subject to certain conditions and
restrictions (other than the holding period) of Rule 144.
After this offering, a majority of the holders of the 931,044 shares of
common stock that were issued upon conversion of the Series A Convertible
Preferred Stock and the holders of at least 30% of the 2,495,697 shares of
common stock that were issued upon conversion of the Series C Convertible
Preferred Stock may request that we register all or any portion of their
registrable securities. Registrable securities include the 931,044 shares of
common stock issuable upon conversion of the Series A Convertible Preferred
Stock, 2,495,697 shares of common stock issuable upon conversion of the Series
C Preferred Stock and 17,768 shares of common stock issued or issuable upon
exercise of warrants. All holders of common stock that was issued upon
conversion of the Series A Convertible Preferred Stock and the Series C
Convertible Preferred Stock have the right to request any number of
registrations on Form S-3 by us. Additionally, the holders of approximately
451,405 shares of common stock are entitled to notice if we propose to register
any of our securities under the Securities Act, either for our own account or
for the account of other security holders exercising registration rights and
are, subject to certain limitations, entitled to include shares of common stock
in such registration.
All current stockholders of Loislaw.com are parties to an Amended and
Restated Stockholders' Agreement dated May 25, 1999. This agreement imposes
transfer restrictions on their shares of capital stock of Loislaw.com in the
event that they attempt to sell their stock in a control block sale or a
private sale to a designated competitor. See "Certain Transactions."
53
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below, for whom Prudential Securities Incorporated, U.S. Bancorp Piper Jaffray
Inc. and Dain Rauscher Wessels are acting as representatives. We, and the
selling stockholder, are obligated to sell, and the underwriters are obligated
to purchase, all of the shares offered on the cover page of this prospectus, if
any are purchased. Subject to conditions of the underwriting agreement, each
underwriter has severally agreed to purchase the shares indicated opposite its
name:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Prudential Securities Incorporated...................................
U.S. Bancorp Piper Jaffray Inc. .....................................
Dain Rauscher Wessels................................................
----
Total..............................................................
====
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to additional shares from us. If any additional shares are purchased, the
underwriters will severally purchase the shares in the same proportion as per
the table above.
The representatives of the underwriters have advised us that the shares will
be offered to the public at the offering price indicated on the cover page of
this prospectus. The underwriters may allow to selected dealers a concession
not in excess of $ per share and such dealers may reallow a concession not in
excess of $ per share to certain other dealers. After the shares are
released for sale to the public, the representatives may change the offering
price and the concessions. The representatives have informed us that the
underwriters do not intend to sell shares to any investor who has granted them
discretionary authority.
We, and the selling stockholder, have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the
underwriters' over-allotment option to purchase additional shares:
<TABLE>
<CAPTION>
Total Fees
-------------------------------------------
Fee Without Exercise of Full Exercise of
Per Share Over-Allotment Option Over-Allotment Option
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us......... $ $ $
Fees paid by the selling
stockholder............ $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $ in expenses
for this offering, including those of the selling stockholder. We and the
selling stockholder have agreed to indemnify the underwriters against certain
liabilities, including liabilities under the Securities Act, or contribute to
payments that the underwriters may be required to make in respect of these
liabilities.
We, our officers and directors, and all stockholders, including the selling
stockholder and option holders, of Loislaw.com have entered into lock-up
agreements pursuant to which we and they have agreed not to offer or sell any
shares of common stock or securities convertible into or exchangeable or
exercisable for shares of common stock for a period of 180 days from the date
of this prospectus without the prior written consent of Prudential Securities,
on behalf of the underwriters. Prudential Securities may, at any time and
without notice, waive the terms of these lock-up agreements specified in the
underwriting agreement.
54
<PAGE>
Prior to this offering, there has been no public market for the common stock
of Loislaw.com. The public offering price, negotiated among us, the selling
stockholder and the representatives, is based upon various factors such as the
Loislaw.com's financial and operating history and condition, its prospects, the
prospects for the industry we are in and prevailing market conditions.
Prudential Securities, on behalf of the underwriters, may engage in the
following activities in accordance with applicable securities rules:
. Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities may elect to reduce this short
position by exercising some or all of the over-allotment option.
. Stabilizing and short covering; stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
. Penalty bids permitting the representatives to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions.
Such activities, which may be commenced and discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
. the Public Offers of Securities Regulations 1995,
. the Financial Services Act of 1986, and
. the Financial Services Act 1986, (Investment Advertisements) (Exemptions)
Order 1996 (as amended).
We have asked the underwriters to reserve shares for sale at the same
offering price directly to our officers, directors, employees and other
business affiliates or related third parties. The number of shares available
for sale to the general public in the offering will be reduced to the extent
such persons purchase the reserved shares.
LEGAL MATTERS
The validity of the shares of common stock to be issued in this offering
will be passed upon for Loislaw.com by Thompson & Knight, P.C., Dallas, Texas.
Various legal matters in connection with the offering will be passed upon for
the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Loislaw.com as of December 31, 1997 and 1998 and
for each of the years in the three-year period ended December 31, 1998 have
been included in this prospectus and in the registration statement in reliance
upon the report, which appears elsewhere in this prospectus, of KPMG LLP,
independent certified public accountants, and upon their authority as experts
in accounting and auditing.
55
<PAGE>
AVAILABLE INFORMATION
Loislaw.com has filed with the SEC a registration statement on Form S-1
(including all amendments and exhibits thereto) under the Securities Act with
respect to the common stock in this offering. As permitted by the rules and
regulations of the SEC, this prospectus omits certain information contained in
the registration statement. For further information with respect to Loislaw.com
and the common stock offered in this offering, you should refer to the
registration statement and its exhibits and schedules. Statements contained in
this prospectus regarding the contents of any agreement or other document filed
as an exhibit to the registration statement are not necessarily complete, and
in each instance reference is made to the copy of that agreement or document
filed as an exhibit to the registration statement, and each such statement is
qualified in all respects by such reference. You may obtain copies of all or
any portion of the registration statement at prescribed rates from the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549, at its regional offices
located at Seven World Trade Center, New York, New York 10007 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, or by
calling the Commission at 1-800-SEC-0330. In addition, the Commission maintains
a web site that contains reports, proxy statements and information statements
and other information regarding registrants (including Loislaw.com) that file
electronically with the Commission, which can be accessed at
http://www.sec.gov.
We intend to furnish to our stockholders annual reports containing financial
statements audited by an independent public accounting firm and with quarterly
reports for each of the quarters of each fiscal year containing unaudited
financial statements.
56
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report............................................. F-2
Balance Sheets at December 31, 1997 and 1998 and March 31, 1999
(unaudited) and March 31, 1999 (pro forma).............................. F-3
Statements of Operations for the years ended December 31, 1996, 1997 and
1998 and the three months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................................. F-4
Statements of Redeemable Equity Securities and Stockholders' Equity
(Deficit) for the years ended December 31, 1996, 1997 and 1998 and the
three months ended March 31, 1999 (unaudited)........................... F-5
Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998 and the three months ended March 31, 1998 (unaudited) and 1999
(unaudited)............................................................. F-7
Notes to Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE>
When the transactions referred to in Note 7(c) of the Notes to Financial
Statements have been consummated, we will then be in a position to render the
following report.
KPMG LLP
Little Rock, Arkansas
June 18, 1999
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Loislaw.com, Inc.:
We have audited the accompanying balance sheets of Loislaw.com, Inc. as of
December 31, 1997 and 1998, and the related statements of operations,
redeemable equity securities and stockholders' equity (deficit) and cash flows
for each of the years in the three-year period ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our 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 financial statements referred to above present fairly, in
all material respects, the financial position of Loislaw.com, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1998,
in conformity with generally accepted accounting principles.
Little Rock, Arkansas
May 29, 1999, except as to
note 7(c) which is as
of June , 1999
F-2
<PAGE>
LOISLAW.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
December 31, 1999
------------------------- March 31, Pro Forma
1997 1998 1999 (note 5)
----------- ------------ ------------ ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents........... $ 3,233,172 $ 99,042 $ 20,031 $ 12,454,467
Accounts receivable,
net of allowance for
doubtful accounts of
$375,000 and $124,974
at December 31, 1997
and 1998,
respectively, and
$115,440 at March 31,
1999 (note 5)......... 896,001 1,540,052 1,671,558 1,671,558
Prepaid commissions.... 114,936 311,394 587,383 587,383
Prepaid software
licenses.............. -- 96,958 196,958 196,958
Other current assets... 19,654 138,811 374,925 374,925
----------- ------------ ------------ ------------
Total current assets... 4,263,763 2,186,257 2,850,855 15,285,291
Databases, net (notes 3
and 5)................. 6,228,884 8,566,529 11,980,513 11,980,513
Property and equipment,
net (notes 4 and 5).... 501,218 1,446,459 2,233,172 2,233,172
Deferred loan costs, net
of accumulated
amortization of $48,076
and $728,201 at
December 31, 1997 and
1998, respectively, and
$905,248 at March 31,
1999................... 4,528,723 3,992,278 4,223,595 4,223,595
Other assets............ 544,081 820,721 728,517 728,517
----------- ------------ ------------ ------------
Total assets........... $16,066,669 $ 17,012,244 $ 22,016,652 $ 34,451,088
=========== ============ ============ ============
Liabilities and
Stockholders' Equity
(Deficit)
Current liabilities:
Current installments of
long-term debt (note
5).................... 26,443 954,893 1,395,927 1,395,927
Accounts payable....... 1,906,319 2,559,631 4,063,819 4,063,819
Deferred revenue....... 2,540,459 2,961,067 3,146,616 3,146,616
Accrued expenses....... 304,708 461,549 585,931 564,799
----------- ------------ ------------ ------------
Total current
liabilities........... 4,777,929 6,937,140 9,192,293 9,171,161
Deferred revenue........ 981,722 967,046 655,198 655,198
Long-term debt,
excluding current
installments (note 5).. 4,080,941 11,317,631 16,193,671 14,193,671
Other noncurrent
liabilities............ -- 170,373 686,986 686,986
----------- ------------ ------------ ------------
Total liabilities...... 9,840,592 19,392,190 26,728,148 24,707,016
----------- ------------ ------------ ------------
Redeemable equity
securities (notes 5 and
7):
Series A convertible
preferred, 931,044
shares................ 2,492,100 2,605,840 2,674,454 2,674,454
Series B 7.735%
preferred, redemption
value of $4,395,890
plus accrued
dividends, 439,589
shares................ 4,430,358 4,770,380 4,855,385 4,855,385
Series C convertible
preferred, 2,495,697
shares................ -- -- -- 13,963,500
Common stock........... -- 1,189,158 1,208,110 3,566,000
Common stock warrants.. 4,293,821 3,154,975 3,615,451 60,017
----------- ------------ ------------ ------------
Total redeemable equity
securities............ 11,216,279 11,720,353 12,353,400 25,119,356
----------- ------------ ------------ ------------
Stockholders' equity
(deficit) (notes 5 and
7):
Common stock, $.001 par
value. 10,000,000
shares authorized;
shares issued--
3,590,000 at December
31, 1997, 3,955,346 at
December 31, 1998 and
March 31, 1999 and
5,098,021 on a pro
forma basis at March
31, 1999.............. 3,590 3,955 3,955 5,098
Additional paid-in
capital............... 449,910 1,638,703 1,638,703 5,685,062
Accumulated deficit.... (5,443,702) (14,537,699) (17,483,344) (17,483,344)
Redeemable common
stock, 365,346 shares
at December 31, 1998
and March 31, 1999 and
1,056,616 on a pro
forma basis at March
31, 1999.............. -- (1,189,158) (1,208,110) (3,566,000)
Treasury stock, at
cost, 5,000 shares in
1998 and 1999......... -- (16,100) (16,100) (16,100)
----------- ------------ ------------ ------------
Total stockholders'
equity (deficit)...... (4,990,202) (14,100,299) (17,064,896) (15,375,284)
----------- ------------ ------------ ------------
Commitments and
contingencies (notes 5,
7 and 8)
Total liabilities and
stockholders' equity
(deficit)............. $16,066,669 $ 17,012,244 $ 22,016,652 $ 34,451,088
=========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE>
LOISLAW.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
Years Ended December 31, March 31,
------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ----------- ----------- ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
Web-based products.... $ 28,333 208,357 842,112 115,342 499,247
CD-ROM products....... 1,854,605 3,157,056 3,182,067 737,160 836,634
Other................. -- -- 1,000,000 116,913 --
----------- ----------- ----------- ----------- -----------
Total revenues...... 1,882,938 3,365,413 5,024,179 969,415 1,335,881
----------- ----------- ----------- ----------- -----------
Costs and expenses:
Database cost......... 1,849,893 2,013,716 5,526,731 1,165,684 1,065,503
Selling and
marketing............ 2,152,638 2,363,028 4,413,645 749,956 1,706,399
General and
administrative....... 1,071,094 1,150,304 1,331,429 450,645 524,767
Product development... 51,642 47,396 445,615 143,015 186,925
Cost of other
revenues............. -- -- 393,357 46,185 --
----------- ----------- ----------- ----------- -----------
Total operating
expenses........... 5,125,267 5,574,444 12,110,777 2,555,485 3,483,594
----------- ----------- ----------- ----------- -----------
Loss from
operations......... (3,242,329) (2,209,031) (7,086,598) (1,186,070) (2,147,713)
----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest expense,
net.................. (250,964) (454,667) (1,548,931) (278,624) (593,704)
Other, net............ 2,644 (6,353) 41,953 250 1,503
----------- ----------- ----------- ----------- -----------
(248,320) (461,020) (1,506,978) (278,374) (592,201)
----------- ----------- ----------- ----------- -----------
Net loss............ (3,490,649) (2,670,051) (8,593,576) (1,864,444) (2,739,914)
Accrued preferred stock
dividends and accretion
on redeemable preferred
stock and common stock
warrants............... -- (34,468) (500,421) (105,321) (205,731)
----------- ----------- ----------- ----------- -----------
Net loss applicable to
common stock........... $(3,490,649) $(2,704,519) $(9,093,917) $(1,969,765) $(2,945,645)
=========== =========== =========== =========== ===========
Net loss per share--
basic and diluted...... $ (0.99) (0.76) (2.52) (0.55) (0.75)
=========== =========== =========== =========== ===========
Weighted average common
stock outstanding--
basic and diluted...... 3,528,603 3,581,370 3,611,172 3,590,000 3,950,346
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
LOISLAW.COM, INC.
STATEMENTS OF REDEEMABLE EQUITY SECURITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
(Notes 5 and 7)
<TABLE>
<CAPTION>
Redeemable Equity Securities
------------------------------------------------------------------
Series A Series C Common
convertible Series B convertible Common stock
preferred preferred preferred stock warrants Total
----------- --------- ----------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1995............ $ -- -- -- -- -- --
Issuance of
60,000 shares of
common stock for
cash............ -- -- -- -- -- --
Net loss........ -- -- -- -- -- --
--------- --------- --------- --------- ---------- ----------
Balances at
December 31,
1996............ -- -- -- -- -- --
Issuance of
30,000 shares of
common stock for
cash............ -- -- -- -- -- --
Issuance of
931,044 shares
of Series A
preferred stock
for cash, net of
issuance costs
of $507,900..... 2,492,100 -- -- -- -- 2,492,100
Conversion of
notes payable
into 439,589
shares of Series
B preferred
stock........... -- 4,395,890 -- -- -- 4,395,890
Issuance of
warrants to
purchase
1,337,639 shares
of redeemable
common stock.... -- -- -- -- 4,293,821 4,293,821
Accrued
dividends on
Series B
preferred stock.. -- 34,468 -- -- -- 34,468
Net loss........ -- -- -- -- -- --
--------- --------- --------- --------- ---------- ----------
Balances at
December 31,
1997............ 2,492,100 4,430,358 -- -- 4,293,821 11,216,279
Accrued
dividends on
Series B
preferred stock.. -- 340,022 -- -- 340,022
Accretion on
redeemable
equity
securities...... 113,740 -- -- -- 46,659 160,399
Exercise of
warrants for
365,346 shares
of redeemable
common stock.... -- -- -- 1,189,158 (1,185,505) 3,653
Purchase of
treasury stock,
5,000 shares.... -- -- -- -- -- --
Net loss........ -- -- -- -- -- --
--------- --------- --------- --------- ---------- ----------
Balances at
December 31,
1998............ 2,605,840 4,770,380 -- 1,189,158 3,154,975 11,720,353
Issuance of
warrants to
purchase 102,091
shares of
redeemable
common stock
(unaudited)..... -- -- -- -- 408,364 408,364
Accrued
dividends on
Series B
preferred stock
(unaudited)..... -- 85,005 -- -- -- 85,005
Accretion on
redeemable
equity
securities
(unaudited)..... 68,614 -- -- 18,952 52,112 139,678
Net loss
(unaudited)..... -- -- -- -- -- --
--------- --------- --------- --------- ---------- ----------
Balances at
March 31, 1999
(unaudited)..... 2,674,454 4,855,385 -- 1,208,110 3,615,451 12,353,400
--------- --------- --------- --------- ---------- ----------
<CAPTION>
Stockholders' Equity (Deficit)
------------------------------------------------------------------
Retained
Additional earnings/ Redeemable
Common paid-in (accumulated Treasury common
stock capital (deficit) stock stock Total
------ ---------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balances at
December 31,
1995............ 3,500 -- 751,466 -- -- 754,966
Issuance of
60,000 shares of
common stock for
cash............ 60 299,940 -- -- -- 300,000
Net loss........ -- -- (3,490,649) -- -- (3,490,649)
------ ---------- ------------- --------- ----------- ------------
Balances at
December 31,
1996............ 3,560 299,940 (2,739,183) -- -- (2,435,683)
Issuance of
30,000 shares of
common stock for
cash............ 30 149,970 -- -- -- 150,000
Issuance of
931,044 shares
of Series A
preferred stock
for cash, net of
issuance costs
of $507,900..... -- -- -- -- -- --
Conversion of
notes payable
into 439,589
shares of Series
B preferred
stock........... -- -- -- -- -- --
Issuance of
warrants to
purchase
1,337,639 shares
of redeemable
common stock.... -- -- -- -- -- --
Accrued
dividends on
Series B
preferred stock.. -- -- (34,468) -- -- (34,468)
Net loss........ -- -- (2,670,051) -- -- (2,670,051)
------ ---------- ------------- --------- ----------- ------------
Balances at
December 31,
1997............ 3,590 449,910 (5,443,702) -- -- (4,990,202)
Accrued
dividends on
Series B
preferred stock.. -- -- (340,022) -- -- (340,022)
Accretion on
redeemable
equity
securities...... -- -- (160,399) -- -- (160,399)
Exercise of
warrants for
365,346 shares
of redeemable
common stock.... 365 1,188,793 -- -- (1,189,158) --
Purchase of
treasury stock,
5,000 shares.... -- -- -- (16,100) -- (16,100)
Net loss........ -- -- (8,593,576) -- -- (8,593,576)
------ ---------- ------------- --------- ----------- ------------
Balances at
December 31,
1998............ 3,955 1,638,703 (14,537,699) (16,100) (1,189,158) (14,100,299)
Issuance of
warrants to
purchase 102,091
shares of
redeemable
common stock
(unaudited)..... -- -- -- -- -- --
Accrued
dividends on
Series B
preferred stock
(unaudited)..... -- -- (85,005) -- -- (85,005)
Accretion on
redeemable
equity
securities
(unaudited)..... -- -- (120,726) -- (18,952) (139,678)
Net loss
(unaudited)..... -- -- (2,739,914) -- -- (2,739,914)
------ ---------- ------------- --------- ----------- ------------
Balances at
March 31, 1999
(unaudited)..... 3,955 1,638,703 (17,483,344) (16,100) (1,208,110) (17,064,896)
------ ---------- ------------- --------- ----------- ------------
</TABLE>
(Continued)
F-5
<PAGE>
LOISLAW.COM, INC.
STATEMENTS OF REDEEMABLE EQUITY SECURITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
(Notes 5 and 7)--(Continued)
<TABLE>
<CAPTION>
Redeemable Equity Securities
--------------------------------------------------------------------
Series A Series C Common
convertible Series B convertible Common stock
preferred preferred preferred stock warrants Total
----------- --------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Pro forma
adjustments
(unaudited):
Exercise of
warrants for
1,056,616 shares
of redeemable
common stock.... $ -- -- -- 3,566,000 (3,555,434) 10,566
Issuance of
2,495,697 shares
of Series C
preferred stock
for cash, net of
issuance costs
of $536,000..... -- -- 13,963,500 -- -- 13,963,500
Issuance of
86,059 shares of
common stock for
cash, net of
issuance costs
of $18,500...... -- -- -- -- -- --
Cancellation of
redemption
feature on
365,346 shares
of redeemable
common stock.... -- -- -- (1,208,110) -- (1,208,110)
---------- --------- ---------- ---------- ---------- ----------
Pro forma at
March 31, 1999
(unaudited)...... $2,674,454 4,855,385 13,963,500 3,566,000 60,017 25,119,356
========== ========= ========== ========== ========== ==========
<CAPTION>
Stockholders' Equity (Deficit)
------------------------------------------------------------------
Retained
Additional earnings/ Redeemable
Common paid-in (accumulated Treasury common
stock capital (deficit) stock stock Total
------ ---------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Pro forma
adjustments
(unaudited):
Exercise of
warrants for
1,056,616 shares
of redeemable
common stock.... 1,057 3,564,943 -- -- (3,566,000) --
Issuance of
2,495,697 shares
of Series C
preferred stock
for cash, net of
issuance costs
of $536,000..... -- -- -- -- -- --
Issuance of
86,059 shares of
common stock for
cash, net of
issuance costs
of $18,500...... 86 481,416 -- -- -- 481,502
Cancellation of
redemption
feature on
365,346 shares
of redeemable
common stock.... -- -- -- -- 1,208,110 1,208,110
------ ---------- ------------- --------- ----------- ------------
Pro forma at
March 31, 1999
(unaudited)...... 5,098 5,685,062 (17,483,344) (16,100) (3,566,000) (15,375,284)
====== ========== ============= ========= =========== ============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
LOISLAW.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
Years ended December 31, March 31,
----------------------------------- ----------------------
1996 1997 1998 1998 1999
----------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(3,490,649) (2,670,051) (8,593,576) (1,864,444) (2,739,914)
Adjustments to
reconcile net loss to
net cash provided
(used) by operating
activities:
Depreciation and
amortization......... 375,207 462,245 1,166,925 267,428 338,943
Loss on disposal of
property and
equipment............ -- -- 3,979 -- --
Change in operating
assets and
liabilities:
Accounts receivable.. (154,920) (1,025,210) (758,773) 70,123 89,498
Prepaid commissions
and other current
assets.............. 174,168 (132,655) (412,573) (308,036) (612,103)
Accounts payable..... 1,371,768 (175,172) 823,685 352,552 2,020,801
Accrued expenses..... 326,070 (132,129) 156,841 (197,438) 124,382
Deferred revenue..... 1,597,149 1,768,429 405,932 93,754 (126,299)
----------- ---------- ---------- ---------- ----------
Net cash provided
(used) by operating
activities.......... 198,793 (1,904,543) (7,207,560) (1,586,061) (904,692)
----------- ---------- ---------- ---------- ----------
Cash flows from
investing activities:
Legal database costs... (2,592,251) (1,762,453) (2,606,474) (349,547) (3,502,161)
Purchase of property
and equipment......... (218,045) (92,528) (1,224,665) (533,601) (860,432)
Decrease (increase) in
other assets.......... 8,892 (8,827) (161,918) 138,788 (128,800)
----------- ---------- ---------- ---------- ----------
Net cash used by
investing
activities.......... (2,801,404) (1,863,808) (3,993,057) (1,021,936) (4,491,393)
----------- ---------- ---------- ---------- ----------
Cash flows from
financing activities:
Repayment of capital
lease obligation...... -- (25,183) (15,385) (3,947) (2,926)
Deferred loan costs
(note 5).............. -- (553,614) (143,681) -- --
Proceeds from sale of
Class A preferred
stock, net of $237,263
costs of issuance
(note 5).............. -- 2,762,737 -- -- --
Proceeds from notes
payable............... 253,705 4,300,000 8,661,077 3,423,077 5,320,000
Repayment of notes
payable............... (573,905) (423,409) (423,077) (423,077) --
Proceeds from related
party borrowing (note
7).................... 2,406,944 688,946 -- -- --
Proceeds from exercise
of warrants (note 5).. -- -- 3,653 -- --
Proceeds from sale of
common stock.......... 300,000 150,000 -- -- --
Repurchase of treasury
stock................. -- -- (16,100) -- --
----------- ---------- ---------- ---------- ----------
Net cash provided by
financing
activities.......... 2,386,744 6,899,477 8,066,487 2,996,053 5,317,074
----------- ---------- ---------- ---------- ----------
Net increase (decrease)
in cash and cash
equivalents............ (215,867) 3,131,126 (3,134,130) 388,056 (79,011)
Cash and cash
equivalents at
beginning of year...... 317,913 102,046 3,233,172 3,233,172 99,042
----------- ---------- ---------- ---------- ----------
Cash and cash
equivalents at end of
year................... $ 102,046 3,233,172 99,042 3,621,228 20,031
=========== ========== ========== ========== ==========
Supplemental cash flow
information:
Cash paid for
interest.............. $ 104,217 581,154 683,761 5,612 344,107
Cash received from
income tax refunds 134,007 -- -- -- --
Non cash investing and
financing
transactions:
Acquisition of
equipment through
capital lease......... 132,567 -- -- -- --
Accrued Series B
preferred stock
dividends............. -- 34,468 340,022 85,005 85,005
Satisfaction of
capital lease
obligation through
return of equipment... -- -- 57,475 -- --
Conversion of related
party borrowing to
Series B preferred
stock (note 7)........ -- 4,395,890 -- -- --
Issuance of warrant
(note 5).............. -- 1,172,761 -- -- 408,364
Accretion on
redeemable equity
securities............ -- -- 160,399 20,316 139,678
=========== ========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
(1) Operations
Loislaw.com, Inc. ("the Company") designs, develops and markets state and
Federal legal research libraries in CD-ROM and Internet formats.
(2) Significant Accounting Policies
(a) Management Estimates
Management has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the 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 to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(b) Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less at the time of purchase to be cash equivalents.
(c) Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risk consist primarily of trade accounts receivable. Concentrations
of credit risk related to subscription receivables are limited as the Company
sells its products direct to numerous users in the states for which the Company
offers law libraries. The amount of loss should customers fail to pay the
receivables is limited to the notional amount of such receivables. At December
31, 1998, the Company's management does not believe any significant
concentration of credit risk exists.
(d) Product Development, Software and Database Costs
Product development expense consists primarily of employee salaries and
benefits, facilities cost allocations and expenses related to the development
of core software supporting the Company's products. Statement of Financial
Accounting Standards ("SFAS") No. 86, Accounting for the Costs of Computer
Software to be Sold, Leased or Otherwise Marketed, requires capitalization of
certain software development costs subsequent to the establishment of
technological feasibility. Based upon Loislaw.com's product development
process, technological feasibility is established upon completion of a working
model. Costs incurred by Loislaw.com between completion of the working model
and the point at which the product is ready for general release have been
insignificant. As a result, Loislaw.com has expensed software development
costs.
Prepaid software licenses are amortized straight line over the remaining
economic life of the license, or the amortization that would be recorded by
using the ratio of gross revenues derived from the use of the license to total
current and anticipated future gross revenues from the use of the license. The
noncurrent portion of prepaid software licenses is included in other assets and
amount to $169,677 at December 31, 1998.
F-8
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
Database costs represent amounts incurred for data acquisition and
conversion costs, editing, coding, and quality control of legal information and
include salaries and benefits and overhead allocations. Costs to develop court
ruling databases are capitalized and amortized to production costs once the
product is released, on a straight-line basis over the expected lives of the
databases, which is estimated at twenty years. Costs to develop statutes and
regulations databases and costs to maintain and enhance databases are expensed
as incurred. Amortization expense related to capitalized legal databases
totaled approximately $240,000, $260,000 and $270,000 in 1996, 1997 and 1998,
respectively. The Company currently contracts with three companies to perform a
significant amount of the initial data conversion for its databases.
(e) Property and Equipment
Property and equipment are stated at cost. Depreciation of property and
equipment is calculated on the straight-line method over the estimated useful
lives of 7 years for office furniture and equipment and 5 years for data
processing equipment. Leasehold improvements are amortized over the lesser of
the lease term or 15 years.
(f) Revenue Recognition
Subscription revenue from web-based and CD-ROM products is recognized as
revenue ratably over the subscription period (1 to 5 years). Substantially all
subscriptions sold are billed annually, quarterly or monthly. Unearned portions
of subscription revenue are deferred. The noncurrent portion of amounts to be
received under long-term subscription agreements amounted to approximately
$489,000 and $603,000, respectively, at December 31, 1997 and 1998 and is
included in other assets in the accompanying balance sheets. Other revenue in
1998 results from producing databases for a third party and is recognized under
the percentage of completion method as production costs are incurred. Web-based
and CD-ROM subscriptions are both sold from the same databases. Accordingly,
there are no separate production costs for web-based and CD-ROM products. Cost
of revenue related to the customized database was approximately $46,000 for the
first quarter of 1998 and $393,000 for the entire year.
(g) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of
Long-lived assets and certain identifiable intangibles, including database
costs, are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to undiscounted future net cash flows expected to
be generated by the asset. If such assets are considered to be impaired the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell. The Company believes that no significant impairment of its long-
lived assets and intangibles, including database costs, has occurred.
(h) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-9
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
(i) Stock Option Plan
The Company has adopted the disclosure requirements of SFAS No. 123,
Accounting for Stock-Based Compensation and, as permitted under SFAS No. 123,
applies Accounting Principles Board Opinion No. 25 and related interpretations
in accounting for compensation costs for its stock option plans. Accordingly,
compensation expense is recognized on the date of grant only if the current
market price of the underlying common stock at date of grant exceeds the
exercise price.
(j) Advertising Costs
Advertising costs are expensed as incurred. Advertising costs amounted to
approximately $28,000, $17,000 and $300,000 for the years ended December 31,
1996, 1997 and 1998, respectively, and are included in selling and marketing
expenses in the accompanying statements of operations.
(k) Financial Instruments
The fair value of the company's accounts receivable and accounts payable
approximate their carrying values due to the relatively short maturities of
these instruments. The fair value of the Company's revolving credit borrowings
and notes payable approximate their carrying value since the interest rate on
these obligations fluctuates with prime rate. The fair value of the
subordinated notes can not be determined without incurring excessive costs due
to the related party nature of such instruments.
(l) Loss Per Share
Loss per share has been computed by dividing the net loss attributable to
common stock by the weighted average shares of common stock outstanding during
the period as shown below:
<TABLE>
<CAPTION>
Three months ended
Year ended December 31, March 31,
-------------------------------- --------------------
1996 1997 1998 1998 1999
---------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net loss................ $3,490,649 2,670,051 8,593,576 1,864,444 2,739,914
Accrued dividends on
preferred stock........ -- 34,468 340,022 85,005 85,005
Accretion on redeemable
common stock warrants.. -- -- 46,659 -- 52,112
Accretion on redeemable
preferred stock........ -- -- 113,740 20,316 68,614
---------- --------- --------- --------- ---------
Net loss attributable to
common shareholders.... $3,490,649 2,704,519 9,093,997 1,969,765 2,945,645
========== ========= ========= ========= =========
Weighted average common
shares outstanding..... 3,528,603 3,581,370 3,611,172 3,590,000 3,950,346
========== ========= ========= ========= =========
Loss per share.......... $ (0.99) (0.76) (2.52) (0.55) (0.75)
========== ========= ========= ========= =========
</TABLE>
Potentially dilutive securities were excluded from the above calculations
because they were antidilutive in accordance with Statement of Financial
Accounting Standards No. 128. The number of shares under common stock options
and warrants which were excluded were 105,000, 1,371,639, and 1,043,127,
respectively, for the years ended December 31, 1996, 1997 and 1998 and
1,408,473 and 1,145,218, respectively, for the three months ended March 31,
1998 and 1999.
F-10
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
(3) Database Costs
Database costs consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
---------- --------- ----------
<S> <C> <C> <C>
Database costs............................... $6,696,994 9,303,468 12,805,629
Less accumulated amortization.............. 468,110 736,939 825,116
---------- --------- ----------
$6,228,884 8,566,529 11,980,513
========== ========= ==========
</TABLE>
(4) Property and Equipment
Property and equipment consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------- March 31,
1997 1998 1999
---------- --------- ---------
<S> <C> <C> <C>
Office furniture and equipment.............. $ 241,952 246,172 358,183
Data processing equipment................... 906,243 1,916,936 2,600,855
Leasehold improvements...................... 18,073 149,611 214,113
---------- --------- ---------
1,166,268 2,312,719 3,173,151
Less accumulated depreciation and
amortization............................... 665,050 866,260 939,979
---------- --------- ---------
$ 501,218 1,446,459 2,233,172
========== ========= =========
</TABLE>
(5) Long-Term Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
---------------------- March 31,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
12.5% Senior Subordinated Notes........ $4,000,000 8,000,000 10,000,000
12.5% Senior Subordinated Convertible
Promissory Notes...................... -- -- 2,000,000
Notes payable.......................... -- 2,907,000 4,222,000
8.25% revolving line of credit, due
June 2000............................. -- 1,331,000 1,336,000
Capital lease obligation............... 107,384 34,524 31,598
---------- ---------- ----------
Total long-term debt............... 4,107,384 12,272,524 17,589,598
Less:
Current installments................. (26,443) (954,893) (1,395,927)
---------- ---------- ----------
$4,080,941 11,317,631 16,193,671
========== ========== ==========
</TABLE>
Interest expense on related party borrowings was $204,344 in 1996 and
$271,823 in 1997 (none in 1998).
F-11
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
On November 24, 1997, the Company entered into an agreement ("CRL
Agreement") with Capital Resource Lenders III, L.P. ("CRL") under which CRL
agreed to purchase from the Company up to $10,000,000 of 12.5% Senior
Subordinated Notes and a Warrant ("Notes") and $3,000,000 of Series A Preferred
Stock ("Series A Preferred"). See note 7. At closing, CRL purchased $4,000,000
of the Notes and all of the Series A Preferred (931,044 shares). In accordance
with the CRL Agreement, CRL purchased an additional $4,000,000 of the Notes
during 1998 and purchased the remaining $2,000,000 of the Notes during January
and February 1999. Interest on the Notes is payable quarterly beginning
December 31, 1997 and principal is due in sixteen equal quarterly installments
beginning December 31, 2000 with the final installment due September 30, 2004.
The Warrant entitles CRL to purchase 972,293 shares of common stock of the
Company at $.01 per share at any time prior to September 30, 2004. The value
assigned to the warrant was $3,121,060 which has been reflected as deferred
loan costs. Such deferred loan costs and discount are being amortized over the
term of the notes using the interest method. On January 1, 1998 CRL assigned
16,080 of its warrants and a proportionate share of its other obligations and
rights under the CRL Agreement to CRP Investment Partners III, L.P. ("CRP") and
Rowland Moriarty ("Moriarty").
The Company paid $650,000 in cash and issued a warrant to purchase 365,346
shares of the Company's common stock at $.01 per share, at any time prior to
September 30, 2004, to a third party for its assistance in obtaining the CRL
Agreement. The value assigned to the warrant was $1,172,761 which has been
allocated to deferred loan costs and cost of issuance of the Series A Preferred
in the amounts of $902,124 and $270,637, respectively. Deferred loan costs are
being amortized into expense over the life of the Notes using the interest
method. During 1998, this warrant was exercised with the net proceeds reflected
as an increase in redeemable common stock in the accompanying financial
statements.
The proceeds from the CRL Agreement were used to repay indebtedness of
$2,240,855, to pay the $650,000 private placement fee referred to above and
other closing costs of $141,418 (of which amount $237,263 has been charged to
cost of issuance of the Series A Preferred) and to provide working capital for
the Company.
In connection with the CRL Agreement, a shareholders' agreement was entered
into whereby the preferred shareholders and warrant holders were given put
options which entitle such holders to put their preferred stock, warrants or
any common shares obtained upon exercise of warrants or conversion of preferred
shares to the Company between September 30, 2003 and September 30, 2005.
Accordingly, all such preferred shares warrants and common shares obtained upon
exercise of warrants have been classified as redeemable equity securities in
the accompanying balance sheets. The puts entitle such holders to have their
underlying shares redeemed at the fair market value of the common stock as of
the redemption date. The difference between the carrying value of such shares
and the estimated fair market value of common stock is being accreted through a
charge to retained earnings and, with respect to the preferred shares and
warrants, is presented as an increase in loss attributable to common
shareholders.
In 1998, the Company entered into a credit agreement with Fleet National
Bank ("Fleet") whereby Fleet agreed to advance up to a maximum of $12,000,000
to the Company. Borrowings under this agreement are evidenced by three separate
notes including a working capital revolving line of credit ("Revolving
Credit"), a converting equipment line of credit ("Equipment LOC"), and a
converting SBLC line of credit ("SBLC LOC").
F-12
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
In accordance with the terms and conditions of the Revolving Credit note,
the Company may borrow up to the lesser of $2,500,000 or the borrowing base of
eligible receivables as defined by the Fleet agreement ($1,336,240 at December
31, 1998). Advances under the Revolving Credit note at December 31, 1998 amount
to $1,331,000, bear interest, payable monthly, at Fleet's prime rate plus 1/2%
(8.25% at December 31, 1998), and are due June 30, 2000. In addition, the
Company is required to pay a quarterly commitment fee of $6,250.
Under the Equipment LOC note, the Company may borrow up to $2,500,000 for
the purchase of qualified equipment, as defined by the Fleet agreement.
Advances under the Equipment LOC note amounted to $407,000 at December 31, 1998
and bear interest, payable monthly, at Fleet's prime rate plus 1 1/2% (9.25% at
December 31, 1998). Aggregate advances under the Equipment LOC note at June 30,
1999 and June 30, 2000 shall automatically convert to term note A and term note
B, respectively. Advances under term note A and term note B shall be repaid by
the Company in thirty-six equal monthly installments, plus interest, beginning
July 1999 and July 2000, respectively.
Pursuant to the provisions of the SBLC LOC note, the Company may borrow up
to $4,000,000 from Fleet through June 30, 2000 to finance development of its
law library databases. Additionally, the Company may request and Fleet shall
arrange to issue standby letters of credit, provided, however, that aggregate
advances and outstanding letters of credit under the SBLC LOC note shall not
exceed $7,000,000. Aggregate advances under the SBLC LOC note (excluding the
letters of credit) amounted to $2,500,000 at December 31, 1998 ($3,500,000 at
March 31, 1999). Such advances bear interest, payable monthly, at Fleet's prime
rate plus 1 1/2% (9.25% at December 31, 1998). Borrowings under the SBLC LOC
note are due in thirty-two monthly installments of $109,375, plus interest,
commencing May 1999. At December 31, 1998, letters of credit amounting to
approximately $2,100,000 are outstanding under the SBLC LOC note securing the
Company's performance under its data compilation contract with its foreign
supplier.
Obligations under the CRL Agreement are subordinate to the Fleet borrowings.
In addition, CRL, CRP and Moriarty have guaranteed 45% of any borrowings
outstanding under the SBLC LOC. In exchange for this guaranty, the Company
issued 102,091 additional warrants in February 1999 to the guarantors. The
warrants have the same terms as the original warrants issued in November 1997
and, accordingly, have been classified as redeemable equity securities in the
accompanying balance sheets. The value assigned to the warrants ($408,364) has
been recorded as deferred loan costs and is being amortized into expense over
the remaining term of the related Fleet debt. On May 19, 1999 CRL exercised all
of the warrants it held (1,056,616 shares). After exercise of these warrants,
all remaining warrants (17,768 shares) are held by CRP and Moriarty.
Prior to and in anticipation of the financing transaction discussed in the
following paragraph, CRL advanced to the Company $5,000,000 in exchange for
12.5% Senior Subordinated Convertible Promissory Notes. These notes are
subordinated to the Fleet borrowings and were issued as follows: March 10,
1999, $2,000,000; April 13, 1999, $2,000,000; and May 7, 1999, $1,000,000.
On May 25, 1999, the Company entered into an agreement ("Dublind Agreement")
with CRL, Dublind Partners, Inc. ("Dublind") Mark Beyland ("Beyland"), the
president of the Company, and other purchasers whereby the Company issued
86,059 shares of common stock to Dublind for $500,002 in cash and 2,495,697
shares of Series C Convertible Preferred Stock ("Series C Preferred") to CRL,
Beyland and the other purchasers for $14,500,000 of which 857,509 shares were
issued in exchange for the $5,000,000 of senior subordinated convertible notes
plus accrued interest thereon held by CRL and the remaining shares were issued
to Beyland (129,088 shares) and the other purchasers (1,509,100 shares) for
cash. In connection with the agreement, the Company paid Dublind a brokers' fee
of $475,000 and paid other costs in connection with the
F-13
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
financing amounting to approximately $80,000. These costs of issuance will be
allocated between common stock and the Series C Preferred in the amounts of
$18,500 and $536,500, respectively. The net proceeds from the Dublind Agreement
are to be used for database development costs and other general corporate
purposes.
In connection with the Dublind Agreement, a new shareholders' agreement was
entered into whereby all remaining warrants and the shares obtained by CRL upon
exercise of warrants would have the same redemption feature as the Series A and
Series C shares, which entitles these shareholders to have the underlying
shares redeemed at the fair value of the common stock at the redemption date.
The common shares issued to Dublind and the 365,346 shares previously obtained
from exercising warrants in 1998 are no longer subject to such redemption
agreements. Accordingly, such shares will be reclassified into common stock and
additional paid-in capital as of May 25, 1999.
The unaudited pro forma balance sheet at March 31, 1999 is based upon the
historical unaudited balance sheet and gives effect to the exercise of the
warrants by CRL, the additional issuances of the convertible notes to CRL and
the Dublind Agreement as if all of these transactions had occurred on March 31,
1999.
The CRL Agreement and the Fleet agreement contain certain covenants
requiring the Company to maintain certain financial ratios including minimum
profitability, minimum tangible capital base, as defined, debt service
coverage, and liquidity. At December 31, 1998, the Company was not in
compliance with certain of these covenants. On May 25, 1999, CRL and Fleet
waived compliance with these covenants. Additionally, CRL, Fleet and the
Company amended their agreements to revise certain of the covenants such that
the Company's management expects to be in compliance with the covenants, as
amended, during future periods. Should the Company fail to meet the revised
covenants, CRL and Fleet could accelerate the due dates of amounts due them by
the Company.
The aggregate maturities of long-term debt for the five years ending
December 31, 2003 are as follows: 1999, $954,893; 2000, $3,292,227; 2001,
$2,457,571; 2002, $2,067,833; 2003, $2,000,000; and thereafter, $1,500,000.
(6) Income Taxes
There was no income tax expense for the years ended December 31, 1996, 1997
or 1998. The actual income tax benefit differs from the expected tax benefit
(computed by applying the U.S. Federal corporate tax rate of 34% to loss before
income taxes) as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- --------- ----------
<S> <C> <C> <C>
Computed expected tax benefit........... $(1,186,821) (907,817) (2,926,816)
Increase (reduction) in income taxes
resulting from:
State income taxes, net of Federal
income tax benefit and change in
valuation allowance applicable to
state taxes of $226,322 in 1996;
$172,283 in 1997; and $555,356 in
1998................................. (149,373) (113,707) (366,535)
Change in valuation allowance due to
operating losses not utilized........ 1,333,213 1,014,879 3,271,474
Other, net............................ 2,981 6,645 16,877
----------- --------- ----------
$ -- -- --
=========== ========= ==========
</TABLE>
F-14
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1998 and
1997 are presented below.
<TABLE>
<CAPTION>
1997 1998
----------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ 3,029,026 7,109,861
Accrued revenues and expenses reported on cash
basis for tax purposes......................... 1,800,632 1,898,815
Valuation allowance............................. (2,417,790) (5,689,264)
----------- ----------
Total deferred tax assets..................... 2,411,868 3,319,412
----------- ----------
Deferred tax liabilities:
Capitalized database production costs expensed
as incurred for tax purposes................... (2,385,040) (3,280,124)
Other, net...................................... (26,828) (39,288)
----------- ----------
Total deferred tax liabilities................ (2,411,868) (3,319,412)
----------- ----------
Net deferred tax liability.................... $ -- --
=========== ==========
</TABLE>
The valuation allowance at January 1, 1997 was $1,402,911. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. Based upon the levels of historical
taxable losses and uncertainty regarding the generation of taxable income in
future years, management has established a valuation allowance equal to net
deferred tax assets at December 31, 1997 and 1998. At December 31, 1998, the
Company has Federal net operating loss carryforwards of approximately
$17,300,000 which begin to expire in 2010 and state net operating loss
carryforwards of approximately $19,000,000 which begin to expire in 2000.
(7) Stockholders' Equity
(a) Capital Stock
The Company has authorized 15,000,000 shares of stock consisting of
10,000,000 shares of $.001 par value common stock and 5,000,000 shares of $.001
par value preferred stock.
The Board of Directors of the Company may designate the relative rights and
preferences of the preferred stock when and if issued. Such rights and
preferences could include liquidation preferences, redemption rights, voting
rights and dividends and the shares could be issued in multiple series with
different rights and preferences. During 1997, the Board of Directors
designated and issued 931,044 shares of Series A Preferred and during May 1999
designated and issued 2,495,697 shares of Series C Preferred. Simultaneous with
the closing of the CRL Agreement discussed in note 5, the Company designated
and issued 439,589 shares of Series B Preferred to a related party in exchange
for the note payable to the related party. The Series B Preferred pays annual
dividends at the rate of $.7735 per share which accrue from day to day
beginning on November 24, 1997. On December 31, 2005 the Company shall redeem
all outstanding shares of the Series B Preferred Stock for $10 per share plus
unpaid dividends. As of May 25, 1999, there are 1,133,670 shares of
undesignated and unissued preferred stock.
F-15
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
The Series A Preferred, which has an initial liquidation value of
$3,000,000, and the Series C Preferred, which has an initial liquidation value
of $15,000,002, are convertible, at the option of the holder, into common stock
on a share for share basis and are entitled to receive non-cumulative dividends
ratably and on a parity with such dividends as may be paid on the common stock
as if such Series A Preferred and Series C Preferred shares had been converted
into common stock. The Series A Preferred and Series C Preferred are redeemable
at the option of the holder, beginning May 25, 2004, and will automatically
convert to common stock upon an initial public offering of the Company's common
stock.
As discussed in note 5, all of the common and preferred shareholders as well
as all of the warrant and common stock option holders have entered into a
shareholders' agreement which provides for the naming of directors by certain
shareholder groups and restricts the sale of stock by parties to the agreement.
(b) Stock Option Plan
In June, 1996 the Board of Directors and shareholders adopted the 1996 Stock
Option Plan ("Plan") which provides for the granting of options to purchase up
to 500,000 shares of the Company's common stock. Incentive stock options may be
granted to employees of the Company at an exercise price per share of not less
than the fair value per common share at the date of the grant. Nonqualified
stock options may be granted to employees, officers or directors of, or
consultants or advisers to, the Company at an exercise price per share as
determined by the Board of Directors. The options expire on dates as determined
by the Board of Directors, not to exceed 10 years from the date of grant.
Twenty-five percent of these options vest twelve months after the grant date,
and the remaining shares vest ratability over the forty-eight months
thereafter. At December 31, 1998, the weighted-average remaining contractual
life of outstanding options was 3.53 years.
The per share weighted-average fair value of stock options granted during
1996, 1997 and 1998 was 0.84, $1.09 and $0.36, respectively, on the date of
grant using the Black Scholes option pricing model with the following weighted-
average assumptions: no expected dividend yield; risk-free interest rate of
4.5% in 1996, 1997 and 1998; and an expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the financial statements. Had the Company determined compensation cost based on
the fair value at the grant date for its stock options under SFAS No. 123, the
Company's pro forma net loss would not have been significantly different than
the loss reported in the statement of operations for 1997 or 1998.
Stock option activity during the periods indicated is as follows:
<TABLE>
<CAPTION>
Number Weighted- Number
of average of shares
shares exercise price exercisable
------- -------------- -----------
<S> <C> <C> <C>
Balance at December 31, 1995............. -- -- --
Granted................................ 105,000 $5.00
-------
Balance at December 31, 1996............. 105,000 5.00 --
Granted................................ 6,000 5.00
Forfeited.............................. (77,000) (5.00)
-------
Balance at December 31, 1997............. 34,000 5.00 7,000
Granted................................ 36,834 5.00
-------
Balance at December 31, 1998............. 70,834 5.00 14,781
======= ===== ======
</TABLE>
F-16
<PAGE>
LOISLAW.COM, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
(Information as of March 31, 1999 and with respect to the
three months ended March 31, 1998 and 1999 is unaudited)
Under the terms of an employment agreement dated April 22, 1999 with
Beyland, the Company is required to grant options equal to 2.5% of its fully
diluted equity after giving effect to the financing transaction completed on
May 25, 1999 (see note 5) and accordingly granted an option to Beyland on May
25, 1999 for 220,727 shares at an option price of $5.81 per share. The option
will vest over a five year period with 50% vesting at the date of grant and the
remaining options vesting in equal monthly amounts over the remaining four
years. The option price will be determined by the Board of Directors at the
time such options are granted.
(c) Subsequent Event
The Company was originally incorporated in 1987 in Arkansas as Law Office
Information Systems, Inc. On June , 1999 the Company was reincorporated in
Delaware as Loislaw.com, Inc.
On June , 1999, the Board of Directors declared a -for-one stock split,
effected in the form of a stock dividend, which was distributed on , 1999.
All share and per share data in the financial statements have been restated to
give effect to the stock split. (Alternatively, if holding company or Delaware
company is to be formed, this transaction will need to be disclosed).
(8) Commitments and Contingencies
(a) Leases
The Company leases parking and office space under an operating lease with a
related party that expires in December, 2004. The lease is renewable for two
additional successive periods of five years each. Rent expense was
approximately $46,000, $50,000 and $66,000 for 1996, 1997 and 1998,
respectively. Effective May 5, 1999 the lease was amended to provide for annual
rentals of approximately $170,000 as a result of the expansion of space under
lease.
(b) Retirement Plan
Effective January 1, 1999, the Company adopted a 401(k) plan which covers
substantially all employees. Under the terms of the Plan, employees may
contribute up to 15% of their annual compensation, subject to Internal Revenue
Service limitations. The Company, at its discretion, may make matching
contributions of employee deferrals.
(c) Other
The Company is involved in certain claims and pending litigation arising
from the normal conduct of business. Based on the present knowledge of the
facts and, in certain cases, opinions of outside counsel, management believes
the resolution of these claims and pending litigation will not have a material
adverse effect on the financial position, results of operations or liquidity of
the Company.
F-17
<PAGE>
- --------------------------------------------------------------------------------
Until , all dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to their unsold allotments or
subscriptions.
- --------------------------------------------------------------------------------
[Loislaw.com Logo]
Prudential Securities
U.S. Bancorp Piper Jaffray
Dain Rauscher Wessels
a division of Dain Rauscher Incorporated
- --------------------------------------------------------------------------------
<PAGE>
Part II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. Other Expenses of Issuance and Distribution
The following is an itemized statement of the estimated amounts of all
expenses payable by Loislaw.com in connection with the registration of the
common stock offered hereby, other than underwriting discounts and commissions:
<TABLE>
<S> <C>
SEC Registration Fee................................................ $20,850
NASD Filing Fee..................................................... $ 8,000
Nasdaq National Market application and listing fees................. $ *
Accountants' fees and expenses...................................... $ *
Legal fees and expenses............................................. $ *
Printing and engraving expenses..................................... $ *
Transfer agent's and registrar's fees............................... $ *
Blue sky fees and expenses.......................................... $ *
Miscellaneous....................................................... $ *
-------
Total............................................................. $
=======
</TABLE>
- --------
* To come
ITEM 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law ("Section 145") permits
indemnification of directors, officers, agents and controlling persons of a
corporation under certain conditions and subject to certain limitations.
Article VI of our Certificate of Incorporation (Exhibit 3.1 hereto) and Article
VI of our Bylaws (Exhibit 3.2 hereto) provide for the indemnification of its
directors, officers and other authorized representatives to the maximum extent
permitted by the Delaware General Corporation Law. Section 145 empowers a
corporation to indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that he is or was a director, officer or agent of the corporation
or another enterprise if serving at the request of the corporation. Depending
on the character of the proceeding, a corporation may indemnify against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred in connection with such action,
suit or proceeding if the person indemnified acted in good faith and in a
manner he reasonably believed to be in or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of an action
by or in the right of the corporation, no indemnification may be made with
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that the
court of chancery or the court in which such action or suit was brought shall
determine that despite the adjudication of liability such person is fairly and
reasonably entitled to indemnity for such expenses which the court shall deem
proper. Section 145 further provides that to the extent a director or officer
of a corporation has been successful in the defense of any action, suit or
proceeding referred to above or in the defense of any claim, issue or matter
therein, he shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection therewith.
Our Bylaws permit us to purchase insurance on behalf of any such person
against any liability asserted against him and incurred by him in any such
capacity, or arising out of his status as such, whether or not we would have
the power to indemnify him against such liability under the applicable
provisions of our Bylaws. We currently carry directors and officers liability
insurance with policy limits of $ .
Prior to consummation of this offering, we will enter into indemnification
agreements with each of our directors and executive officers that provide for
indemnification and expense advances in addition to those provided for in our
certificate of incorporation and bylaws.
II-1
<PAGE>
Reference is made to Section 8 of the underwriting agreement filed as
Exhibit 1.1 hereto, indemnifying the officers and directors of Loislaw.com
against certain liabilities.
ITEM 15. Recent Sales of Unregistered Securities
Issuance of Capital Stock.
In the three years preceding the filing of this registration statement, we
have issued and sold the following securities that were not registered under
the Securities Act:
<TABLE>
<CAPTION>
Title and Amount of Name or Class of
Date of Sale Securities Sold Purchaser of Securities Consideration
------------ ------------------------ ------------------------ ---------------------
<S> <C> <C> <C>
July 11, 1996........... 60,000 shares of common Johnnie L. Hernreich and $300,000
stock Larry Murray
April 23, 1997.......... 30,000 shares of common Johnnie L. Hernreich and $150,000
stock Larry Murray
November 20, 1997....... 439,589 shares of Series Melissa Parker Conversion of
B Redeemable Preferred $4,395,890 in
outstanding debt
November 24, 1997....... Warrant for the right to Dublind Investments, LLC Financial investment
purchase 365,346 shares services
of common stock
November 24, 1997....... 931,044 shares of Series Capital Resource $2,998,934.12
A Convertible Preferred Lenders III, L.P.
November 24, 1997....... Warrant for the right to Capital Resource (1)
purchase of 972,293 Lenders III, L.P.
shares of common stock
December 9, 1998........ 365,346 shares of common Dublind Investments, LLC $3,653.46
stock upon exercise of
warrant
February 9, 1999........ Warrant for the right to Capital Resource (2)
purchase of 100,403 Lenders III, L.P.
shares of common stock
February 9, 1999........ Warrant for the right to CRP Investment (2)
purchase of 118 shares Partners, LLC
of common stock
February 9, 1999........ Warrant for the right to Rowland T. Moriarity (2)
purchase of 1,570 shares
of common stock
March 10, 1999.......... Convertible Note Capital Resource $2,000,000 principal
Lenders III, L.P. amount of note
April 13, 1999.......... Convertible Note Capital Resource $2,000,000 principal
Lenders III, L.P. amount of note
May 7, 1999............. Convertible Note Capital Resource $1,000,000 principal
Lenders III, L.P. amount of note
May 19, 1999............ 1,056,616 shares of Capital Resource $10,566.16
common stock upon Lenders III, L.P.
exercise of warrant
May 25, 1999............ 857,509 shares of Series Capital Resource Conversion of notes
C Convertible Preferred Lenders III, L.P. totaling $5,000,000
in principal amount
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Title and Amount of Name or Class of
Date of Sale Securities Sold Purchaser of Securities Consideration
------------ ------------------------ ----------------------- ---------------------
<S> <C> <C> <C>
May 25, 1999............ 86,059 shares of common Dublind Partners, Inc. $500,002.79
stock
May 25, 1999............ 390,340 shares of Series Exeter Capital $2,267,875.40
C Convertible Preferred Partners IV, L.P.
May 25, 1999............ 793,680 shares of Series Sandler Capital $4,982,127.29
C Convertible Preferred Partners IV, L.P.
May 25, 1999............ 325,080 shares of Series Sandler Capital $1,888,714.80
C Convertible Preferred Partners IV, FTE, L.P.
May 25, 1999............ 129,088 shares of Series Mark O. Beyland $750,001.28
C Convertible Preferred
</TABLE>
- --------
(1) Loislaw.com issued a warrant to purchase 972,293 shares of its common stock
to Capital Resource Lenders III at a purchase price of $.01 per share in
connection with Capital Resource Lenders III, L.P.'s purchase of certain
12.5% Senior Subordinated Notes due 2003 under a Senior Subordinated Note
and Securities Purchase Agreement dated November 24, 1997 between
Loislaw.com and Capital Resource Lenders III, L.P., as amended.
(2) Loislaw.com issued warrants to purchase 100,403, 118 and 1,570 shares of
common stock to Capital Resource Lenders III, L.P., CRP Investment Partners
LLC and Rowland T. Moriarity, respectively, at a purchase price of $.01 per
share in connection with the execution of Amendment No. 4 to the Senior
Subordinated Note and Securities Purchase Agreement dated as of November
24, 1997 between Loislaw.com and Capital Resource Lenders III, L.P., as
amended.
No underwriters were involved in the foregoing sales of securities. Except
for the sales made on May 19 and May 25, 1999, such sales were made in reliance
upon an exemption from the registration provisions of the Securities Act set
forth in Section 4(2) thereof relative to sales by an issuer not involving any
public offering or the rules and regulations thereunder. The sales made on May
19 and May 25, 1999 were made in reliance upon the exemption from the
registration process provided by Rule 506 of the Securities Act. All of the
foregoing securities are deemed restricted securities for purposes of the
Securities Act.
Grants of Stock Options and Warrants.
From November 24, 1996 to June 18, 1999, we granted incentive stock options
to purchase an aggregate of 291,561 shares of common stock to employees and
officers of Loislaw.com under the 1996 Stock Option Plan at exercise prices
ranging from $5.00 to $5.81. These options vest over a period of time following
their respective dates of grant. These issuances were exempt from registration
under Section 4(2) of, and Rule 701 promulgated under, the Securities Act of
1933, as amended.
In addition, on January 1, 1998 and on February 1, 1999, Loislaw.com granted
warrants to three investors to purchase an aggregate of 1,074,384 shares of
common stock of Loislaw.com at an exercise price of $.01 per share. These
issuances were exempt from registration under Section 4(2) of, and Rule 506
promulgated under, the Securities Act of 1933, as amended. On May 19, 1999, one
investor exercised its warrants and purchased a total of 1,056,616 shares of
common stock of Loislaw.com.
II-3
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
*2.1 Agreement and Plan of Merger, dated as of June 16, 1999
*2.2 Certificate and Articles of Merger of Law Office Information Systems,
Inc. (an Arkansas Corporation) with and into Loislaw.com, Inc. (a
Delaware Corporation).
*3.1 Certificate of Incorporation of Loislaw.com, as filed with the
Secretary of State of Delaware on June 16, 1999.
*3.2 Bylaws of Loislaw.com
4.1 Specimen Certificate for shares of common stock
*4.2 Amended and Restated Stockholders' Agreement, dated as of May 25, 1999
by and among Loislaw.com and certain stockholders
*4.3 Amended and Restated Registration Rights Agreement, dated as of May
25, 1999 by and among Loislaw.com and certain stockholders
5.1 Opinion of Thompson & Knight, P.C.
*10.1 1996 Stock Option Plan
*10.2 Form of Employment Agreement by and between Loislaw.com and Kyle D.
Parker
*10.3 Form of Employment Agreement by and between Loislaw.com and Mark O.
Beyland
*10.4 Reimbursement Agreement by and among Kyle D. Parker, as Trustee for
The Parker Trust, Melissa Ann Parker and Capital Resource Lenders III,
L.P. dated as of November 24, 1997, as amended on June 17, 1999.
*10.5 Employment Agreement, effective as of July 2, 1996, by and between
Loislaw.com and W. Clark Wigley
*10.6 Corporate License and Services Agreement, effective as of February 18,
1998, by and between Loislaw.com and Verity, Inc., as amended
*10.7 Credit Agreement between Loislaw.com and Fleet National Bank, N.A.,
dated August 20, 1998
*10.8 First Amendment to Credit Agreement, by and between Loislaw.com and
Fleet National Bank, N.A., dated December 31, 1998
*10.9 Second Amendment and Waiver to Credit Agreement, by and between
Loislaw.com and Fleet National Bank, N.A., dated April 30, 1999
*10.10 Third Amendment to Credit Agreement, by and between Loislaw.com and
Fleet National Bank, N.A., dated May 25, 1999
*10.11 Form of Indemnity Agreement with a schedule of pending director and
officer signatories.
*10.12 Lease Agreement by and between Loislaw.com and the Parker Law Office
dated May 5, 1999.
10.13 Agreement by and between Loislaw.com and Pacific Data Conversion
Corporation, dated December 29, 1998.
10.14 Agreement by and between Loislaw.com and Infocon, dated July 1, 1998
10.15 Master Services Agreement by and among Loislaw.com, Digital Publishing
International Ltd. and Innodata Corporation, dated June 10, 1998
10.16 Employee Stock Purchase Plan.
10.17 1999 Nonqualified Directors Stock Option Plan for Non-Employee
Directors
*10.18 Senior Subordinated Note and Securities Purchase Agreement, dated as
of November 24, 1997, by and between Loislaw.com and Capital Resource
Lenders III, L.P., as amended.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*10.19 Internet Services General Agreements by and between Loislaw.com and
AT&T, dated as of December 21, 1998.
*10.20 AT&T Contract Tariff Order Form by and between AT&T Corp. and
Loislaw.com, dated as of April 6, 1999.
*10.21 Agreement by and between AT&T Corp. and Loislaw.com for AT&T
WorldNetSM Services, dated as of September 25, 1995.
*10.22 Form of Customer Subscription Agreement.
*21.0 Subsidiaries of Loislaw.com
23.1 Consent of Thompson & Knight, P.C. (included in its opinion filed as
Exhibit 5 hereto)
*23.2 Consent of KPMG LLP
*24.1 Power of Attorney (included on signature page of the Registration
Statement as initially filed)
*27.1 Financial Data Schedule
</TABLE>
- --------
* Filed herewith
(b) Financial Statement Schedules
None.
Schedules not listed above have been omitted because they are not required,
are not applicable, or the information is included in the Financial Statements
or Notes thereto.
ITEM 17. Undertakings
Loislaw.com hereby undertakes to provide to the underwriters, at the closing
specified in the underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Loislaw.com pursuant to the foregoing provisions, or otherwise, we have been
advised that in the opinion of the Securities and Exchange Commission 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 us of expenses incurred or
paid by a director, officer or controlling person of Loislaw.com 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, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
Loislaw.com hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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 Loislaw.com pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to be
the initial bona fide offering thereof.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Loislaw.com has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Van Buren,
State of Arkansas, on June 18, 1999.
Law Office Information Systems, Inc.
/s/ Kyle D. Parker
By: _________________________________
Kyle D. Parker
Chief Executive Officer
KNOW ALL PERSONS BY THESE PRESENTS, that each of the persons whose names
appear below hereby appoint and constitute Kyle D. Parker and Mark O. Beyland,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to execute any and all amendments to the
within Registration Statement, and to sign any and all registration statements
relating to the same offering of securities as this Registration Statement that
are filed pursuant to Rule 462(b) of the Securities Act of 1933, as amended,
and to file the same, together with all exhibits thereto, with the Securities
and Exchange Commission, the National Association of Securities Dealers, Inc.,
and such other agencies, offices and persons as may be required by applicable
law, granting unto each 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 each said attorney-in-fact and agent 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 on June 18,
1999 in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Kyle D. Parker Chairman of the Board and June 18, 1999
______________________________________ Chief Executive Officer
Kyle D. Parker (principal executive
officer)
/s/ Mark O. Beyland President, Chief Financial June 18, 1999
______________________________________ Officer and Director
Mark O. Beyland
/s/ Pamela G. Rogers Controller and chief June 18, 1999
______________________________________ accounting officer
Pamela G. Rogers
/s/ Robert C. Ammerman Director June 18, 1999
______________________________________
Robert C. Ammerman
/s/ Randy Laney Director June 18, 1999
______________________________________
D. Randy Laney
/s/ Hannah C. Stone Director June 18, 1999
______________________________________
Hannah C. Stone
</TABLE>
II-6
<PAGE>
SCHEDULE II
LOISLAW.COM, INC.
VALUATION AND QUALIFYING ACCOUNTS
Years ended December 31, 1996, 1997 and 1998
<TABLE>
<CAPTION>
Additions
Balance at charged to Bad debts Bad Balance
beginning costs and written debts at end
of year expenses off recovered of year
---------- ---------- --------- --------- -------
<S> <C> <C> <C> <C> <C>
1996:
Allowance for doubtful
accounts................... $ -- 525,000 -- -- 525,000
======== ======= ======== ====== =======
1997:
Allowance for doubtful
accounts................... $525,000 94,381 (244,381) -- 375,000
======== ======= ======== ====== =======
1998:
Allowance for doubtful
accounts................... $375,000 -- (279,244) 29,218 124,974
======== ======= ======== ====== =======
</TABLE>
S-1
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
----------------------------
This AGREEMENT AND PLAN OF MERGER (this "Agreement"), executed as of the
16th day of June, 1999, by and between Law Office Information Systems, Inc., an
Arkansas corporation ("LOIS (Arkansas)"), and Loislaw.com, Inc., a Delaware
corporation ("Loislaw.com");
W I T N E S S E T H:
-------------------
WHEREAS, Loislaw.com is a wholly-owned subsidiary of LOIS (Arkansas); and
WHEREAS, it is in the best interests of LOIS (Arkansas) and Loislaw.com
that LOIS (Arkansas) be merged with and into Loislaw.com in accordance with the
laws of the State of Arkansas and the laws of the State of Delaware;
NOW, THEREFORE, in consideration of the premises, mutual covenants,
conditions, terms and provisions set forth in this Agreement, LOIS (Arkansas)
and Loislaw.com do hereby agree as follows:
ARTICLE I
MERGER OF LOIS (Arkansas)
WITH AND INTO LOISLAW.COM
LOIS (Arkansas) will be merged with and into Loislaw.com in accordance
with, as applicable, Section 4-27-1101 of the Arkansas Business Corporation Act
and Section 252 of the Delaware General Corporation Law, with the effective date
(the "Effective Date") of such merger (the "Merger") to be 10:00 a.m. central
standard time on June 16, 1999. Loislaw.com will be the surviving corporation
in the Merger (the "Surviving Corporation," whenever reference is made to it as
of the Effective Date or thereafter), and will continue both (i) to use its
present corporate name and (ii) to be governed by and incorporated in accordance
with the laws of the State of Delaware.
ARTICLE II
EFFECT OF MERGER
The Merger shall in all respects have the effects provided for in Section
4-27-1106 of the Arkansas Business Corporation Act and Section 259 of the
General Corporation Law of the State of Delaware, with all rights and
obligations of LOIS (Arkansas) being allocated to the Surviving Corporation.
Without limiting the generality of the foregoing, in addition to the effects
hereinafter set forth, on the Effective Date, the separate existence of LOIS
(Arkansas) will cease and the Surviving Corporation (the separate corporate
existence and corporate name of which shall continue unimpaired by the Merger)
will immediately (i) succeed, without other transfer, to all of the assets,
properties, rights and claims of LOIS (Arkansas) and (ii) be subject to all of
the debts, duties, obligations and liabilities of LOIS (Arkansas) in the same
manner and to the same extent as if such had been incurred by the Surviving
Corporation itself. Neither the rights of creditors with respect
to LOIS (Arkansas) nor any liens upon the assets or properties of LOIS
(Arkansas) will be impaired
<PAGE>
by the Merger. Any lawsuit, proceeding or claim pending or existing by or
against LOIS (Arkansas) may be prosecuted or continued as if the Merger had not
occurred or, alternatively, the Surviving Corporation may be substituted for
LOIS (Arkansas) with respect to any such lawsuit, proceeding or claim.
ARTICLE III
TREATMENT OF SHARES
On the Effective Date:
(i) Each share of common stock, par value $.001 per share, of LOIS
(Arkansas) (the "LOIS (Arkansas) Common Stock") that is issued and
outstanding immediately prior to the Effective Date shall by virtue of the
Merger be changed and converted into one fully paid and nonassessable share
of Loislaw.com common stock, par value $.001 per share (the "Loislaw.com
Common Stock");
(ii) Each share of Series A Convertible Preferred Stock, par value
$.001 per share, of LOIS (Arkansas) (the "LOIS (Arkansas) Series A
Preferred Stock") that is issued and outstanding immediately prior to the
Effective Date shall by virtue of the Merger be changed and converted into
one fully paid and nonassessable share of Loislaw.com Series A Convertible
Preferred Stock, par value $.001 per share (the "Loislaw.com Series A
Preferred Stock");
(iii) Each share of Series B Redeemable Preferred Stock, par value
$.001 per share, of LOIS (Arkansas) (the "LOIS (Arkansas) Series B
Preferred Stock") that is issued and outstanding immediately prior to the
Effective Date shall by virtue of the Merger be changed and converted into
one fully paid and nonassessable share of Loislaw.com Series B Redeemable
Preferred Stock, par value $.001 per share (the "Loislaw.com Series B
Preferred Stock");
(iv) Each share of Series C Convertible Preferred Stock, par value
$.001 per share, of LOIS (Arkansas) (the "LOIS (Arkansas) Series C
Preferred Stock") that is issued and outstanding immediately prior to the
Effective Date shall by virtue of the Merger be changed and converted into
one fully paid and nonassessable share of Loislaw.com Series C Convertible
Preferred Stock, par value $.001 per share (the "Loislaw.com Series C
Preferred Stock");
(v) Each stock option and warrant to purchase LOIS (Arkansas) Common
Stock that is outstanding immediately prior to the Effective Date shall by
virtue of the Merger be changed and converted into an option or warrant, as
the case may be, to purchase the same number of shares of Loislaw.com
Common Stock at the same exercise price and on the same terms and
conditions as in effect at such time; and
(vi) Each share of Loislaw.com Common Stock issued and outstanding
immediately prior to the Effective Date shall be canceled and retired and
shall cease to exist.
2
<PAGE>
ARTICLE IV
CORPORATE AUTHORIZATION
This Agreement and the Merger shall be authorized by LOIS (Arkansas) and
Loislaw.com as provided by the applicable laws of the State of Arkansas and the
State of Delaware. If this Agreement is duly authorized and adopted by such
corporations, this Agreement shall be executed, filed and recorded in accordance
with the laws of the State of Arkansas and the State of Delaware as soon as
practicable.
ARTICLE V
CERTIFICATE OF INCORPORATION
The Certificate of Incorporation of Loislaw.com as in effect immediately
prior to the Effective Date shall be and continue to be the Certificate of
Incorporation of the Surviving Corporation.
ARTICLE VI
BYLAWS, OFFICERS AND DIRECTORS
The Bylaws of Loislaw.com, as existing immediately prior to the Effective
Date, shall continue in full force and effect as the Bylaws of the Surviving
Corporation, until such Bylaws are thereafter modified, amended or repealed in
accordance with the laws of the State of Delaware and the applicable provisions
of such Bylaws. The officers and directors of Loislaw.com immediately prior to
the Effective Date shall continue after the Merger to serve as the officers and
directors of the Surviving Corporation, until such time as the successor of each
such officer or director is chosen and qualified or until his or her earlier
death, resignation, retirement, disqualification or removal from office.
ARTICLE VII
SERVICE OF PROCESS
The Surviving Corporation may be served with process in the State of
Arkansas in any proceeding for enforcement of any obligation of LOIS (Arkansas),
as well as for enforcement of any obligation of the Surviving Corporation
arising from the Merger, and in any proceeding for the enforcement of the rights
of dissenting shareholders of LOIS (Arkansas) and it does hereby irrevocably
appoint the Secretary of State of Arkansas as its agent to accept service of
process in any such suit or other proceeding. Copies of such process shall also
be mailed to: Loislaw.com, Inc., 105 North 28/th/ Street, Van Buren, Arkansas
72956, Attention: President, and to Thompson & Knight, A Professional
Corporation, 1700 Pacific Avenue, Suite 3300, Dallas, Texas 75201, Attention:
Kenn W. Webb.
3
<PAGE>
ARTICLE VIII
DISSENTING SHAREHOLDERS
The Surviving Corporation will promptly pay to any dissenting shareholders
of LOIS (Arkansas) the amount, if any, to which they shall be entitled under
Section 4-27-1301 et seq. of the Arkansas Business Corporation Act with respect
to the rights of dissenting shareholders.
ARTICLE IX
ABANDONMENT
At any time prior to the Effective Date of the Merger, this Agreement may
be terminated and abandoned by the Board of Directors of either of the
constituent corporations to this Agreement, notwithstanding favorable action on
the Merger by the shareholders of both or either of such constituent
corporations.
* * * *
[Remainder of page intentionally left blank.]
4
<PAGE>
IN WITNESS WHEREOF, LOIS (Arkansas) and Loislaw.com have caused this
Agreement to be executed as of the date first above written.
LAW OFFICE INFORMATION SYSTEMS, INC.,
an Arkansas corporation
By: /s/ Kyle D. Parker
__________________________________
Kyle D. Parker
Chief Executive Officer
LOISLAW.COM, INC.,
a Delaware corporation
By: /s/ Kyle D. Parker
___________________________________
Kyle D. Parker
Chief Executive Officer
5
<PAGE>
EXHIBIT 2.2
CERTIFICATE OF MERGER
of
LAW OFFICE INFORMATION SYSTEMS, INC.
(an Arkansas corporation)
with and into
LOISLAW.COM, INC.
(a Delaware corporation)
(UNDER SECTION 252 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
=========================================
Loislaw.com, Inc., a Delaware corporation ("Loislaw.com"), hereby certifies
that:
(1) The name and state of incorporation of each of the constituent
corporations are:
(a) Loislaw.com, Inc., a Delaware corporation; and
(b) Law Office Information Systems, Inc., an Arkansas corporation
("LOIS (Arkansas)").
(2) An Agreement and Plan of Merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the provisions of Section 252 of the General Corporation Law of the State
of Delaware.
(3) The name of the surviving corporation is Loislaw.com., Inc., a
Delaware corporation.
(4) The Certificate of Incorporation of Loislaw.com, which is the
surviving corporation, shall be the Certificate of Incorporation of the
surviving corporation.
(5) The executed Agreement and Plan of Merger is on file at the principal
place of business of Loislaw.com at 105 North 28/th/ Street, Van Buren,
Arkansas, 72956.
(6) A copy of the Agreement and Plan of Merger will be furnished by
Loislaw.com, on request and without cost, to any stockholder of either
constituent corporation.
(7) The authorized capital stock of each foreign corporation which is a
party to the merger is as follows:
<TABLE>
<CAPTION>
Corporation Class Series Number of Shares Par Value
- ----------------- ------------ -------------------- ---------------- ---------
<S> <C> <C> <C> <C>
LOIS (Arkansas) Common Stock None 10,000,000 $.001
Preferred Series A Convertible 931,044 $.001
Preferred Series B Redeemable 439,589 $.001
Preferred Series C Convertible 2,495,697 $.001
Preferred Undesignated 1,133,670 $.001
</TABLE>
8. In accordance with the Plan, the Merger shall become effective upon filing
this document with the Secretary of State of Delaware.
<PAGE>
IN WITNESS WHEREOF, Loislaw.com, has caused this Certificate to be signed
by the undersigned on the 16th day of June, 1999.
LOISLAW.COM, INC.,
a Delaware corporation
By: /s/ Kyle D. Parker
-----------------------------
Kyle D. Parker
Chief Executive Officer
2
<PAGE>
EXHIBIT 2.2
(cont.)
LAW OFFICE INFORMATION SYSTEMS, INC.
ARTICLES OF MERGER
Pursuant to the provisions of Section 4-27-1105 of the Arkansas Business
Corporation Act, each of the undersigned corporations hereby adopts the
following Articles of Merger for the purpose of effecting a merger in accordance
with the provisions of Section 4-27-1101 of the Arkansas Business Corporation
Act (the "Act").
1. The name of each of the undersigned corporations and the state under the
laws of which each is incorporated are:
Name of Entity State
-------------- -----
Law Office Information Systems, Inc. Arkansas
Loislaw.com, Inc. Delaware
2. An Agreement and Plan of Merger, attached hereto as Exhibit A (the "Plan"),
---------
providing for the merger of Law Office Information Systems, Inc., an
Arkansas corporation ("LOIS (Arkansas)") with and into Loislaw.com, Inc., a
Delaware corporation ("Loislaw.com") (the "Merger") has been approved by
each of the undersigned corporations.
3. The name of the surviving corporation in the Merger is Loislaw.com, Inc.
(the "Surviving Corporation").
4. An executed copy of the Plan is on file at the principal place of business
of the Surviving Corporation, whose address is 105 North 28/th/ Street, Van
Buren, Arkansas 72956. A copy of the Plan will be furnished by the
Surviving Corporation on written request and without cost to any
shareholder of the undersigned corporations.
5. As to each of the undersigned corporations, the approval of whose
shareholders is required, the designation, number of outstanding shares and
number of votes entitled to be cast by each voting group entitled to vote
separately on the Plan are as follows:
<PAGE>
<TABLE>
<CAPTION>
Name of Entity and Voting
Group(s) Entitled to Vote Number of Shares
Separately Outstanding Number of Votes
------------------------- ---------------- ---------------
<S> <C> <C>
LOIS (Arkansas)
Common Stock, par value 5,093,021 5,093,021
$.001 per share
Series A Convertible 931,044 931,044
Preferred Stock, par value
$.001 per share
Series C Convertible 2,495,697 2,495,697
Preferred Stock, par value
$.001 per share
Loislaw.com
Common Stock, par value 1,000 1,000
$.001 per share
</TABLE>
6. As to each of the undersigned corporations, the approval of whose
shareholders is required, the number of outstanding shares of each voting
group entitled to vote separately on the Plan that voted for and against
the Plan, respectively, are as follows:
2
<PAGE>
<TABLE>
<CAPTION>
Name of Entity and Voting
Group(s) Entitled to Vote
Separately Total Voted For Total Voted Against
-------------------------- --------------- -------------------
<S> <C> <C>
LOIS (Arkansas)
Common Stock, par value 5,093,021 -0-
$.001 per share
Series A Convertible 931,044 -0-
Preferred Stock, par value
$.001 per share
Series C Convertible 2,495,697 -0-
Preferred Stock, par value
$.001 per share
Loislaw.com
Common Stock, par value 1,000 -0-
$.001 per share
</TABLE>
The total number of votes cast in favor of the Plan by each voting group
entitled to vote separately on the Plan was sufficient for approval by each
such voting group.
7. As to each of the undersigned corporations, the Plan and the performance of
its terms were duly authorized by all action required by the laws of
Arkansas and Delaware, respectively, and by the constituent documents of
such corporation.
8. In accordance with the Plan, the Merger shall become effective upon filing
this document with the Secretary of State of Arkansas.
* * * *
[Remainder of page intentionally left blank.]
3
<PAGE>
IN WITNESS WHEREOF, LOIS (Arkansas) and Loislaw.com have caused these
Articles of Merger to be signed by the undersigned on the 16th day of June,
1999.
LAW OFFICE INFORMATION SYSTEMS, INC.,
an Arkansas corporation
By: /s/ Kyle D. Parker
-----------------------------------
Kyle D. Parker
Chief Executive Officer
LOISLAW.COM, INC.,
a Delaware corporation
By: /s/ Kyle D. Parker
-----------------------------------
Kyle D. Parker
Chief Executive Officer
4
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
LOISLAW.COM, INC.
ARTICLE I
The name of the corporation is Loislaw.com, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is Corporation Trust Center, 1209 Orange Street, in the City of Wilmington,
County of New Castle 19801. The name of its registered agent at such address is
The Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the Delaware General Corporation
Law.
ARTICLE IV
A. Authorized Shares. The aggregate number of shares of capital stock
-----------------
that the Corporation shall have the authority to issue is 60,000,000 consisting
of (i) 50,000,000 shares of common stock, par value $.001 per share ("Common
Stock"), and (ii) 10,000,000 shares of preferred stock, par value $.001 per
share ("Preferred Stock").
B. Common Stock.
------------
1. Dividends. Subject to the preferential rights, if any, of the
Preferred Stock, the holders of shares of Common Stock shall be entitled to
receive, when and if declared by the Board of Directors, out of the assets of
the Corporation which are by law available therefor, dividends payable in cash,
in property, or in shares of Common Stock or other securities of the
Corporation.
2. Voting Rights. At every annual or special meeting of
stockholders of the Corporation, every holder of Common Stock shall be entitled
to one vote, in person or by proxy, for each share of Common Stock standing in
his or her name on the books of the Corporation.
3. Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution, or winding up of the affairs
of the Corporation, after payment or provision for payment of the debts and
other liabilities of the Corporation and of the preferential amounts, if any, to
which the holders of Preferred Stock may be entitled, the holders of all
outstanding shares of Common Stock shall be entitled to share ratably in the
remaining net assets of the Corporation.
<PAGE>
4. Redemption. The Common Stock is not redeemable.
C. Preferred Stock. Shares of Preferred Stock may be issued from time to
---------------
time in one or more series, without further stockholder approval. Pursuant to
Section 151 of the Delaware General Corporation Law, the Board of Directors of
the Corporation is hereby authorized, by resolution or resolutions, to fix or
alter the rights, preferences, privileges and restrictions granted to or imposed
upon each series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or of any of them. The Board of
Directors is also authorized to increase or decrease the number of shares of any
series prior or subsequent to the issue of that series, but not below the number
of shares of such series then outstanding. In case the number of shares of any
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series.
ARTICLE V
The following provisions are inserted for the management of the business
and for the conduct of the affairs of the Corporation and for defining and
regulating the powers of the Corporation and its directors and stockholders:
A. The directors, other than those who may be elected by the holders of
the Preferred Stock or any series thereof, shall be classified, with respect to
the time for which they severally hold office, into three classes, Class One to
serve for a term expiring at the annual meeting of stockholders to be held in
2000, Class Two to serve for a term expiring at the annual meeting of
stockholders to be held in 2001, and Class Three to serve for a term expiring at
the annual meeting of stockholders to be held in 2002, with each class to hold
office until its successors are duly elected and qualified or until their
earlier resignation, death or removal. At each annual meeting of the
stockholders of the Corporation, the date of which shall be fixed by or pursuant
to the Bylaws of the Corporation, the successors of the class of directors whose
term expires at that meeting shall be elected to hold office for a term expiring
at the annual meeting of stockholders held in the third year following the year
of their election and until their successors are duly elected and qualified or
until their earlier resignation, death or removal. The directors who shall
initially serve as Class One directors, Class Two directors and Class Three
directors are set forth in Article VIII of this Certificate of Incorporation.
B. The number of directors constituting the entire Board of Directors of
the Corporation is four. Subject to the provisions of law and the rights of
holders of the Preferred Stock or any series thereof, the number of directors of
the Corporation may be increased or decreased from time to time pursuant to the
Bylaws of the Corporation. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director, and no
action shall be taken by the directors (whether through amendment to the Bylaws
or otherwise) to increase the number of directors unless at least 75% of the
directors then in office shall concur in said action.
C. Advance notice of nominations for the election of directors and other
stockholder proposals shall be given in the manner and to the extent provided in
the Bylaws of the Corporation.
2
<PAGE>
D. Subject to the provisions of law and the rights of holders of the
Preferred Stock or any series thereof, newly created directorships resulting
from any increase in the number of directors and any vacancies on the Board of
Directors resulting from death, resignation, removal or other cause shall be
filled only by the affirmative vote of a majority of the remaining directors
then in office, even though less than a quorum of the Board of Directors, or by
a sole remaining director. Any director elected in accordance with the preceding
sentence of this paragraph shall hold office for the remainder of the full term
of the class of directors in which the new directorship was created or the
vacancy occurred and until such director's successor shall have been duly
elected and qualified.
E. Subject to provisions of law and the rights of the holders of the
Preferred Stock or any series thereof, any director may be removed from office
only for cause and only by the affirmative vote of the holders of a majority of
the combined voting power of the then outstanding shares of voting capital stock
of the Corporation, voting together as a single class. For purposes of this
paragraph, "cause" shall mean the willful and continuous failure of a director
substantially to perform such director's duties to the Corporation (other than
any such failure resulting from incapacity due to physical or mental illness) or
the willful engaging by a director in gross misconduct materially and
demonstrably injurious to the Corporation.
F. The Board of Directors of the Corporation is expressly authorized and
empowered to make, alter or repeal the Bylaws, subject only to such limitation,
if any, as may be from time to time imposed by law.
G. Any merger or consolidation between the Corporation and any other
corporation or business entity that requires the approval of the stockholders of
the Corporation under the provisions of the Delaware General Corporation Law, or
a sale, lease or exchange of all or substantially all of the assets of the
Corporation, or a voluntary dissolution of the Corporation, may be authorized
only by the affirmative vote of the holders of at least two-thirds of the
outstanding shares of capital stock of the Corporation entitled to vote thereon
(including the affirmative vote of the holders of at least two-thirds of the
shares of any class or series of capital stock entitled to vote separately
thereon).
H. The stockholders of the Corporation shall not be permitted to take any
action required or permitted to be taken at any meeting of the stockholders of
the Corporation by a written consent or consents of the holders of less than all
of the outstanding shares of capital stock of the Corporation entitled to vote
thereon.
I. Elections of directors need not be by written ballot unless otherwise
provided in the Bylaws of the Corporation.
J. The provisions of this Article V may only be amended by the vote of
the holders of at least two-thirds of the capital stock of the Corporation
issued, outstanding and entitled to vote thereon (including the holders of at
least two-thirds of the issued and outstanding shares or any class or series
entitled to vote separately thereon).
3
<PAGE>
ARTICLE VI
No director of the Corporation shall be personally liable to the
Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (a) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (b) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (c) under Section 174 of the Delaware General
Corporation Law, or (d) for any transaction from which the director derived any
improper personal benefit. Neither the amendment nor repeal of this Article VI,
nor the adoption of any provision of the Corporation's Certificate of
Incorporation inconsistent with this Article VI, shall eliminate or reduce the
effect of this Article VI in respect of any matter occurring, or any cause of
action, suit or claim that, but for this Article VI, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE VII
To the fullest extent permitted by applicable law, the Corporation shall
indemnify any officer or director as set forth in the Bylaws of the Corporation,
pursuant to Section 145 of the Delaware General Corporation Law.
ARTICLE VIII
The names and mailing addresses of the persons who are to serve as the
initial directors of the Corporation until the expiration of their respective
terms, as set forth in the Bylaws of the Corporation, and until their respective
successors are duly elected and qualified, are as follows:
<TABLE>
<CAPTION>
Name Mailing Address Director Class
---- --------------- --------------
<S> <C> <C>
Kyle D. Parker 105 North 28/th/ Street Three
Van Buren, Arkansas 72956
Mark O. Beyland 105 North 28/th/ Street Three
Van Buren, Arkansas 72956
Robert Ammerman 85 Merrimac Street, Suite 200 Two
Boston, Massachusetts 02114
Hannah Stone 767 Fifth Avenue, 45/th/ Floor One
New York, New York 10153
</TABLE>
ARTICLE IX
The name of the incorporator of the Corporation is Kenn W. Webb, and the
mailing address of such incorporator is Thompson & Knight, P.C., 1700 Pacific
Avenue, Suite 3300, Dallas, Texas 75201.
IN WITNESS WHEREOF, the undersigned, being the incorporator hereinbefore
named, for the purpose of forming a corporation pursuant to the Delaware General
Corporation Law, does make
4
<PAGE>
this Certificate, hereby declaring and certifying that the facts herein are
true, and accordingly has hereunto set his hand as of the 15th day of June,
1999.
/s/ Kenn W. Webb
---------------------------
Kenn W. Webb
5
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
LOISLAW.COM, INC.
ARTICLE I
CORPORATE OFFICES
Section 1.1 Registered Office. The address of the Corporation's
-----------------
registered office in the State of Delaware is Corporation Trust Center, 1209
Orange Street, in the City of Wilmington County of New Castle Center 19801. The
name of its registered agent at such address is the Corporation Trust Company.
Section 1.2 Other Offices. The Board of Directors may at any time
-------------
establish other offices at any place or places where the Corporation is
qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1 Place of Meetings. Meetings of stockholders shall be held
-----------------
at any place, within or outside the State of Delaware, designated by the Board
of Directors. In the absence of any such designation, stockholders' meetings
shall be held at the registered office of the Corporation.
Section 2.2 Annual Meeting.
--------------
(a) The annual meeting of stockholders shall be held each year
on a date and at a time designated by the Board of Directors. At the meeting,
directors shall be elected and any other proper business may be transacted.
(b) For nominations of persons for election to the Board of
Directors of the Corporation and the proposal of business to be transacted by
the stockholders may be made at an annual meeting of stockholders (i) pursuant
to the Corporation's notice with respect to such meeting, (ii) by or at the
direction of the Board of Directors or (iii) by any stockholder of the
Corporation who was a stockholder of record at the time of giving of the notice
provided for in this Section 2.2, who is entitled to vote at the meeting and who
has complied with the notice procedures set forth in this Section 2.2.
(c) Nominations of persons for election as directors of the
Corporation or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of paragraph (b) of this Section 2.2, the
stockholder must have given timely notice thereof in writing to the secretary of
the Corporation and such business must be a proper matter for stockholder action
under the Delaware General Corporation Law. To be timely, a stockholder's
notice shall be delivered to the secretary at the principal executive offices of
the Corporation not less than 30 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that in the event that the date of the annual meeting is more than
<PAGE>
30 days prior to or more than 60 days after such anniversary date, notice by the
stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 20th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made. Such
stockholder's notice shall set forth (i) as to each person whom the stockholder
proposes to nominate for election or re-election as a director all information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (including such person's written consent to being named in
the proxy statement as a nominee and to serving as a director if elected); (ii)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of such business, the reasons for conducting such
business at the meeting and any material interest in such business of such
stockholder and the beneficial owner, if any, on whose behalf the proposal is
made; and (iii) as to the stockholder giving the notice and the beneficial
owner, if any, on whose behalf the nomination or proposal is made:
(A) The name and address of such stockholder, as they
appear on the Corporation's books, and of such beneficial owner; and
(B) The class and number of shares of capital stock of the
Corporation that are owned beneficially and of record by such stockholder and
such beneficial owner.
(d) Only such business shall be conducted at an annual meeting
of stockholders as shall have been brought before the meeting in accordance with
the procedures set forth in this Section 2.2. The chairman of the meeting shall
determine whether a nomination or any business proposed to be transacted by the
stockholders has been properly brought before the meeting and, if any proposed
nomination or business has not been properly brought before the meeting, the
chairman shall declare that such proposed business or nomination shall not be
presented for stockholder action at the meeting.
(e) For purposes of this Section 2.2, "public announcement"
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or a comparable national news service or the filing of
information with the Securities and Exchange Commission via the EDGAR filing
system.
(f) Nothing in this Section 2.2 shall be deemed to affect any
rights of stockholders to request inclusion of proposals in the Corporation's
proxy statement pursuant to Rule 14a-8 (or any successor rule) promulgated under
the Exchange Act.
Section 2.3 Special Meeting.
---------------
(a) A special meeting of the stockholders may be called at any
time by the Board of Directors, the chairman of the board, the president or the
holders of a majority of the outstanding shares of capital stock entitled to
vote on such matters properly coming before a special meeting of the
stockholders of the Corporation.
(b) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to such notice of
2
<PAGE>
meeting (i) by or at the direction of the Board of Directors or (ii) by any
stockholder of the Corporation who is a stockholder of record at the time of
giving of notice provided for in Section 2.5, who shall be entitled to vote at
the meeting and who complies with the notice procedures set forth in Section
2.5.
Section 2.4 Notice of Stockholder's Meetings; Affidavit of Notice.
-----------------------------------------------------
(a) All notices of meetings of stockholders shall be in writing
and shall be sent or otherwise given in accordance with this Section 2.4 of
these Bylaws not less than 10 nor more than 60 days before the date of the
meeting to each stockholder entitled to vote at such meeting (or such longer or
shorter time as is required by Section 2.5 of these Bylaws, if applicable). The
notice shall specify the place, date, and hour of the meeting, and, in the case
of a special meeting, the purpose or purposes for which the meeting is called.
(b) Written notice of any meeting of stockholders, if mailed, is
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at his or her address as it appears on the records of the
Corporation. An affidavit of the secretary or an assistant secretary or of the
transfer agent of the Corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
Section 2.5 Quorum. The holders of a majority of the stock issued and
------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (a) the chairman of
the meeting or (b) a majority of the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present or represented. At such adjourned meeting at
which a quorum is present or represented, any business may be transacted that
might have been transacted at the meeting as originally noticed. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, a notice of the adjourned meeting shall
be given to each stockholder of record entitled to vote at the meeting.
Section 2.6 Conduct of Business. The chairman of any meeting of
-------------------
stockholders shall determine the order of business and the procedure at the
meeting, including the manner of voting and the conduct of business.
Section 2.7 Voting. The stockholders entitled to vote at any meeting of
------
stockholders shall be determined in accordance with the provisions of Section
2.9 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
Delaware General Corporation Law (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements). Except as may be otherwise provided in the Certificate of
Incorporation, each stockholder shall be entitled to one vote for each share of
capital stock held by such stockholder.
Section 2.8 Waiver of Notice. Whenever notice is required to be given
----------------
under any provision of the Delaware General Corporation Law or of the
Certificate of Incorporation or these Bylaws, a written waiver thereof, signed
by the person entitled to notice, whether before or after the
3
<PAGE>
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or these Bylaws.
Section 2.9 Record Date for Stockholder Notice. In order that the
----------------------------------
Corporation may determine the stockholders entitled to notice of or to vote at
any meeting of stockholders or any adjournment thereof or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
entitled to exercise any rights in respect of any change, conversion or exchange
of stock or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than 60 nor less
than 10 days before the date of such meeting, nor more than 60 days prior to any
other action. If the Board of Directors does not so fix a record date:
(a) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held.
(b) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 2.10 Proxies. Each stockholder entitled to vote at a meeting of
-------
stockholders may authorize another person or persons to act for such stockholder
by a written proxy, signed by the stockholder and filed with the secretary of
the Corporation, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy (whether
by manual signature, typewriting, telegraphic transmission or otherwise) by the
stockholder or the stockholder's attorney-in-fact. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the Delaware General Corporation Law.
Section 2.11 Stockholder Action by Unanimous Written Consent without a
---------------------------------------------------------
Meeting. Unless otherwise restricted by the Certificate of Incorporation or
- -------
these Bylaws, any action required or permitted to be taken at any meeting of the
stockholders of the Corporation may be taken without a meeting if holders of all
the shares of capital stock entitled to vote thereon consent thereto in writing.
Written consents representing actions taken by the stockholders of the
Corporation may be executed by telex, telecopy or other facsimile transmission,
and such facsimile shall be valid and binding to the same extent as if it were
an original.
4
<PAGE>
ARTICLE III
DIRECTORS
Section 3.1 Powers. Subject to the provisions of the Delaware General
------
Corporation Law and any limitations in the Certificate of Incorporation or these
Bylaws relating to action required to be approved by the stockholders, 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 3.2 Number of Directors. The number of directors constituting
-------------------
the initial Board of Directors shall be as set forth in the Certificate of
Incorporation. Subject to the limitations contained in the Certificate of
Incorporation, the number of directors of the Corporation shall be fixed from
time to time by resolution adopted by a vote of a majority of the entire Board
of Directors, provided that the number so fixed shall not be less than four nor
more than 15.
Section 3.3 Election, Qualification and Term of Office of Directors.
-------------------------------------------------------
Subject to the provisions of Article V of the Certificate of Incorporation
concerning a classified board of directors and except as provided in Section 3.4
of these Bylaws, the successors of the class of directors whose term expires at
that annual meeting of stockholders shall be elected to hold office until the
annual meeting of stockholders held in the third year following the year of
their election. Directors need not be stockholders unless so required by the
Certificate of Incorporation, wherein other qualifications for directors may be
prescribed. Each director, including a director elected to fill a vacancy,
shall hold office until his or her successor is elected and qualified or until
his or her earlier resignation or removal. Elections of directors need not be
by written ballot.
Section 3.4 Resignation and Vacancies. Any director may resign at any
-------------------------
time upon written notice to the attention of the secretary of the Corporation.
When one or more directors so resign and the resignation is effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have the sole power to fill such vacancy or vacancies,
the vote thereon to take effect when such resignation or resignations shall
become effective. Subject to the rights of holders of capital stock of the
Corporation pursuant to any valid and binding agreement, any vacancy occurring
on the Board of Directors created by reason of newly created directorships
resulting from the issuance of any class or series of capital stock of the
Corporation or newly created directorships resulting from any increase in the
number of directors and any vacancy occurring on the Board of Directors
resulting from death, resignation, removal or other cause shall be filled solely
by the affirmative vote of a majority of the remaining directors then in office,
even though less than a quorum of the Board of Directors, or by a sole remaining
director. Any such director elected to fill a vacancy on the Board of Directors
shall hold such office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy occurred and
until such director's successor shall have been elected and qualified.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws, whenever any holders of a class or series of capital stock of the
Corporation have the right to elect one or more directors pursuant to the
Certificate of Incorporation or the provisions of any valid and binding
agreement, vacancies in directorships to which such right relates may be filled
by a majority of the directors elected by the holders of such class or classes
or series then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or
5
<PAGE>
guardian of a stockholder, or other fiduciary entrusted with like responsibility
for the person or estate of a stockholder, may call a special meeting of
stockholders in accordance with the provisions of the Certificate of
Incorporation or these Bylaws, or may apply to the Court of Chancery for a
decree summarily ordering an election as provided in Section 211 of the Delaware
General Corporation Law.
Section 3.5 Place of Meetings; Meetings by Telephone.
----------------------------------------
(a) The Board of Directors of the Corporation may hold meetings, both
regular and special, either within or outside the State of Delaware.
(b) Unless otherwise restricted by the Certificate of Incorporation or
these Bylaws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
Section 3.6 Regular Meetings. Regular meetings of the Board of
----------------
Directors may be held without notice at such time and at such place as shall
from time to time be determined by the Board of Directors.
Section 3.7 Special Meetings; Notice.
------------------------
(a) 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 or any two
directors.
(b) Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the Corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four days before the time
of the holding of the meeting. If the notice is delivered personally or by
telephone or by telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 24 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
Corporation.
Section 3.8 Quorum. At all meetings of the Board of Directors, a
------
majority of the authorized number of directors shall constitute a quorum for the
transaction of business and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors, except as may be otherwise specifically provided by statute or by the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, then the directors present thereat may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
6
<PAGE>
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
Section 3.9 Waiver of Notice. Whenever notice is required to be given
----------------
under any provision of the Delaware General Corporation Law or of the
Certificate of Incorporation or these Bylaws, a written waiver thereof, signed
by the person entitled to notice, whether before or after the time stated
therein, shall be deemed equivalent to notice. Attendance of a person at a
meeting shall constitute a waiver of notice of such meeting, except when the
person attends a meeting for the express purpose of objecting, at the beginning
of the meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor the
purpose of, any regular or special meeting of the directors, or members of a
committee of directors, need be specified in any written waiver of notice unless
so required by the Certificate of Incorporation or these Bylaws.
Section 3.10 Board Action by Written Consent without a Meeting. Unless
-------------------------------------------------
otherwise restricted by the Certificate of Incorporation or these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board of Directors or committee, as the case may be, consent
thereto in writing and the writing or writings are filed with the minutes of
proceedings of the Board of Directors or committee. Written consents
representing actions taken by the board or committee may be executed by telex,
telecopy or other facsimile transmission, and such facsimile shall be valid and
binding to the same extent as if it were an original.
Section 3.11 Fees and Compensation of Directors. Unless otherwise
----------------------------------
restricted by the Certificate of Incorporation or these Bylaws, the Board of
Directors shall have the authority to fix the compensation of directors and no
such compensation shall preclude any director from serving the Corporation in
any other capacity and receiving compensation therefor.
Section 3.12 Approval of Loans to Officers. The Corporation may lend
-----------------------------
money to, or guarantee any obligation of, or otherwise assist any officer or
other employee of the Corporation or of its subsidiary, including any officer or
employee who is a director of the Corporation or its subsidiary, whenever, in
the judgment of the directors, such loan, guaranty or assistance may reasonably
be expected to benefit the Corporation. The loan, guaranty or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the Corporation. Nothing contained in this Section 3.12
shall be deemed to deny, limit or restrict the powers of guaranty or warranty of
the Corporation at common law or under any statute.
Section 3.13 Removal of Directors. Subject to provisions of the Delaware
--------------------
General Corporation Law and the rights of the holders of any shares of capital
stock of the Corporation, any director may be removed from office only for cause
and only by the affirmative vote of the holders of a majority of the combined
voting power of the then outstanding shares of voting capital stock of the
Corporation, voting together as a single class. For purposes of this Section
3.13, "cause" shall mean the willful and continuous failure of a director
substantially to perform such director's duties to the Corporation (other than
any such failure resulting from incapacity due to physical or mental
7
<PAGE>
illness) or the willful engaging by a director in gross misconduct materially
and demonstrably injurious to the Corporation.
Section 3.14 Chairman of the Board of Directors. The Corporation may
----------------------------------
also have, at the discretion of the Board of Directors, a chairman of the Board
of Directors who shall not be considered an officer of the Corporation.
ARTICLE IV
COMMITTEES
Section 4.1 Committees of Directors. The Board of Directors may, by
-----------------------
resolution passed by a majority of the whole Board of Directors, designate one
or more committees, with each committee to consist of one or more of the
directors of the Corporation. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors or in the Bylaws of the Corporation, shall
have and may exercise all the powers and authority of the Board of Directors in
the management of the business and affairs of the Corporation, and may authorize
the seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have the power or authority to (a) amend the Certificate
of Incorporation (except that committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors as provided in Section 151(a) of the Delaware General
Corporation Law, fix the designations and any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series), (b) adopt an agreement of merger or consolidation under Sections
251, 252, 254, 255, 256, 257, 258, 263 or 264 of the Delaware General
Corporation Law, (c) recommend to the stockholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets, (d)
recommend to the stockholders a dissolution of the Corporation or a revocation
of a dissolution, or (e) amend the Bylaws of the Corporation; and, unless the
Board resolution establishing the committee, the Bylaws or the Certificate of
Incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend, to authorize the issuance of stock, or to adopt
a certificate of ownership and merger pursuant to Section 253 of the Delaware
General Corporation Law.
Section 4.2 Committee Minutes. Each committee shall keep regular
-----------------
minutes of its meetings and report the same to the Board of Directors when
required.
Section 4.3 Meetings and Action of Committees. Meetings and actions of
---------------------------------
committees shall be governed by, and held and taken in accordance with, the
provisions of Section 3.5 (place of meetings and meetings by telephone), Section
3.6 (regular meetings), Section 3.7 (special meetings
8
<PAGE>
and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section
3.10 (action without a meeting) of these Bylaws, with such changes in the
context of such provisions as are necessary to substitute the committee and its
members for the Board of Directors and its members; provided, however, that the
time of regular meetings of committees may be determined either by resolution of
the Board of Directors or by resolution of the committee, that special meetings
of committees may also be called by resolution of the Board of Directors and
that notice of special meetings of committees shall also be given to all
alternate members, who shall have the right to attend all meetings of the
committee. The Board of Directors may adopt rules for the governance of any
committee not inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
Section 5.1 Officers. The officers of the Corporation shall be a chief
--------
executive officer, a president, a secretary, and a 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 any such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be
held by the same person.
Section 5.2 Appointment of Officers. The officers of the Corporation,
-----------------------
except such officers as may be appointed in accordance with the provisions of
Sections 5.3 or 5.5 of these Bylaws, shall be elected by the Board of Directors,
subject to the rights, if any, of an officer under any contract of employment.
Section 5.3 Subordinate Officers. The Board of Directors may appoint,
--------------------
or empower the chief executive officer or the president to appoint, such other
officers and agents 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 these Bylaws or as the Board of Directors may from time to
time determine.
Section 5.4 Removal and Resignation of Officers. Subject to the rights,
-----------------------------------
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by an affirmative vote of the majority of
the Board of Directors at any regular or special meeting of the Board of
Directors or, except in the case of an officer chosen by the Board of Directors,
by any officer upon whom such power of removal may be conferred by the Board of
Directors.
Any officer may resign at any time by giving written notice to the
attention of the secretary of the Corporation. Any resignation shall take
effect at the date of the receipt of that notice or at any later time specified
in that notice; and, unless otherwise specified in that notice, the acceptance
of the resignation shall not be necessary to make it effective. Any resignation
is without prejudice to the rights, if any, of the Corporation under any
contract to which the officer is a party.
Section 5.5 Vacancies in Offices. Any vacancy occurring in any office
--------------------
of the Corporation shall be filled by the Board of Directors.
9
<PAGE>
Section 5.6 Chief Executive Officer. Subject to such supervisory
-----------------------
powers, if any, as may be given by the Board of Directors to the chairman of the
board, if any, the chief executive officer of the Corporation shall, subject to
the control of the Board of Directors, have general supervision, direction, and
control of the business and the officers of the Corporation. He or she shall
preside at all meetings of the stockholders and, in the absence or nonexistence
of a chairman of the board, at all meetings of the Board of Directors and shall
have the general powers and duties of management usually vested in the office of
chief executive officer of a corporation and shall have such other powers and
duties as may be prescribed by the Board of Directors or these Bylaws.
Section 5.7 President. Subject to such supervisory powers, if any, as
---------
may be given by the Board of Directors to the chairman of the board (if any) or
the chief executive officer, the president shall have general supervision,
direction, and control of the business and other officers of the Corporation.
He or she shall have the general powers and duties of management usually vested
in the office of the chief operating officer of a corporation and such other
powers and duties as may be prescribed by the Board of Directors or these
Bylaws.
Section 5.8 Vice Presidents. In the absence or disability of the chief
---------------
executive officer and president, the vice presidents, if any, in order of their
rank as fixed by the Board of Directors or, if not ranked, a vice president
designated by the Board of Directors, shall perform all the duties of the
president and when so acting shall have all the powers of, and be subject to all
the restrictions upon, the president. The vice presidents shall have such other
powers and perform such other duties as from time to time may be prescribed for
them respectively by the Board of Directors, these Bylaws, the chief executive
officer, the president or the chairman of the board.
Section 5.9 Secretary. The secretary shall keep or cause to be kept, at
---------
the principal executive office of the Corporation or such other place as the
Board of Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show
the time and place of each meeting, the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office of the Corporation or at the office of the Corporation's transfer agent
or registrar, as determined by resolution of the Board of Directors, a share
register, or a duplicate share register, showing the names of all stockholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates evidencing such shares, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required to be given by law or by
these Bylaws. He or she shall keep the seal of the Corporation, if one be
adopted, in safe custody and shall have such other powers and perform such other
duties as may be prescribed by the Board of Directors or by these Bylaws.
Section 5.10 Chief Financial Officer. The chief financial officer shall
-----------------------
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities,
10
<PAGE>
receipts, disbursements, gains, losses, capital, retained earnings and shares.
The books of account shall at all reasonable times be open to inspection by any
director.
The chief financial officer shall deposit all moneys and other valuables in
the name and to the credit of the Corporation with such depositories as may be
designated by the Board of Directors. He or she shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
president, the chief executive officer, or the directors, upon request, an
account of all his or her transactions as chief financial officer and of the
financial condition of the Corporation, and shall have other powers and perform
such other duties as may be prescribed by the Board of Directors or the Bylaws.
Section 5.11 Representation of Shares of Other Corporations. The
----------------------------------------------
chairman of the board, the chief executive officer, the president, any vice
president, the chief financial officer, the secretary or assistant secretary of
this Corporation, or any other person authorized by the Board of Directors or
the chief executive officer or the president or a vice president, is 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 granted herein may be exercised
either by such person directly or by any other person authorized to do so by
proxy or power of attorney duly executed by the person having such authority.
Section 5.12 Authority and Duties of Officers. In addition to the
--------------------------------
foregoing authority and duties, all officers of the Corporation shall
respectively have such authority and perform such duties in the management of
the business of the Corporation as may be designated from time to time by the
Board of Directors or the stockholders.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES, AND OTHER AGENTS
Section 6.1 Indemnification of Directors and Officers. The Corporation
-----------------------------------------
shall, to the maximum extent and in the manner permitted by the Delaware General
Corporation Law, indemnify each of its directors and officers against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was a director or officer of the
Corporation. For purposes of this Section 6.1, a "director" or "officer" of the
Corporation includes any person (a) who is or was a director or officer of the
Corporation, (b) who is or was serving at the request of the Corporation as a
director or officer of another corporation, partnership, joint venture, trust or
other enterprise, or (c) who was a director or officer of a corporation which
was a predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
Section 6.2 Indemnification of Others. The Corporation may indemnify
-------------------------
each of its employees and agents (other than directors and officers) against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding,
arising by reason of the fact that such person is or was an employee or agent of
the Corporation. For purposes of this Section 6.2, an "employee" or "agent" of
the Corporation (other than a director or officer) includes any person (a) who
is or was an employee or agent of the
11
<PAGE>
Corporation, (b) who is or was serving at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or (c) who was an employee or agent of a corporation which was
a predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
Section 6.3 Payment of Expenses in Advance. Expenses incurred in
------------------------------
defending any action or proceeding for which indemnification is required
pursuant to Section 6.1 or for which indemnifications permitted pursuant to
Section 6.2 following authorization thereof by the Board of Directors shall be
paid by the Corporation in advance of the final disposition of such action or
proceeding upon receipt of an undertaking by or on behalf of the indemnified
party to repay such amount if it shall ultimately be determined that the
indemnified party is not entitled to be indemnified as authorized in this
Article VI.
Section 6.4 Indemnity Not Exclusive. The indemnification provided by
-----------------------
this Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any Bylaw, agreement, vote of
shareholders 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 that such additional rights to indemnification are
authorized in the Certificate of Incorporation.
Section 6.5 Insurance. The Corporation may purchase and maintain
---------
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him or her and incurred by him or her in any such capacity, or arising out of
his or her status as such, whether or not the Corporation would have the power
to indemnify him or her against such liability under the provisions of the
Delaware General Corporation Law.
Section 6.6 Conflicts. No indemnification or advance shall be made
---------
under this Article VI, except where such indemnification or advance is mandated
by law or the order, judgment or decree of any court of competent jurisdiction,
in any circumstance where it appears:
(a) That it would be inconsistent with a provision of the Certificate
of Incorporation, these Bylaws, a resolution of the stockholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly imposed
by a court in approving a settlement.
12
<PAGE>
ARTICLE VII
RECORDS AND REPORTS
Section 7.1 Maintenance and Inspection of Records. The Corporation
-------------------------------------
shall, either at its principal executive offices or at such place or places as
designated by the Board of Directors, keep a record of its stockholders listing
their names and addresses and the number and class of shares held by each
stockholder, a copy of these Bylaws as amended to date, accounting books, and
other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
Corporation at its registered office in Delaware or at its principal place of
business.
Section 7.2 Inspection by Directors. Any director shall have the right
-----------------------
to examine the Corporation's stock ledger, a list of its stockholders, and its
other books and records for a purpose reasonably related to his or her position
as a director. The Court of Chancery is hereby vested with the exclusive
jurisdiction to determine whether a director is entitled to the inspection
sought. The Court may summarily order the Corporation to permit the director to
inspect any and all books and records, the stock ledger, and the stock list and
to make copies or extracts therefrom. The Court may, in its discretion,
prescribe any limitations or conditions with reference to the inspection, or
award such other and further relief as the Court may deem just and proper.
Section 7.3 Annual Statement to Stockholders. The Board of Directors
--------------------------------
shall present at each annual meeting, and at any special meeting of the
stockholders when called for by vote of the stockholders, a full and clear
statement of the business and condition of the Corporation.
ARTICLE VIII
GENERAL MATTERS
Section 8.1 Checks. From time to time, the Board of Directors shall
------
determine by resolution which person or persons may sign or endorse all checks,
drafts, other orders for payment of money, notes or other evidences of
indebtedness that are issued in the name of or payable to the Corporation, and
only the persons so authorized shall sign or endorse those instruments.
Section 8.2 Execution of Corporate Contracts and Instruments. The Board
------------------------------------------------
of Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the Corporation; such authority
may be general or confined to specific instances. Unless so authorized
13
<PAGE>
or ratified by the Board of Directors or within the agency power of an officer,
no officer, agent or employee shall have any power or authority to bind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
Section 8.3 Stock Certificates; Partly Paid Shares. The shares of the
--------------------------------------
Corporation shall be represented by certificates, provided that the Board of
Directors of the Corporation may provide by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the Corporation by the chairman or vice chairman of the Board of
Directors, or the chief executive officer or the president or vice president,
and by the chief financial officer or an assistant treasurer, or the secretary
or an assistant secretary of the Corporation representing the number of shares
registered in certificate form. Any or all of the signatures on the certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate has
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 he or
she were such officer, transfer agent or registrar at the date of issue. The
Corporation may issue the whole or any part of its shares as partly paid and
subject to call for the remainder of the consideration to be paid therefor.
Upon the face or back of each stock certificate issued to represent any such
partly paid shares, upon the books and records of the Corporation in the case of
uncertificated partly paid shares, the total amount of the consideration to be
paid therefor and the amount paid thereon shall be stated. Upon the declaration
of any dividend on fully paid shares, the Corporation shall declare a dividend
upon partly paid shares of the same class, but only upon the basis of the
percentage of the consideration actually paid thereon.
Section 8.4 Special Designation on Certificates. If the Corporation is
-----------------------------------
authorized to issue more than one class of stock or more than one series of any
class, then the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights shall be set forth in full or summarized on the face or back of
the certificate that the Corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 202 of the Delaware General Corporation Law, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the Corporation shall issue to represent such class or series of stock a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
Section 8.5 Lost Certificates. Except as provided in this Section 8.5,
-----------------
no new certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the Corporation and canceled at
the same time. The Corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate previously issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or the owner's legal
representative, to give the Corporation a bond sufficient to indemnify
14
<PAGE>
it against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
Section 8.6 Construction; Definitions. Unless the context requires
-------------------------
otherwise, the general provisions, rules of construction, and definitions in the
Delaware General Corporation Law shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
Section 8.7 Dividends. The directors of the Corporation, subject to any
---------
restrictions contained in (a) the Delaware General Corporation Law or (b) the
Certificate of Incorporation, may declare and pay dividends upon the shares of
its capital stock. Dividends may be paid in cash, in property, or in shares of
the Corporation's capital stock.
The directors of the Corporation may set apart out of any of the funds of
the Corporation available for dividends a reserve or reserves for any proper
purpose and may abolish any such reserve. Such purposes shall include but not
be limited to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
Section 8.8 Fiscal Year. The fiscal year of the Corporation shall be
-----------
fixed by resolution of the Board of Directors and may be changed by the Board of
Directors.
Section 8.9 Seal. The Corporation may adopt a corporate seal, which may
----
be altered at pleasure, and may use the same by causing it or a facsimile
thereof, to be impressed or affixed or in any other manner reproduced.
Section 8.10 Transfer of Stock. Upon surrender to the Corporation or the
-----------------
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
Section 8.11 Stock Transfer Agreements. The Corporation shall have power
-------------------------
to enter into and perform any agreement with any number of stockholders of any
one or more classes of stock of the Corporation to restrict the transfer of
shares of stock of the Corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the Delaware General Corporation
Law.
Section 8.12 Registered Stockholders. The Corporation shall be entitled
-----------------------
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner, shall be
entitled to hold liable for calls and assessments the person registered on its
books as the owner of shares, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of another
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
15
<PAGE>
ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by the
stockholders entitled to vote; provided, however, that the Corporation may, in
its Certificate of Incorporation, confer the power to adopt, amend or repeal
Bylaws upon the directors. The fact that such power has been so conferred upon
the directors shall not divest the stockholders of the power, nor limit their
power to adopt, amend or repeal Bylaws.
16
<PAGE>
EXHIBIT 4.2
EXECUTION COPY
AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
THIS AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement") is
---------
entered into as of May 25, 1999 by and among (i) Law Office Information Systems,
Inc., an Arkansas corporation (the "Company"), (ii) Capital Resource Lenders
-------
III, L.P., a Delaware limited partnership ("CRL III"), (iii) CRP Investment
-------
Partners III, LLC, a Delaware limited liability company ("CRP"), (iv) Rowland
---
Moriarty ("Moriarty," and together with CRL III and CRP, the "Capital Resource
-------- ----------------
Parties"), (v) Sandler Capital Partners IV, L.P., a Delaware limited partnership
- -------
("Sandler IV"), (vi) Sandler Capital Partners IV FTE, L.P., a Delaware limited
----------
partnership ("Sandler IV FTE", and together with Sandler IV, the "Sandler
-------------- -------
Parties"), (vii) Kyle D. Parker ("Parker"), individually and as Trustee of The
- ------- ------
Parker Trust ("Parker Trust"), created by instrument dated March 15, 1989, and
------------
amended and restated by two Trust Agreements dated November 25, 1997, (viii)
each of the other Persons listed as a Holder on the signature pages hereto who
presently owns or has the right to acquire shares of capital stock of the
Company or who, as a beneficiary under the Parker Trust, are equitable owners of
capital stock of the Company, (ix) Mark Beyland, an individual ("Beyland"), (x)
Exeter Capital Partners IV, L.P., a Delaware limited partnership ("Exeter"), and
(xi) each of the Persons who shall, after the date hereof, acquire shares of the
capital stock of the Company and join in and become a party to this Agreement by
executing and delivering to the Company an Instrument of Accession in the form
of Exhibit I attached hereto. Each of the persons described in clauses (ii)
---------
through (xi) of the preceding sentence in their capacities as holders of capital
stock of the Company are hereinafter referred to collectively as the "Holders"
-------
and singularly as a "Holder".
------
RECITALS
WHEREAS, the Company, CRL III and certain of the parties identified in
clauses (vii) and (viii) in the preamble of this Agreement, together with
Dublind Investments LLC, a Delaware limited liability company ("Dublind LLC"),
are parties to the Stockholders' Agreement ("Existing Stockholders Agreement"),
-------------------------------
dated November 24, 1997, among the Company and such Stockholders;
WHEREAS, CRL III has transferred some of its Series A Preferred Shares and
Warrants to CRP and Moriarty pursuant to that certain Assignment, Assumption and
Consent dated as of January 1, 1998;
WHEREAS, CRL III exercised the Warrants held by it in full immediately
prior to the execution and delivery of this Agreement;
<PAGE>
WHEREAS, Dublind LLC has exercised its Warrant dated November 24, 1997 to
purchase 365,346 shares of Common Stock and has transferred such shares of
Common Stock to certain individuals, each of whom is a party hereto as described
in clause (x) in the preamble of this Agreement;
WHEREAS, the Company proposes to sell (i) to the Sandler Parties, CRL III,
Exeter and Beyland an aggregate of 2,495,697 shares of the Company's Series C
Convertible Preferred Stock, $0.001 par value per share, and (ii) to Dublind
Partners Inc., a New York corporation, 86,059 shares of the Company's Common
Stock, pursuant to the Stock Purchase Agreement entered into on or about the
date hereof ("Series C Purchase Agreement") by and among the Company and the
---------------------------
other parties thereto; and
WHEREAS, as a condition to the execution and delivery of the Series C
Purchase Agreement and the consummation of the transactions contemplated thereby
the parties have agreed to amend and restate the Existing Stockholders'
Agreement so as to include the parties to the Series C Purchase Agreement and
the other parties hereto as parties to the agreement and to revise the terms of
the agreement in the manner provided herein.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend and
restate in its entirety the Existing Stockholders' Agreement as follows:
1. DEFINITIONS
-----------
Section 1.1. As used in this Agreement, the following terms have the
meanings indicated:
"Affiliate" means, with respect to any Person, any other Person which
---------
directly or indirectly controls, or is under common control with, or is
controlled by, such first Person. For the purposes of this definition,
"control", as used with respect to any Person, shall mean the possession,
directly or indirectly through or with one or more intermediaries, of the power
to direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.
The terms "controlled by" and "under common control with" shall have correlative
meanings. For purposes of this Agreement, no Stockholder or group of
Stockholders shall be deemed to be an Affiliate of the Company, any other
Stockholder or any of the Company's or such other Stockholders' respective
Affiliates by reason of the ownership of any Shares or other securities or by
reason of the possession or exercise of the right to elect directors of the
Company or any other rights hereunder.
"Beneficial Owner" means a beneficial owner within the meaning of Rules
----------------
13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended ("Exchange
--------
Act"), as interpreted by the Securities and Exchange Commission, provided that a
- ---
Person shall be deemed to have
<PAGE>
beneficial ownership of all securities that such Person has a right to acquire
without regard to the 60-day limitation in subdivision (d)(i) of such Rule 13d-
3. The terms (whether or not capitalized) "beneficially own" and "owned
beneficially" shall have correlative meanings.
"Business Day" means any day other than a Saturday, a Sunday or a day on
------------
which banking institutions in either New York, New York, or the city and state
in which the principal executive offices of the Company within the United States
are located are not open for business.
"Change in Control" means any Person other than Parker or a Person
-----------------
controlled by Parker at any time becomes the Beneficial Owner, directly or
indirectly and whether as a result of issuances, redemptions or repurchases by
the Company of Common Stock or transfers of Common Stock by stockholders of the
Company, of Common Stock representing 50% or more of the combined voting power
with respect to the election of directors of the Company represented by all then
outstanding Common Stock of the Company.
"Charter" means the Articles of Incorporation of the Company, as filed with
-------
the Secretary of State of the State of Arkansas, as they may be amended or
restated from time to time.
"Common Stock" means the common stock of the Company, par value $0.001 per
------------
share.
"Control Block Sale" means a Transfer of Shares in a single transaction or
------------------
series of related transactions that is (i) not registered under the Securities
Act and (ii) for a number of Shares equal to or greater than ten percent of the
number of Shares outstanding (including the number of shares of Common Stock
that would be received upon conversion of any Rights, whether or not they are
then convertible).
"Current Market Price" means, in respect of any share of Common Stock as of
--------------------
any time,
(a) if the Common Stock shall not then be Publicly Traded, the Fair Market
Value per share of Common Stock as at such date as determined by the
Board in good faith, or
(b) if the Common Stock is then Publicly Traded, the average of the
reported last sales prices for the ten consecutive Trading Days
commencing 20 Trading Days before the date in question.
The reported last sales price for each Trading Day shall be
(i) the reported last sales price, regular way, as reported on the
New York Stock Exchange Composite Tape, or
(ii) if not listed or admitted to trading on the New York Stock
Exchange, on the National Market tier of The Nasdaq Stock
Market, or
<PAGE>
(iii) if the Common Stock is not listed or admitted to trading on the
National Market tier of the Nasdaq Stock Market at such time, in
the principal consolidated or composite transaction reporting
system on the principal national securities exchange on which
such security is listed or admitted to trading, or
(iv) if such security is not quoted on such National Market tier or
any national securities exchange, the average of the highest bid
and lowest asked prices on such day as reported by The Nasdaq
Stock Market .
As used herein, the term "Trading Day" means a day on which the New York
Stock Exchange, each national securities exchange on which the Common Stock
is listed and The Nasdaq Stock Market are open for business, provided that
if no sales of the Common Stock take place on such day on the relevant
exchange or stock market determined under the immediately preceding
sentence, such day shall not be a Trading Day. The Common Stock shall be
considered to be "Publicly Traded" as of any date if on such date (i) the
Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act
and (ii) the Common Stock is listed for trading on a national securities
exchange registered under the Exchange Act or traded in the over-the-
counter market and quoted on The Nasdaq Stock Market.
"Designated Competitor" means each Person listed on Exhibit II so long as
---------------------
such Person or any of its Affiliates is engaged in the legal publishing
business.
"Disinterested Outside Director" means, unless any such requirement is
------------------------------
waived by the Majority Senior Holders, an individual who satisfies each of the
following requirements: (i) has a significant strategic position or expertise
relative to the business of the Company, (ii) is not (A) an officer or employee
of the Company or any of its Subsidiaries, (B) a director, employee, partner,
manager or other member of management of any Affiliate of the Company (except a
director of a Subsidiary of the Company), (C) a relative of any Person described
in subclause (ii)(A) or (ii)(B) or (D) a trustee of any trust or estate in which
any Person described in subclause (ii)(A), (ii)(B) or (ii)(C) is a beneficiary
or has a substantial beneficial interest and (iii) does not have any other
relationship which would interfere with the exercise of independent judgment in
carrying out the responsibilities of a Director of the Company.
"Fair Market Value" means, in respect of any security, asset or other
-----------------
property, the price at which a willing seller would sell and a willing buyer
would buy such security, asset or other property having full knowledge of the
facts, in an arm's-length auction transaction without time constraints, and
without being under any compulsion to buy or sell. The Fair Market Value of a
share of Common Stock as of any time shall be determined as of the last day of
the most recent calendar month which ended prior to such time, shall be
determined without giving effect to any discount for a minority interest, to any
lack of liquidity of the Common Stock or to the fact that the Company may have
no class of equity security registered under the Exchange Act. The Fair Market
Value of the Company shall be determined on a going concern basis, and on the
basis that
<PAGE>
the management and other key employees of the Company and its subsidiaries will
continue to be employed indefinitely and without treating as liabilities the
amount, if any, payable or which may be payable by the Company pursuant to the
indemnification provisions of the Series A Stock Purchase Agreement or the
Series C Stock Purchase Agreement.
"Family Member" means, with respect to any person, such person's spouse,
-------------
children, grandchildren, parents or siblings, or any spouse of any children,
grandchildren, parents or siblings of such person, or any children or
grandchildren of any siblings of such person, or heirs or devisees and any trust
for the benefit of any of the foregoing.
"Holder" means at any time any Person that holds Shares who (i) is one of
------
the Holders identified in the preamble to this Agreement or (ii) hereafter
becomes a party to this Agreement in accordance with the provisions hereof by
executing and delivering to the Company an Instrument of Accession in the form
attached at Exhibit I.
"IPO" means the consummation of an underwritten initial public offering of
---
the Company's stock registered under the Securities Act.
"IPO Date" means the closing date of the IPO.
--------
"Majority Series A Holder" and "Majority Series C Holder" have the meanings
------------------------ ------------------------
given to such terms in the Charter.
"Majority Senior Holders" means, as of any time, any Holder who holds, or
-----------------------
Holders who hold, in the aggregate, more than fifty percent (50%) of the Shares
then held by all Senior Holders.
"Majority Warrant Holders" means, as of any time, any Holder who holds, or
------------------------
Holders who hold, in the aggregate, more than fifty percent (50%) of the
Warrants and Warrant Shares then held by all Holders.
"New Securities" means, subject to Section 4.4, any newly issued shares of
--------------
capital stock of the Company, including Common Stock and any class or series of
preferred stock, whether authorized or not, and Rights to acquire shares of
Common Stock or preferred stock.
"New Securities Purchaser" has the meaning set forth in the definition of
------------------------
"Preissuance Notice" set forth below in this Section 1.1.
"Notes" has the meaning given to such term in the Series A Purchase
-----
Agreement.
"Number of Common Shares Outstanding" as of any time means the sum of (i)
-----------------------------------
the number of shares of Common Stock which then are actually issued and
outstanding, plus (ii) the total number of additional shares of Common Stock
which would then be issued and outstanding if it
<PAGE>
were assumed that all Preferred Shares and Warrants then outstanding, if any,
were then duly converted or exercised in full (whether or not then convertible
or exercisable).
"Parker Holder" means Parker, any Family Member of Parker, the Parker
-------------
Trust, any beneficiary of the Parker Trust and any Permitted Transferee of any
such Person, in each case in such Person's capacity as a Holder.
"Part A" and "Part C" refer to Part A and Part C, respectively, of Article
------ ------
Fourth of the Charter.
"Person" means any individual, corporation, limited liability company,
------
general or limited partnership, joint venture, association, joint stock company,
trust, unincorporated business or organization, governmental authority or other
entity or legal person, whether acting in an individual, fiduciary or other
capacity.
"Preferred Shares" means the Series A Preferred Shares and the Series C
----------------
Preferred Shares.
"Preissuance Notice" shall be a written notice given to the Investors
------------------
pursuant to Section 4.1 no later than ten days prior to the date the Company
plans to issue New Securities. Each Preissuance Notice shall (i) specify the
kind and amount of New Securities proposed to be issued, (ii) if such New
Securities consist of or include Rights to acquire Common Stock, briefly
describe the terms of such Rights, (iii) identify each Person to whom such New
Securities are proposed to be issued (each a "New Securities Purchaser"), if
------------------------
then known by the Company, (iv) state the method or manner of issuance, (v)
state the kind(s) and amount(s) of consideration for which such New Securities
are proposed to be issued and the determination of the Company's Board of
Directors of the Fair Market Value of any such consideration other than cash and
(vi) describe the other material terms and conditions of the proposed issuance
of New Securities.
"Private Sale" means, with respect to any Transfer, a privately negotiated
------------
transaction between the Transferor and the Transferee.
"Pro Rata" means with respect to a Holder that is one of an applicable
--------
group of Holders the equivalent of a fraction, the numerator of which is the
number of Shares then held by such Holder plus the number of Shares then
issuable upon conversion of any other security convertible into Shares then held
by such Holder, and the denominator of which is the total number of Shares then
outstanding among all relevant Holders of such group plus the number of Shares
then issuable upon conversion of any other security convertible into Shares then
outstanding among all relevant Holders of such group.
"Redemption Event" has the meaning given to such term in the Charter.
----------------
"Redemption Price" has the meaning given to such term in the Charter.
----------------
<PAGE>
"Rights" means any options, warrants, convertible or exchangeable
------
securities or other rights, however denominated, to subscribe for, purchase or
otherwise acquire any Common Stock, with or without payment of additional
consideration in cash or property, either immediately or upon the occurrence of
a specified date or a specified event or the satisfaction or happening of any
other condition or contingency.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
successor federal statute, and (unless the context otherwise indicates) the
rules and regulations of the Commission promulgated thereunder, as they each
may, from time to time, be in effect.
"Senior Holder" means any Holder of Series A Shares, Series C Shares,
-------------
Warrants or Warrant Shares.
"Series A Preferred Shares" means shares of the Series A Convertible
-------------------------
Preferred Stock of the Company, par value $0.001 per share.
"Series A Purchase Agreement" means the Senior Subordinated Note and
---------------------------
Securities Purchase Agreement, dated November 24, 1997, between the Company and
CRL III, as amended.
"Series A Shares" means shares of Series A Preferred Stock and shares of
---------------
Common Stock issued upon conversion of shares of Series A Preferred Stock in
accordance with the terms thereof.
"Series C Holders" means Holders of Series C Shares.
----------------
"Series C Preferred Shares" means shares of the Series C Convertible
-------------------------
Preferred Stock of the Company, par value $0.001 per share.
"Series C Shares" means shares of Series C Preferred Stock and shares of
---------------
Common Stock issued upon conversion of shares of Series C Preferred Stock in
accordance with the terms thereof.
"Shares" means shares of Common Stock and any Rights which are convertible
------
into or exchangeable or exercisable for Common Stock, including the Preferred
Shares and Warrants.
"Subordinate Holder" means any Holder that is not a Senior Holder.
------------------
"Subsidiary" of any Person as of any relevant date means a corporation,
----------
company or other entity (i) more than fifty percent (50%) of whose outstanding
shares or equity securities are, as of such date, owned or controlled, directly
or indirectly through one or more Subsidiaries, by such Person, and the shares
or securities so owned entitle such Person and/or its Subsidiaries to elect at
<PAGE>
least a majority of the members of the board of directors or other managing
authority of such corporation, company or other entity notwithstanding the vote
of the holders of the remaining shares or equity securities so entitled to vote
or (ii) which does not have outstanding shares or securities, as may be the case
in a partnership, joint venture or unincorporated association, but more than
fifty percent (50%) of whose ownership interest is, as of such date, owned or
controlled, directly or indirectly through one or more Subsidiaries, by such
Person, and in which the ownership interest so owned entitles such Person and/or
Subsidiaries to make the decisions for such corporation, company or other
entity.
"Transfer" means, when used with respect to any Shares or any interest in
--------
the Parker Trust, to sell, assign, make a gift of, distribute (including
distributions upon dissolution or liquidation and distributions to partners of
any Holder), pledge, hypothecate, grant an option with respect to, or otherwise
transfer, encumber or subject to any claim or lien of any nature such Share or
interest, including, without limitation, pursuant to a Permitted Transfer. For
all purposes under this Agreement a Transfer of any interest in the Parker Trust
shall be deemed to be a Transfer of a proportionate number of Shares then held
by the Parker Trust. "Transferor", "Transferee" and "Transfer" when used as a
noun shall have correlative meanings.
"Warrants" has the meanings given to such term in the Series A Purchase
--------
Agreement.
"Warrant Holder" means a Holder that holds Warrant Shares.
--------------
"Warrant Shares" means the 1,056,616 shares of Common Stock that were
--------------
issued upon exercise of the Warrants held by CRL III immediately prior to the
execution and delivery of this Agreement and any shares of Common Stock that may
hereafter be issued or issuable upon exercise of the outstanding Warrants in
accordance with the terms thereof.
Section 1.2. Terms Generally; Certain Rules of Construction. The
----------------------------------------------
definitions in Section 1.1 and elsewhere in this Agreement shall apply equally
to both the singular and plural forms of the terms defined. Whenever the context
may require, any pronoun shall include the corresponding masculine, feminine and
neuter forms. The words "include", "includes" and "including" shall be deemed to
be followed by the phrase "without limitation". The words "herein", "hereof" and
"hereunder" and words of similar import refer to this Agreement in its entirety
and not to any part hereof unless the context shall otherwise require. All
references herein to Sections shall be deemed references to Sections of this
Agreement unless the context requires otherwise. Unless otherwise expressly
provided herein or unless the context requires otherwise, any references as of
any time to the "Certificate of Incorporation", "Articles of Incorporation",
"charter", "Charter", "organizational or constituent documents" or "By-laws" of
any entity, to any agreement (including this Agreement) or other contract,
instrument or document or to any statute or regulation or any specific section
or other provision thereof are to it as amended and supplemented through such
time (and, in the case of a statute or regulation or specific section or other
provision thereof, to any successor of such statute, regulation, section or
other provision). Any reference in this Agreement to a "day" or number of "days"
(without the
<PAGE>
explicit qualification of "Business") shall be interpreted as a reference to a
calendar day or number of calendar days. If any action or notice is to be taken
or given on or by a particular calendar day, and such calendar day is not a
Business Day, then such action or notice shall be deferred until, or may be
taken or given on, the next Business Day. Unless otherwise expressly provided
herein or unless the context requires otherwise, any provision of this Agreement
using a defined term (by way of example and without limitation, such as
"Stockholders" or "Majority Stockholders") which is based on a specified
characteristic, qualification, feature or status shall, as of any time, refer
only to such Persons who have the specified characteristic, qualification,
feature or status as of that particular time. The word "property" includes
property and assets of any kind, whether real or personal, tangible or
intangible.
Section 1.3. Outstanding Shares. Capital stock or other securities of
------------------
any class held in treasury by the Company or held by any Subsidiary shall not be
considered to be outstanding for any purpose of this Agreement.
Section 1.4 Capital Stock Includes Preferred Stock. As used in this
--------------------------------------
Agreement, the term "capital stock" includes any class or series of preferred
stock, however denominated and regardless of the characterization thereof for
accounting purposes under generally accepted accounting principles or the rules,
regulations, interpretations or releases of the Securities and Exchange
Commission.
Section 1.5 Calculation of Shares. Unless specifically provided
---------------------
otherwise herein, for all purposes of this Agreement, when calculating the
number of Shares held or proposed to be Transferred by a Holder or group of
Holders or the number of Shares outstanding, (A) Warrants held by any Holder
will be deemed to have been exercised (whether or not actually exercised) in
accordance with the terms of the applicable Warrants immediately prior to
consummation of the proposed Transfer or the applicable date of determination,
(B) Preferred Shares held by any Holder will be deemed to have been converted to
Common Stock (whether or not actually converted) in accordance with the terms of
the Charter immediately prior to consummation of the proposed Transfer or the
applicable date of determination, and (C) all other outstanding Rights shall be
deemed to have been converted, exchanged or exercised, as applicable, (whether
or not actually converted, exchanged or exercised) in accordance with the terms
thereof immediately prior to the consummation of the proposed Transfer or the
applicable date of determination. The price per Share to be paid to any Holder
in any proposed Transfer of any Shares shall be computed on a Common Stock
equivalent basis as if such Shares had been converted into or exchanged for
Common Stock in accordance with the terms thereof immediately prior to the
consummation of such Transfer.
2. BOARD OF DIRECTORS
------------------
Section 2.1. Election of Directors. From and after the date hereof, each
---------------------
Holder agrees to vote (including by execution of a written consent or in any
other manner permitted by law, the Charter and the Company's By-laws) all of his
or its Shares and any other voting securities of the Company over which he or it
has control, and will take all other necessary or desirable actions
<PAGE>
within his or its control (including, without limitation, attendance in person
or by proxy, at all meetings of stockholders called for the purpose of electing
directors), and the Company agrees to take all necessary or desirable actions
within its control (including, without limitation, nominations of specified
persons), in order to cause the Board of Directors of the Company (the "Board")
-----
to have the following constituency:
At all times prior to the IPO Date, the Board shall consist of not more
than seven (7) members designated as follows:
(i) The Capital Resource Parties shall be entitled to designate two
(2) representatives as long as they hold at least twenty percent (20%), and
one (1) representative as long as they hold at least ten percent (10%), of
the Number of Common Shares Outstanding (each such designee being referred
to as a "CR Representative").
-----------------
(ii) The Sandler Parties shall be entitled to designate one (1)
representative as long as they hold at least ten percent (10%), of the
Number of Common Shares Outstanding (each such designee being referred to
as a "Sandler Representative").
----------------------
(iii) Parker shall be entitled to designate four (4) representatives
(the "Management Representatives") as long as the Parker Holders hold at
--------------------------
least thirty-five percent (35%), three (3) representatives as long as the
Parker Holders hold at least twenty-five (25%), and two (2) Representatives
as long as the Parker Holders hold at least ten (10%) of the Number of
Common Shares Outstanding; provided that one such designee shall be the
Chief Executive Officer of the Company and two such designees (if there are
three or more) shall be Disinterested Outside Directors designated by
Parker and approved by the CR Representatives and the Sandler
Representative.
(iv) Any vacancies in the Board that result from the Capital
Resource Parties, the Sandler Parties or Parker not being entitled to
designate one or more representatives pursuant to clauses (i), (ii) and
(iii) above shall be filled by the Company in accordance with applicable
law, the Charter and the Bylaws; provided that in any event (A) the Board
shall at all times have at least two Disinterested Outside Directors and
(B) the Chief Executive Officer shall be a member of the Board.
After the IPO Date the Board shall consist of at least seven (7) members
designated as follows:
(i) the Capital Resource Parties shall be entitled to designate one
representative (the "CR Representative") as long as they hold at least ten
-----------------
percent (10%) of the Number of Common Shares Outstanding,
(ii) The Sandler Parties shall be entitled to designate one (1)
representative as long as they hold at least ten percent (10%), of the
Number of Common Shares
<PAGE>
Outstanding (each such designee being referred to as a "Sandler
-------
Representative").
--------------
(iii) the remaining directors, and any vacancies resulting from the
Capital Resource Parties or the Sandler Parties not being entitled to
designated a representative pursuant to clauses (i) and (ii) above, shall
be designated by the Company in accordance with applicable law, the Charter
and the Bylaws; provided that in any event (A) the Board shall at all times
have at least two Disinterested Outside Directors and (B) the Chief
Executive Officer shall be a member of the Board.
In the absence of any designation from the persons or groups so designating
directors as specified above, the director previously designated by them and
then serving shall be re-elected if still eligible to serve as provided herein.
However, if any person or groups so designate, a director previously designated
by them and then serving shall be subject to re-nomination in accordance with
the provisions of this Section 2 at any meeting of stockholders called for the
purpose of electing directors hereunder.
No party hereto shall vote to remove any member of the Board designated in
accordance with the aforesaid procedure unless the persons or groups so
designating directors as specified above so vote, and, if such persons or groups
so vote then the non-designating party or parties shall likewise so vote.
Nothing contained herein shall prevent any party from removing any member of the
Board who was designated by such party.
Any vacancy on the Board created by the resignation, removal, incapacity or
death of any person designated under this Section 2.1 shall be filled by another
person designated in a manner so as to preserve the constituency of the Board as
provided above.
Section 2.2. Attendance at Board Meetings.
----------------------------
(a) At any time at which no CR Representative is a member of the
Board or any committee thereof, and so long as (A) any of the Notes remain
outstanding or (B) the Capital Resource Parties hold at least twenty five
percent (25%) of the Series A Shares and Warrant Shares outstanding at such
time, the Capital Resource Parties shall be entitled to have one observer attend
each meeting of the Board and any committee thereof.
(b) At any time at which no Sandler Representative is a member of the
Board or any committee thereof, and so long as the Sandler Parties hold at least
twenty five percent (25%) of the Series C Shares outstanding at such time, the
Sandler Parties shall be entitled to have one observer attend each meeting of
the Board and any Committee thereof.
(c) The Company will send to any Holder entitled to designate an
observer pursuant to subsection (a) or (b) of this Section 2.2 and its designee
the notice of the time and place of any such meeting in the same manner and at
the same time as notice is sent to the directors or committee members, as the
case may be; provided, however, that such Holder and its designee shall each
always receive at least ten (10) days prior notice of any meeting which is not
<PAGE>
an emergency meeting or of any written consent requested of directors and at
least three (3) Business Days' notice of any emergency meeting or emergency
written consent requested of directors. The Company shall also provide to each
such party copies of all notices, reports, minutes, consents and other documents
at the time and in the manner as they are provided to the Board or its
committees. The Company shall reimburse each such Holder for all reasonable
costs incurred by such Holder's designee in connection with traveling to and
from and attending meetings of the Board and committees.
(d) Any observer who attends any meetings of the Board of Directors
or any committee thereof, as a condition to his or her right to attend such
meetings, shall execute and comply with an agreement with the Company containing
such restrictions on the use or disclosure of confidential information and
similar matters as the Company may reasonably request.
Section 2.3. Board of Directors and Committees. The Board shall meet at
---------------------------------
least four (4) times per calendar year. The Company shall at all times maintain
a Compensation Committee and an Audit Committee of the Board and each such
committee shall be fixed at three (3) members consisting of one CR
Representative, one Sandler Representative and one Management Representative.
Each other committee of the Board shall at all times have a CR Representative
and a Sandler Representative unless and only for so long as the Capital Resource
Parties or the Sandler Parties, as applicable, waive such right with respect to
a specific committee. The Company shall reimburse members of the Board for all
reasonable costs incurred by them in connection with traveling to and from and
attending meetings of the Board and committees of the Board, in addition to any
directors fees regularly paid to all members of the Board.
3. TRANSFER RESTRICTIONS, CO-SALE AND TAKE-ALONG RIGHTS
----------------------------------------------------
Section 3.1. Restrictions on Transfer. No Holder may Transfer any Shares
------------------------
except as follows:
(a) Senior Holders. Prior to the earlier of (1) the IPO and (2) the
--------------
second anniversary of the date hereof, Senior Holders may Transfer Shares only
(i) pursuant to Permitted Transfers, (ii) pursuant to Section 3.4, or (iii)
pursuant to a bona fide written offer in accordance with the provisions of
Sections 3.2 and 3.3. After such date Senior Holders may Transfer any or all of
their Shares subject only to Section 3.7; provided that, a Senior Holder must
comply with the provisions of Section 3.3 if it proposes to Transfer any Shares
pursuant to a Control Block Sale or a Private Sale to a Designated Competitor.
(b) Parker Holders. Prior to the earlier of (1) the IPO and (2) the
--------------
fourth anniversary of the date hereof, Parker Holders may Transfer Shares only
(A) pursuant to Permitted Transfers, or (B) pursuant to Section 3.4. If the IPO
occurs after the fourth anniversary of the date hereof, then during the period
beginning on such fourth anniversary and ending on the IPO Date, Parker Holders
may Transfer Shares only (i) pursuant to Permitted Transfers, (ii) pursuant to
Section 3.4, or (iii) pursuant to a bona fide written offer in accordance with
the provisions of Sections 3.2 and 3.3. After the IPO (whether or not the
preceding sentence
<PAGE>
is applicable) Parker Holders may Transfer any or all of their Shares, subject
only to Section 3.7; provided that, a Parker Holder must comply with the
provisions of Section 3.3 if it proposes to Transfer any Shares pursuant to a
Control Block Sale or a Private Sale to a Designated Competitor.
(c) Subordinate Holders. Prior to the IPO Subordinate Holders (other
-------------------
than Parker Holders, whose Transfer rights are set forth in Section 3.1(b)) may
Transfer Shares only (i) pursuant to Permitted Transfers, (ii) pursuant to
Section 3.4, or (iii) pursuant to a bona fide written offer in accordance with
the provisions of Section 3.2 and 3.3. After such date such Holders may
Transfer any or all of their Shares, subject only to Section 3.7; provided that,
each such Holder must comply with the provisions of Section 3.3 if it proposes
to Transfer any Shares pursuant to a Control Block Sale or a Private Sale to a
Designated Competitor.
(d) If any Holder ( an "Offering Holder") proposes to Transfer any
---------------
Shares beneficially owned by such Offering Holder pursuant to a bona fide
written offer in accordance with the provisions of Section 3.2 and 3.3, or
pursuant to a Control Block Sale or a Private Sale to a Designated Competitor in
accordance with Section 3.3 (any such Transfer a "Proposed Sale"), then such
-------------
Offering Holder shall deliver to the Company and each other Holder (each, an
"Other Holder") a notice ("Proposed Sale Notice") setting forth (i) the identity
------------ --------------------
of the proposed purchaser ("Proposed Purchaser"), (ii) the total number of
------------------
shares the Offering Holder proposes to sell ("Offered Shares"), (iii) the
--------------
proposed amount and form of consideration, (iv) the terms and conditions of the
Proposed Sale, and (v) that such Proposed Sale is being made in accordance with
the provisions of Section 3.2, Section 3.3, or both, whichever is the case.
Section 3.2. Rights of First Refusal
-----------------------
(a) Subject to Section 8 of Part A and to Section 8 of Part C, the Company
may elect to purchase all (but not less than all) of the Offered Shares in any
Proposed Sale that is being made in accordance with the provisions of this
Section 3.2 by giving notice of such election (which notice shall be
irrevocable) to the Offering Holder and all Other Holders at any time during the
thirty (30) day period following its receipt of the applicable Proposed Sale
Notice from the Offering Holder. Upon delivery of such notice by the Company,
the Company shall be obligated to purchase from the Offering Holder, and the
Offering Holder shall be obligated to sell to the Company, the Offered Shares at
the same price and on the terms and conditions set forth in the Proposed Sale
Notice. If the Company fails to deliver such notice to the Offering Holder
within such thirty (30) day period, it shall be deemed to have declined to
exercise its right to purchase the Offered Shares.
(b) Unless the Offering Holder and the Company otherwise agree, the
closing of the purchase of the Offered Shares by the Company shall take place at
the principal offices of the Company at 10:00 a.m. on the twentieth day (or if
such day is not a Business Day on the next Business Day) after the expiration of
the thirty (30) day period referred to above in Section 3.2(a). At such closing,
the Offering Holder shall tender the Offered Shares to be sold to the Company,
together with appropriate instruments of transfer endorsed to the Company, and
the
<PAGE>
Company shall tender a certified check, cashier's check or a wire transfer of
immediately available funds in the amount of the purchase price therefor.
Subject to Section 3.5, if the Company and the Offering Holder do not consummate
the purchase and sale of the Offered Shares within the time period specified in
the first sentence of this Section 3.2(b) for any reason other than the failure
of the Offering Holder to tender the Offered Shares to the Company on the terms
and conditions provided for in the Proposed Sale Notice, then the Company shall
be deemed to have declined to exercise its right to purchase the Offered Shares.
The Company shall promptly give notice to all Holders if a Proposed Sale is
consummated, or if the Company has declined (or is deemed to have declined) to
exercise its right to purchase the Offered Shares, in accordance with subsection
(a) and this subsection (b) of this Section 3.2.
(c) If the Company declines (or is deemed to have declined) to purchase
the Offered Shares pursuant to subsections (a) and (b) of this Section 3.2, then
each Other Holder may elect to purchase up to all of the Offered Shares by
giving written notice (an "Exercise Notice") to such effect to the Offering
---------------
Holder, the Company and the Other Holders no later than the tenth (10th) day
following the date the Company delivers the notice required by the last sentence
of Section 3.2(b). Each Other Holder's Exercise Notice shall state the maximum
number of the Offered Shares that such Other Holder is willing the purchase. If
Other Holders electing to purchase the Offered Shares ("Electing Holders") elect
----------------
to purchase, in the aggregate, a number of shares greater than or equal to the
total number of Offered Shares, then each Electing Holder shall purchase from
the Offering Holder, and the Offering Holder shall sell to such Electing Holder,
the number of the Offered Shares set forth in such Electing Holder's Exercise
Notice on the terms and conditions set forth in the Proposed Sale Notice;
provided that if the Electing Holders elect to purchase, in the aggregate, a
number of Shares greater than the number of Offered Shares, then each Electing
Holder shall purchase its Pro Rata portion of the Offered Shares, or such other
--- ----
portion as the Electing Holders may agree. The closing of the purchase of the
Offered Shares by the Other Holders shall take place in the same time period and
in the same manner contemplated by Section 3.2(b). If Other Holders do not elect
to purchase, in the aggregate, all of the Offered Shares within the ten-day
period specified in the first sentence of this Section 3.2(c), or, subject to
Section 3.5, the closing of the purchase and sale of the Offered Shares does not
occur within the time period specified in the preceding sentence for any reason
other than the failure of the Offering Holder to tender the Offered Shares to
the Electing Holders on the terms and conditions provided for in the Proposed
Sale Notice, then all Other Holders shall be deemed to have declined to exercise
their rights to purchase any of the Offered Shares pursuant to this Section
3.2(c), and the Offering Holder shall be free to sell the Offered Shares to the
Proposed Purchaser on the terms set forth in the Proposed Sale Notice, subject
to the provisions of Section 3.3. The Offering Holder and Electing Holders shall
promptly notify the Company of the consummation of a sale by the Offering Holder
to the Electing Holders, and the Company shall promptly give notice to all
Senior Holders and Parker Holders if such a sale is consummated, or if the Other
Holders decline, or are deemed to have declined, to exercise their right to
purchase the Offered Shares pursuant to this Section 3.2(c).
(d) After tender to an Offering Holder of the full purchase price of all
of the Offered Shares by the Company or the Electing Holders in accordance with
the provisions of this Section
<PAGE>
3.2, the Company shall not pay any dividends to the Offering Holder or permit
the Offering Holder to exercise any privileges of a Holder of the Company with
respect to such Offered Shares, and the Company or such Electing Holders, as
applicable, shall be treated as the owner of the Offered Shares to the extent
permitted by law.
Section 3.3. Co-Sale.
-------
(a) Co-Sale Right. If (i) any Holder proposes to Transfer any Shares
-------------
pursuant to a bona fide written offer in accordance with the provisions of
Section 3.2 and this Section 3.3, and neither the Company nor the Other Holders
have elected to purchase the Offered Shares pursuant to Section 3.2, or (ii) any
Holder proposes to Transfer any Shares pursuant to a Control Block Sale or a
Private Sale to a Designated Competitor, then each Other Holder that is a Senior
Holder or a Parker Holder shall have the right ("Co-Sale Right") to require the
-------------
Proposed Purchaser to purchase from such Other Holder at the same price per
share and, except as otherwise provided in the second sentence of this
subsection 3.3(a), upon the same terms and conditions as such Proposed Sale, up
to a number of Shares equal to the product of the number of Offered Shares
proposed to be Transferred by such Offering Holder multiplied by a fraction, the
numerator of which is the total number of Shares owned by such Other Holder and
the denominator of which is the total number of Shares owned by the Offering
Holder and by all Other Holders (the "Co-Sale Holders") who elect to participate
---------------
in such Proposed Sale; provided, however, that if such Proposed Sale, by itself
or together with any one or more other past Transfers or Proposed Sales
(regardless of whether such Transfers were Permitted Transfers), would
constitute a Change of Control, then each Co-Sale Holder may elect to require
the Offeror to purchase from such Co-Sale Holder any or all Shares held by such
Co-Sale Holder without regard to the foregoing formula limitation. The other
terms and conditions on which the Co-Sale Holders shall be entitled to Transfer
their shares pursuant to this Section 3.3 shall be, as nearly as reasonably
practicable, the same as those applicable to the proposed Transfer by the
Offering Stockholder; provided, however, that no Co-Sale Holder shall be
required to make (i) any representations or warranties to, or enter into any
indemnification or contribution arrangements with, the Proposed Purchaser
relating to the proposed Transfer other than a representation and warranty with
respect to the Shares being Transferred by such Co-Sale Holder that the
Transferee of such Shares is receiving good and marketable title to such Shares,
free and clear of all pledges, security interests, charges, voting arrangements,
restrictions on or conditions to Transfer, voting or exercise or enjoyment of
any right or beneficial interest, options, rights of first refusal and other
Liens, other than any created by this Agreement or (ii) comply with terms or
conditions which can reasonably be met only by the Offering Holder.
(b) Election to Exercise Co-Sale Rights. Any Senior Holder or Parker
-----------------------------------
Holder may exercise its Co-Sale Right by delivering written notice (the "Co-Sale
-------
Notice") to the Offering Holder and the Company within (i) 10 days after
- ------
delivery by the Company of the notice required by the last sentence of Section
3.2(c), or (ii) in the case of a Proposed Sale that is subject only to this
Section 3.3, 15 days after the delivery of the Proposed Sale Notice with respect
to such Proposed Sale. If the Proposed Sale would result in a Change of Control,
the Co-Sale Notice shall state the number of Shares that such Co-Sale Holder
proposes to include in such Proposed Sale.
<PAGE>
Upon the expiration of the 10-day or 15-day period specified in the preceding
sentence, as applicable, the Company shall deliver a written notice to the
Offering Holder, the Senior Holders and the Parker Holders informing them of the
number of shares each Co-Sale Holder, if any, is entitled to sell in such
Proposed Sale.
(c) Closing of Proposed Sale. Subject to Section 3.5, the closing date
------------------------
("Offer Closing Date") for any sale of shares by an Offering Holder and/or Co-
-------------------
Sale Holders to a Proposed Purchaser shall be a date no later than the 30th day
after delivery of the notice the Company is required to deliver pursuant to the
last sentence of Section 3.3(b). If the Proposed Purchaser does not tender on
the Offer Closing Date (or does not tender on the same terms and conditions,
except as otherwise provided in Section 3.3(a)) to the Offering Holder and the
Co-Sale Holders, if applicable, the full purchase price for all of the Shares
which the Offering Holder and the Co-Sale Holders are entitled to Transfer of
pursuant to this Section 3.3, then the Offering Holder shall not be entitled to
Transfer any Shares in such Proposed Sale and shall not Transfer any Shares
(including, without limitation, any of the Offered Shares), whether pursuant to
the Proposed Sale in question, any other proposed Transfer or otherwise, without
again complying with this Section 3.3 (subject in any event to Section 3.1).
Section 3.4. Take-Along Right. If at any time prior to the IPO Date the
----------------
Senior Holders and Parker all desire to cause the sale of all Shares held by
Holders, then all Holders agree to sell all of their Shares in the same
transaction, on the same terms and conditions, and for the same consideration
per Share, as the Senior Holders and Parker propose to sell their Shares and the
Shares of the Parker Trust. This Section 3.4 shall terminate on the IPO Date.
Section 3.5 Regulatory Delays. If a purchase and sale of Shares subject
-----------------
to Sections 3.2 and/or 3.3 is subject to the receipt of any regulatory approval
or the expiration of any waiting period, the time periods specified in Sections
3.2(b), 3.2(c) and/or 3.3(c), as applicable, during which such purchase and sale
may be consummated shall be extended until the expiration of 5 Business Days
after all such approvals have been received or such waiting periods have
expired, but in no event shall such extended period exceed 180 days following
the expiration of the specified time period.
Section 3.6 Effect of Prohibited Transfers. If any Transfer of Shares is
------------------------------
made or attempted by a Holder other than in accordance with the terms of this
Agreement, such Transfer or attempted Transfer shall be void and the Company
shall have the right to purchase such Shares from the Transferee at any time
before or after the Transfer, at the price and on the terms established herein
and, in such event, the Transferee shall be bound by all the terms and
provisions of this Section 3. In addition to any other legal or equitable rights
that it may have, the Company or any of the remaining Holders may enforce its
rights by specific performance to the extent permitted by law. The Company may
refuse for any purpose to recognize any Transferee who receives Shares other
than pursuant to the provisions of this Agreement and any such Transferee shall
have no right to claim or retain any dividends on such Shares which were paid or
payable subsequent to the date on which the prohibited Transfer was made or
attempted, or to claim any right or privilege available to Holders under this
Agreement.
<PAGE>
Section 3.7. Securities Act Compliance. None of the Shares shall be sold
-------------------------
or Transferred unless either (i) such Shares first shall have been registered
under the Securities Act or (ii) the Company, if it so requests, first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company, to the effect that such sale or Transfer is exempt from the
registration requirements of the Securities Act.
Section 3.8. Stock Certificate Legend. Each certificate for the Shares
------------------------
shall be imprinted with a legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 (the "Act"). The
transfer of the securities represented by this certificate
(including, without limitation, through the exercise of a pledge)
is subject to the conditions and restrictions specified in the
Amended and Restated Stockholders Agreement, dated as of
_____________________, 1999, among the issuer (the "Company") and
certain investors, and the Company reserves the right to refuse
the transfer of such securities until such conditions have been
fulfilled with respect to such transfer. A copy of such
conditions will be furnished by the Company to the holder hereof
upon written request and without charge. In addition such
securities may not be sold or transferred except in compliance
with the Act.
Each certificate for the Shares may also contain such additional legends as
shall be deemed necessary or advisable by counsel to the Company in order to
comply with applicable law. The foregoing legend shall be removed from the
certificates representing any Shares, at the request of the holder thereof, at
such time as they become eligible for Transfer or resale without restriction
pursuant to the provisions of this Agreement and the Securities Act.
Section 3.9. Permitted Transfers. A "Permitted Transfer" means a Transfer
-------------------
of Shares by a Holder without consideration to (i) such Holder's heirs,
executors, administrators or other personal representative upon the death of
such Holder, (ii) such Holder's spouse, children or grandchildren, or a trust
for their or such Holder's benefit, (iii) if such Holder is a partnership, the
partners (including former partners) of such partnership or a liquidity trust
for their benefit, (iv) if such Holder is a corporation, the stockholders of
such corporation, or (v) if such Holder is the Parker Trust, the Persons who are
beneficiaries of the Parker Trust as of the date hereof and who have executed
and delivered a counterpart of this Agreement, and, with respect to up to
339,500 Shares of Common Stock held in the Parker Trust for their benefit,
certain employees of the Company pursuant to their employment agreements with
the Company (any Person described in clauses (i) through (v) being referred to
herein as a "Permitted Transferee" of such Holder); provided that the
--------------------
restrictions on Transfer in this Agreement and the other provisions of this
Agreement shall continue to apply to any Shares received by any such Permitted
Transferee and such Permitted Transferee shall join in and become a party to
this Agreement by executing and delivering to the Company an Instrument of
Accession in the form of Exhibit I hereto.
-------
<PAGE>
4. PREEMPTIVE RIGHT
----------------
Section 4.1. Issuance of New Securities. Subject to Section 4.4, the
--------------------------
Company shall deliver a Preissuance Notice to all Senior Holders no later than
ten Business Days prior to the date the Company plans to issue any New
Securities and each Senior Holder shall have the right, but not the obligation,
to purchase its Pro Rata share of the New Securities that are issued. Within ten
Business Days after the receipt of such Preissuance Notice, each Senior Holder
may exercise its rights under this Section 4.1 by giving written notice to that
effect to the Company. Failure to give such notice within that ten Business Day
period or failure to pay at the required time the purchase price for any New
Securities as to which a right to purchase has been exercised shall constitute a
waiver of the rights granted by this Section 4.1 as to the particular issuance
of New Securities specified in the Company's Preissuance Notice. The preemptive
rights of the Senior Holders set forth in this Section 4 shall not apply with
respect to the IPO and shall terminate upon the IPO; provided, that the
--------
preemptive rights, if any, of all other Persons also terminate upon the IPO.
Section 4.2. Per Share Price; Valuations. The per share purchase price
---------------------------
to be paid upon exercise of the rights granted under this Section 4 will be
equal to the lowest per share consideration at which the New Securities are
offered or proposed to be offered by the Company to any New Securities
Purchaser. The consideration for which New Securities are offered or proposed to
be offered will be determined as follows: (i) in case of the proposed issuance
of New Securities for cash, the consideration to be received by the Company will
be the amount of cash for which the New Securities are proposed to be issued and
(ii) in case of the proposed issuance of New Securities in whole or in part for
consideration other than cash, the value of the consideration to be received by
the Company other than cash will be the Fair Market Value of that consideration
as reasonably determined by the Board in good faith. If any Senior Holder within
five days of receipt of any Preissuance Notice notifies the Company in writing
that it objects to any statement of the Fair Market Value of any security or
other property contained therein, the Company and the Senior Holder shall
attempt in good faith to agree on the Fair Market Value of such security or
other property. If they are unable to so agree within five Business Days after
such notice of objection was given, then within five Business Days thereafter,
the Company and the Majority Senior Holders shall select one appraiser and the
Company and the Majority Senior Holders shall submit to such appraiser (and each
other) a brief written statement of their position regarding the matter in
dispute and supporting arguments, and each shall be given a period of five
Business Days thereafter to submit to the other and to the appraiser a written
response to such written statement of the other. Such appraiser shall within
fifteen Business Days of the date of its selection, resolve such dispute by
choosing either the position of the Company set forth in such written statement
so submitted by the Company or the position of the Majority Senior Holders set
forth in such written statement so submitted by the Majority Senior Holders,
whichever in the opinion of the appraiser, in its sole discretion, is more
consistent with the purposes and intent of this Agreement. Decisions with
respect to such determination made pursuant to this Section 4.2 by the Majority
Senior Holders shall be binding on all Senior Holders. Any determination of Fair
Market Value for purposes of this Section 4 by agreement of the Company and the
Majority Senior Holders or by an appraiser appointed as provided in this Section
4.2 shall be final and
<PAGE>
binding on the Company and each Senior Holder for all purposes of this Section
4. Promptly after any final determination of Fair Market Value pursuant to this
Section 4.2, the Company shall give each Senior Holder a written notice stating
such Fair Market Value. Each appraiser shall be a nationally recognized
appraiser or investment banking firm which has substantial experience in making
appraisals similar to that being made, which is not directly or indirectly
affiliated with the Company or any other Person who is a party to or otherwise
interested in the event resulting in the need for such appraisal and which has
no interest (other than the receipt of customary fees) in such event. In the
event the appraiser agrees with the written statement submitted by the Senior
Holders, the fees and expenses of any appraiser appointed in connection with an
appraisal pursuant to this Section 4 shall be paid by the Company. In the event
the appraiser agrees with the written statement submitted by the Company, the
fees and expenses of any appraiser appointed in connection with an appraisal
pursuant to this Section 4 shall be paid by the Senior Holders.
Section 4.3. Representations, Warranties and Certain Covenants. In
-------------------------------------------------
connection with each issuance of New Securities to any Senior Holder pursuant to
this Section 4, the Company shall, in the event the Company is making
representations, warranties and/or covenants to the New Securities Purchaser,
make to each Senior Holder such representations, warranties, and covenants as
are customarily made by issuers in similar instances (but which in no event
shall be less favorable to the Senior Holders than those contemplated by the
Preissuance Notice or otherwise made to or for the benefit of any New Securities
Purchaser) and each Senior Holder shall be separately and independently entitled
to rely on such representations and warranties, to the benefit of such covenants
and to exercise all available rights and remedies in the event of any breach or
violation of any such representations, warranties and covenants. Any
representations and warranties made by a Senior Holder shall consist solely of
such representations and warranties relating to (i) such Senior Holder's
authority to consummate the purchase of the New Securities from the Company and
(ii) other similar representations and warranties as are customarily given by
similarly situated purchasers of securities similar to those being purchased by
a Senior Holder in a similar transaction, but no Senior Holder shall be required
to give any such representation or warranty which the New Securities Purchaser
does not give. The representations, warranties, covenants and agreements of each
Senior Holder shall be several and not joint and shall (unless, in the case of
the Company, otherwise required by the New Securities Purchasers) terminate upon
the earlier of (i) the termination of the corresponding representations and
warranties made by the New Securities Purchaser or by the Company and (ii) one
year after closing. The right of each Senior Holder to purchase the full number
of New Securities which such Senior Holder is entitled to purchase under this
Section 4 shall not be subject to any conditions whatsoever, other than the
payment of the purchase price therefor determined as provided herein, and the
consummation of the transaction between the Company and the New Securities
Purchaser. If any Senior Holder shall fail for any reason to purchase any New
Securities which it has elected to purchase, the sole right, remedy and recourse
of the Company, the New Securities Purchaser, and the complying Senior Holders,
as the case may be, shall be the right of the Company to issue to the New
Securities Purchaser and the other Senior Holders, pro rata based on their
respective participations in the transaction as determined pursuant to Section
4.1, additional New Securities equal in kind and number or other relevant amount
to the New Securities which such Senior
<PAGE>
Holder failed to purchase at the closing, in which event the Majority Senior
Holders may elect to postpone the closing for five Business Days. Unless the
Company and any Senior Holder otherwise agree, the closing of any issuance of
New Securities to any Senior Holder pursuant to this Section 4 shall take place
at the principal executive offices of the Company at 11:00 A.M., local time, on
the later of (i) the tenth Business Day following the expiration of the period
of fifteen Business Days after the later of (A) the date the relevant
Preissuance Notice was given and (B) the date all disputes as to the valuations
have been resolved and (ii) the fifteenth Business Day following the expiration
of all applicable waiting periods, if any, under the HSR Act and the receipt of
all consents, approvals and authorizations from governmental authorities or
other Persons that are necessary in connection with the acquisition of the New
Securities to be issued to the Senior Holder. The Company shall execute such
documents and instruments as may be necessary or reasonably requested to
effectuate the issuance of New Securities to any Senior Holder.
Section 4.4. Limitations. The provisions of this Section 4 will not
-----------
apply to (i) shares of Common Stock issued as a stock dividend to all holders of
shares of Common Stock or upon any subdivision or combination of shares of
Common Stock, (ii) securities issued for the acquisition by the Company of
another entity or business by merger or such other transaction as would result
in the ownership by the Company of not less than a majority of the voting power
of the other entity or for the purchase of all or substantially all of the
assets of an entity or business, (iii) shares of Common Stock that are sold
pursuant to the IPO, (iv) shares of Common Stock or Rights issued pursuant to
the Company's stock option plans in existence at the date of this Agreement or
other such stock option plans as approved by the Compensation Committee, (v) any
shares of Common Stock issued upon conversion or exercise of the Preferred
Shares, or (vi) shares of Common Stock issued upon exercise of any Rights as to
which the Holders shall have been afforded the opportunity to exercise their
preemptive rights pursuant to this Section 4.
Section 4.5. Terms of Payment of Purchase Price. Subject to Section 4.3
----------------------------------
and the rest of this Section 4, each issuance of New Securities to each Senior
Holder must be on terms not less favorable to such Senior Holder than the most
favorable terms on which the Company issues or proposes to issue in the
transaction in connection with which the preemptive right is being exercised New
Securities to any New Securities Purchaser, any other Senior Holder or any other
Person (without discrimination based on differences in the number or amount of
New Securities to be acquired). Without limiting the generality of the
immediately preceding sentence, (i) each Senior Holder must be given the same
options and rights of election, if any, as to the kind(s) or amount(s) of
consideration to be paid or delivered for New Securities as any other purchaser
is given or was proposed to be given in the Preissuance Notice and (ii) the
purchase price to be paid by each Senior Holder upon exercise of its rights
under this Section 4 will be paid upon terms which are not less favorable than
those on which the New Securities are sold to any other purchaser, unless those
terms provide for payment in a manner which could not reasonably be duplicated
by any Senior Holder, such as the transfer of specific property to the Company,
in which event such payment will be in cash in an amount equal to the Fair
Market Value of such specific property as reasonably determined by the Board of
Directors in good faith. The giving of a Preissuance Notice shall constitute the
representation and warranty by the Company to each
<PAGE>
Senior Holder that (i) the proposed issuance is not subject to conditions,
contingencies or material terms not disclosed in the Preissuance Notice or in
the accompanying documents delivered therewith; and (ii) neither the amount or
kind of consideration offered by the New Securities Purchaser for the New
Securities nor any other terms of the proposed issuance or of any other
transaction or proposed transaction with the New Securities Purchaser or any of
its Affiliates have been established for the purpose of circumventing,
increasing the cost of exercising or otherwise impairing any Senior Holder's
preemptive right pursuant to this Section 4.
Section 4.6. Issuance to Others Not Permitted Absent Compliance. If the
--------------------------------------------------
Company does not issue and deliver, to each Senior Holder, on or before the
120th day after the date the applicable Preissuance Notice with respect to any
proposed issuance of New Securities is given (or, if later, the date specified
for the closing in the second to last sentence of Section 4.3), all New
Securities which such Senior Holder is entitled to be issued in accordance with
the provisions of this Section 4 for any reason other than the failure of such
Senior Holder to tender the purchase price therefor if and when required by this
Section 4, then the Company shall not be entitled to issue any New Securities
pursuant to the related Preissuance Notice. If, after compliance with Section
4.2, there remains any portion of the New Securities specified in a Preissuance
Notice which have not been elected to be acquired by one or more Senior Holders,
the Company shall be entitled to issue such remaining portion to the New
Securities Purchasers, in the manner and on terms and conditions not materially
more favorable to the purchaser than those specified in such Preissuance Notice,
but only if such issuance is consummated not later than the 120th day after the
date such Preissuance Notice was given (or, if later, the date specified for
closing in the second to last sentence of Section 4.3). If such issuance is not
so consummated within such period, then the Company shall not be entitled to
issue any such New Securities without again complying with the provisions of
this Section 4. Notwithstanding the foregoing provisions of this Section 4,
unless a binding purchase agreement entered into pursuant to this Section 4 by
the Company and such Senior Holder otherwise provides, the Company may, without
liability to any Senior Holder, abandon the proposed issuance of New Securities.
Section 4.7. Rights Apply to Each Issuance of New Securities. Subject to
-----------------------------------------------
the last sentence of Section 4.1, the provisions of this Section 4 shall apply
successively to each and every issuance or proposed issuance of any New
Securities.
5. WARRANT PUT RIGHT
-----------------
(a) Upon the occurrence of a Redemption Event (as defined in Part A) the
Majority Warrant Holders shall have the right ("Put Right") to require the
---------
Company to purchase, at the Repurchase Price specified in Section 5(d), all of
the outstanding Warrants and Warrant Shares. In order to exercise the Put Right,
the Majority Warrant Holders must give written notice to such effect (a "Put
---
Notice") to the Company (which notice shall be irrevocable) within 30 days after
- ------
the Company's delivery of notice of the Redemption Event to the Warrant Holders.
The Company shall promptly notify the Warrant Holders of the occurrence of a
Redemption Event. The Put Right shall terminate immediately prior to the closing
of the IPO.
<PAGE>
(b) The closing of any purchase of the Warrants and Warrant Shares shall
take place on a date specified by the Majority Warrant Holders in the Put Notice
that is not less than 90 days nor more than 120 days after the Company delivers
notice of the Redemption Event to the Warrant Holders; provided however, that if
the outstanding Series A Preferred Shares or Series C Preferred Shares are being
redeemed in connection with such Redemption Event, then the closing of the
purchase of the Warrants and Warrant Shares shall take place on the Redemption
Date (as defined in Part A or Part C, as applicable) set for the redemption of
such Series A Preferred Shares and/or Series C Preferred Shares in accordance
with Section 5 of Part A and/or Section 5 of Part C, as applicable. Subject to
Section 5(c), at or prior to such time the Company shall deliver a certified or
bank cashier's check to each Warrant Holder, at his or its address as the same
appears in the transfer records of the Company, in an amount equal to the
aggregate Repurchase Price for the Warrants and Warrant Shares being repurchased
from such Warrant Holder, determined in accordance with Section 5(d), or shall
transfer such amount by wire transfer of immediately available funds to any
account specified in writing by such Warrant Holder to the Company.
(c) If the Company has insufficient cash to (A) purchase all Warrants and
Warrant Shares that it is required to purchase pursuant to this Section 5 and
(B) redeem all shares of Series A Convertible Preferred Stock and Series C
Convertible Preferred Stock that it is required to redeem pursuant to the
Charter on the Redemption Date (as defined in Section 5.1 of Part A), then the
Company shall (i) promptly give written notice to such effect to the Warrant
Holders and (ii) take all reasonable lawful actions to obtain sufficient cash to
enable the Company to make such redemption and purchase in accordance with, and
subject to, the provisions of Section 5.5 of Part A and Section 5.5 of Part C.
(d) The repurchase price (the "Repurchase Price") for each Warrant
----------------
(determined on the basis of the number of Warrant Shares into which it is then
exercisable) and each Warrant Share which is to be purchased by the Company
pursuant to this Section 5 shall be an amount equal to the price per share that
a holder of Common Stock would be entitled to receive if the Company were sold
for its Fair Market Value (determined as provided in Section 5.1 of Part A and
or Section 5.1 of Part C, as applicable) and the proceeds of such sale were
distributed in accordance with the liquidation, dissolution and winding up
provisions of the Charter. All selections, consents, determinations or other
actions required or permitted of the Warrant Holders pursuant to this Section
5(d) shall be made by the Majority Warrant Holders.
(e) Upon the timely receipt of the Repurchase Price (plus interest, if
applicable) for Warrants or Warrant Shares sold to the Company pursuant to this
Section 5, each Warrant Holder shall forward the Warrants and Warrant Shares, as
the case may be, so sold to the Company. Upon timely payment of the Repurchase
Price therefor (plus interest, if applicable) Warrants so purchased shall no
longer be exercisable or convertible, as the case may be, nor have any validity
whatsoever.
6. NOTICES
-------
<PAGE>
All notices and other communications hereunder shall be in writing and
shall be deemed to have been given when delivered or mailed by commercial
courier or first class, registered or certified mail (air mail if to or from
outside the United States), postage prepaid, or facsimile transmission that is
acknowledged as received by the recipient, at his or its respective address set
forth on the signature page hereto, or if to the Company, at its address set
forth on the signature page hereto, or to such other address as the addressee
shall have furnished to the other parties hereto in the manner prescribed by
this Section 6.
7. SPECIFIC PERFORMANCE
--------------------
The rights of the parties under this Agreement are unique and, accordingly,
the parties shall have the right, in addition to such other remedies as may be
available to any of them at law or in equity, to enforce their rights hereunder
by actions for specific performance in addition to any other legal or equitable
remedies they might have to the extent permitted by law.
8. ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire agreement among the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings between them or any of them as to such subject matter. This
Agreement shall supersede the Existing Stockholders Agreement, and upon
execution and delivery of this Agreement by all parties hereto, the Existing
Stockholders Agreement shall terminate and be of no further force or effect.
9. WAIVERS AND FURTHER AGREEMENTS
------------------------------
Any of the provisions of this Agreement may be waived by an instrument in
writing with the consent of the party or parties whose rights are being waived.
Any waiver of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach of that provision or of any
other provision hereof. Each of the parties hereto agrees to execute all such
further instruments and documents and to take all such further action as any
other party may reasonably require in order to effectuate the terms and purposes
of this Agreement.
10. AMENDMENTS
----------
This Agreement may be amended by and such amendment shall be effective upon
the receipt of the written consent of all of the following: (i) the holders of
at least fifty-one percent (51%) of the Shares then held by the Holders, (ii)
the holders of at least fifty-one percent (51%) of the Series A Shares and
Warrant Shares then outstanding and (iii) the holders of at least fifty-one
percent (51%) of the Series C Shares then outstanding.
11. ASSIGNMENT; SUCCESSORS AND ASSIGNS
----------------------------------
This Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective heirs, executors, legal representatives,
successors and permitted assigns,
<PAGE>
except as may be expressly provided otherwise herein.
12. COMPANY COVENANT
----------------
The Company hereby covenants and agrees to cause each officer and employee
of the Company and any other Person who, on or after the date hereof, acquires
or has the right to acquire from the Company a number of Shares that, when taken
together with all other Shares or rights to acquire Shares held by such
officers, employee or other Person, is greater than or equal to 1% of the total
number of Shares outstanding to become a party to this Agreement, effective as
of the date of the acquisition of such Shares or such right to acquire such
Shares, by executing and delivering to the Company an Instrument of Accession in
the form of Exhibit I hereto.
---------
13. SEVERABILITY
------------
In case any one or more of the provisions contained in this Agreement shall
for any reason be held to be invalid, illegal or unenforceable in any respect,
such invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement and such invalid, illegal and unenforceable
provision shall be reformed and construed so that it will be valid, legal, and
enforceable to the maximum extent permitted by law.
14. COUNTERPARTS
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
15. SECTION HEADINGS
----------------
The headings contained in this Agreement are for reference purposes only
and shall not in any way affect the meaning or interpretation of this Agreement.
16. GOVERNING LAW
-------------
This Agreement shall be construed and enforced in accordance with and
governed by the Business Corporation Act of the State of Arkansas as to matters
within the scope thereof and as to all other matters shall be governed by and
construed in accordance with the internal laws of the Commonwealth of
Massachusetts.
17. REPORTS
-------
The Company shall deliver to each Series C Holder the same reports and
information that it delivers to the Capital Resource Parties pursuant to Section
7.03 of the Series A Purchase Agreement, and each Series C Holder shall have the
same inspection rights as the Capital Resource Parties have under Section
7.01(f) of the Series A Purchase Agreement, as long as (a) at least 50% of the
Series C Preferred Shares are outstanding, and (b) such Series C Holder holds at
least 50% of the Series C Preferred Shares acquired by it on the date of initial
issuance of the
<PAGE>
Series C Preferred Shares.
[Rest of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated
Stockholders' Agreement as of the day and year first above set forth.
COMPANY:
LAW OFFICE INFORMATION SYSTEMS, INC.
105 North 28th Street Van Buren, Arkansas 72956
Attention: Kyle D. Parker, President
Telecopy No.: (501) 471-9224
By: /s/ Kyle Parker
------------------------------
Name: Kyle Parker
Title: Chief Executive Officer
HOLDERS:
CAPITAL RESOURCE LENDERS III, L.P.
c/o Capital Resource Partners
85 Merrimac Street, Suite 200
Boston, Massachusetts 02114
Attention: Robert C. Ammerman
Telecopy No.: (617) 723-9819
By: Capital Resource Partners III, L.L.C.,
Its General Partner
By: /s/ Robert C. Ammerman
Name:
Title:
CRP INVESTMENT PARTNERS III, L.L.C.
c/o Capital Resource Partners
85 Merrimac Street, Suite 200
Boston, Massachusetts 02114
Attention: Robert C. Ammerman
Telecopy No.: (617) 723-9819
By: /s/ Robert C. Ammerman
Name:
Title:
/s/ Rowland Moriarty
------------------------------
Rowland Moriarty
Address: Cubex Corporation
200 Clarendon Street, Boston
<PAGE>
/s/ Charles J. Lindsay
______________________________________
Charles J. Lindsay
Address: 37 Skyridge Rd., Greenwich, CT
________________________________
/s/ Charles J. Lindsay
______________________________________
Charles J. Lindsay, as Custodian of
Michael D. Lindsay under the
Connecticut Uniform Transfers to
Minors Act
Address: 37 Skyridge Rd., Greenwich, CT
_______________________________
_______________________________
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ Charles J. Lindsay
______________________________________
Charles J. Lindsay, as Custodian of
Maxwell C. Lindsay under the
Connecticut Uniform Transfers to
Minors Act
Address: 37 Skyridge Rd., Greenwich, CT
_______________________________
/s/ Charles J. Lindsay
______________________________________
Charles J. Lindsay, as Custodian of
Susan M. Lindsay under the
Connecticut Uniform Transfers to
Minors Act
Address: 37 Skyridge Rd., Greenwich, CT
_______________________________
/s/ Charles J. Lindsay
______________________________________
Charles J. Lindsay, as Custodian of
Sally M. Lindsay under the
Connecticut Uniform Transfers to
Minors Act
Address: 37 Skyridge Rd., Greenwich, CT
_______________________________
/s/ George P. Lindsay
______________________________________
George P. Lindsay
Address:
_______________________________
/s/ Charles M. Dubroff
______________________________________
Charles M. Dubroff
Address:______________________________
/s/ Nestor J. Olivier
______________________________________
Nestor J. Olivier
Address:______________________________
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ Nestor J. Olivier
______________________________________
Nestor J. Oliver, as Custodian for
Maximilian A. Olivier under the
Connecticut Uniform Transfers to
Minors Act
Address:______________________________
[Signature Page to Stockholders' Agreement]
<PAGE>
SANDLER CAPITAL PARTNERS IV, L.P.
By: SANDLER INVESTMENT PARTNERS, General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJDM MEDIA CORP., a General Partner
767 Fifth Avenue, 45th Floor
New York, NY 10153
Attention:
Telecopy No.:
By: /s/ Edward Grinacoff
__________________________________
Name: Edward Grinacoff
Title: President
SANDLER CAPITAL PARTNERS IV, FTE, L.P.
By: SANDLER INVESTMENT PARTNERS, General Partner
By: SANDLER CAPITAL MANAGEMENT,
General Partner
By: MJDM MEDIA CORP., a General Partner
767 Fifth Avenue, 45th Floor
New York, NY 10153
Attention:
Telecopy No.:
By: /s/ Edward Grinacoff
___________________________________
Name: Edward Grinacoff
Title: President
[Signature Page to Stockholders' Agreement]
<PAGE>
PARKER TRUST, created by instrument dated March
15, 1989, and amended and restated by two Trust
Agreements dated November 25, 1997.
By: /s/ Kyle D. Parker, Trustee
___________________________
Kyle D. Parker, Trustee
Address: 1530 South 37th
Fort Smith, AR 72903
/s/ Kyle D. Parker
_____________________________
Kyle D. Parker
Address: 1530 South 37th
Fort Smith, AR 72903
/s/ Douglas W. Parker, Sr.
______________________________
Douglas W. Parker, Sr.
Address: 2720 So. Waldron
________________
Ft. Smith, AR 72903
___________________
/s/ Melissa Ann Parker
_____________________________
Melissa Ann Parker
Address: 3611 Free Ferry Road
Fort Smith, AR 72903
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ David Jamell
_____________________________________________
David Jamell
Address: 2607 Riviera Circle
Fort Smith, AR 72903
JOSEPH MULLEN REVOCABLE TRUST created by
instrument dated September 24, 1998.
By: /s/ Janet M. Den Uyl, Trustee
___________________________________
Janet M. Den Uyl, Trustee
/s/ Johnnie L. Hernreich
______________________________________
Johnnie L. Hernreich
Address: #8 Riverlyn Terr.
_________________
Ft. Smith, AR 72903
___________________
/s/ Larry Murray
______________________________________
Larry Murray
Address: 4023 Kinkead
______________________________
Ft. Smith, AR 72903
______________________________
/s/ W. Clark Wigley
______________________________________
W. Clark Wigley
Address: 151 Crescent Avenue
___________________
Portola Valley, CA 94028
________________________
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ Reves W. Dillon
___________________________________
Reves W. Dillon
Address: 6304 Silver Shade Crossing
__________________________
Van Buren, AR
_____________
/s/ J. Scott Thompson
___________________________________
J. Scott Thompson
Address: 4422 Urbana
___________
Fort Smith, AR 72904
____________________
/s/ Paul E. Dickson
___________________________________
Paul E. Dickson
Address: 1701 Lover Lane
_______________
Van Buren, AR 72956
___________________
/s/ Charles Griggs
___________________________________
Charles Griggs
Address: 1002 E. 66th Pl. S. #411
________________________
Tulsa, OK 74136
_______________
/s/ Gary Hood
___________________________________
Gary Hood
Address: 55 Mercker Road
_____________________________
Sothington, CT 06489
_____________________________
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ David Hoover
______________________________________
David Hoover
3705 SW Skyview Circle
Address:______________________________
Ankeny, IA 50021
_____________________________
/s/ Pamela G. Rogers
______________________________________
Pamela G. Rogers
6810 Free Ferry Road
Address:______________________________
Ft. Smith, AR 72903
_____________________________
/s/ Kelly J. Ketchum
______________________________________
Kelly J. Ketchum
915 Cross Lanes Road
Address:______________________________
Alma, AR 72921
______________________________
/s/ Robert J. Gould
______________________________________
Robert J. Gould
3015 Key Harbor Drive
Address:______________________________
Safety Harbor, Fl 34695
/s/ Larry Murray
_______________________________________
Larry Murray
Address:______________________________
_____________________________
[Signature Page to Stockholders' Agreement]
<PAGE>
/s/ Mark Beyland
______________________________________
Mark Beyland
Address: 105 North 28th Street
_____________________________
Van Buren, AR 72956
_____________________________
EXETER CAPITAL PARTNERS IV, L.P.
By: Exeter IV Advisors, L.P.,
Its general partner
By: Exeter IV Advisors, Inc.,
Its general partner
By: /s/ Keith Fox
_____________________________
Title
_____________________________
Address: 10 East 53rd Street
New York, New York 10022
Attn: Keith R. Fox
Tel: (212) 872-1172
Fax: (212) 872-1198
DUBLIND PARTNERS INC.
By: /s/ Nestor J. Oliner
_____________________________
Name: Nestor J. Oliner
Title: Director
[Signature Page to Stockholders' Agreement]
<PAGE>
EXHIBIT I
---------
INSTRUMENT OF ACCESSION
-----------------------
The undersigned, _________________________, as a condition precedent to
becoming the owner or holder of record of ________________ (______________)
shares of the Common Stock, $0.001 par value per share, of Law Office
Information Systems, Inc., an Arkansas corporation (the "Company"), hereby
agrees to become a Holder, party to and bound by that certain Amended and
Restated Holders' Agreement, dated as of ___________, 1999, by and among the
Company and certain Holders of the Company. This Instrument of Accession shall
take effect and shall become an integral part of the said Amended and Restated
Holders' Agreement immediately upon execution and delivery to the Company of
this Instrument.
IN WITNESS WHEREOF, this INSTRUMENT OF ACCESSION has been duly executed by
or on behalf of the undersigned, as a sealed instrument under the laws of The
Commonwealth of Massachusetts, as of the date below written.
Signature:
Address:
Date:
Accepted:
By:
Name:
Date:
<PAGE>
EXHIBIT 4.3
Execution Copy
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (this "Agreement")
---------
is entered into as of May 25, 1999 by and among (i) Law Office Information
Systems, Inc., an Arkansas corporation (the "Company"), (ii) Capital Resource
-------
Lenders III, L.P., a Delaware limited partnership ("CRL III"), (iii) CRP
-------
Investment Partners III, L.L.C., a Delaware limited liability company ("CRP"),
---
(iv) Rowland Moriarty ("Moriarty," and together with CRL III and CRP, the
--------
"Capital Resource Parties"), (v) Sandler Capital Partners IV, L.P., a Delaware
- -------------------------
limited partnership ("Sandler IV"), (vi) Sandler Capital Partners IV FTE, L.P.,
----------
a Delaware limited partnership ("Sandler IV FTE", and together with Sandler IV,
--------------
the "Sandler Parties"), (vii) the individual holders of the Dublind Warrant
---------------
Shares, whose names are set forth on the signature pages of this Agreement,
(viii) Mark Beyland, an individual ("Beyland"), (ix) Exeter Capital Partners IV,
L.P., a Delaware limited partnership ("Exeter"), and (x) Dublind Partners Inc.,
a New York corporation ("Dublind Inc."). Each of the Persons described in
------------
clauses (ii) through (x) of the preceding sentence is referred to herein as a
"Holder".
------
RECITALS
WHEREAS, the Company, CRL III and Dublind Investments LLC, a Delaware
limited liability company ("Dublind LLC") are parties to the Registration Rights
-----------
Agreement ("Existing Registration Rights Agreement"), dated November 24, 1997,
--------------------------------------
among the Company, CRL III and Dublind LLC;
WHEREAS, CRL III has transferred some of its Series A Preferred Shares and
Warrants to CRP and Moriarty pursuant to that certain Assignment, Assumption and
Consent dated as of January 1, 1998;
WHEREAS, CRL III exercised all of the Warrants held by it in full
immediately prior to the execution and delivery of this Agreement;
WHEREAS, Dublind LLC has exercised the Dublind Warrants in full and has
transferred the 365,346 Dublind Warrant Shares purchased thereby to certain
individuals, each of whom is a party hereto as described in clause (vii) in the
preamble of this Agreement;
WHEREAS, the Company proposes to sell (i) an aggregate of 2,495,697 shares
of the Company's Series C Convertible Preferred Stock, $0.001 par value per
share ("Series C Preferred Shares"), to the Sandler Parties, CRL III, Beyland
-------------------------
and Exeter, and (ii) 86,059 shares of the Company's Common Stock to Dublind
Inc., pursuant to the Stock Purchase Agreement entered into on or about the date
hereof ("Series C Purchase Agreement") by and among the Company
---------------------------
<PAGE>
and the other parties thereto; and
WHEREAS, as a condition to the execution and delivery of the Series C
Purchase Agreement and the consummation of the transactions contemplated thereby
the parties have agreed to amend and restate the Existing Registration Rights
Agreement so as to include the parties to the Series C Purchase Agreement and
the persons described by clause (vii) of the preamble as parties to the
agreement and to revise the terms of the agreement in the manner provided
herein;
NOW, THEREFORE, in consideration of the premises, the mutual covenants
herein contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby amend and
restate in its entirety the Existing Registration Rights Agreement as follows:
1. Certain Definitions. As used in this Agreement, the following terms
-------------------
shall have the following respective meanings:
"Commission" shall mean the United States Securities and Exchange
----------
Commission, or any other federal agency at the time administering the Securities
Act.
"Common Stock" shall mean (i) the Company's Common Stock, par value
------------
$0.001 per share, as authorized on the date of this Agreement, (ii) any other
capital stock of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount per share, either to all or to a share of
the balance of current dividends and liquidating distributions after the payment
of dividends and distributions on any shares entitled to preference in the
payment thereof, and the holders of which shall ordinarily, in the absence of
contingencies, be entitled to vote for the election of a majority of directors
of the Company (even though the right so to vote has been suspended by the
happening of such a contingency), and (iii) any other securities into which or
for which any of the securities described in (i) or (ii) above may be converted
or exchanged pursuant to a plan of recapitalization, reorganization, merger,
sale of assets or otherwise.
"Dublind Warrants" shall mean the Company's Common Stock Purchase
----------------
Warrants to purchase up to 365,346 shares of Common Stock issued to Dublind LLC
on November 24, 1997 for financial advisory services rendered to the Company in
connection with the consummation of the transactions contemplated by the Series
A Purchase Agreement and which have been exercised in full prior to the date
hereof.
"Dublind Warrant Shares" shall mean the 365,346 shares of Common Stock
----------------------
that were issued upon exercise of the Dublind Warrants.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
------------
amended, or any similar successor federal statute, and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the time.
<PAGE>
"Holder" shall mean at any time any Person that holds Registrable
------
Securities which (i) is one of the Holders identified in the preamble to this
Agreement or (ii) has been assigned those rights and obligations pursuant to
Section 11. For purposes of this Agreement, a Person shall be deemed to hold,
as of any time, (A) all issued and outstanding shares of Common Stock,
Registrable Securities or other securities then held or deemed to be held by
such Person, (B) all additional shares of Common Stock, Registrable Securities
or other securities which would then be held by such Person if it were assumed
that all Preferred Shares and Warrants then held or deemed to be held by such
Person had been duly and effectively exercised in full at and effective as of
such time, (C) all additional shares of Common Stock, Registrable Securities or
other securities which would then be held by such Person if it were assumed that
all Rights, if any, then held or deemed to be held by such Person had been duly
and effectively exercised in full at and effective as of such time and (D) all
additional shares of Common Stock, Registrable Securities or other securities,
if any, which such Person then has a right to purchase pursuant to the
preemptive rights granted under Section 4 of the Stockholders Agreement or by
virtue of any prior exercise of such preemptive rights, assuming, in the case of
each of clauses (B) and (C), that all adjustments to the kind, number and amount
of shares of capital stock or other securities issuable upon exercise, exchange
or conversion of any of the Preferred Shares, Warrants or other Rights referred
to in such clause required by reason of any event or transaction occurring at or
prior to such time had been duly and effectively made as and when required by
the terms thereof.
"Majority Series A Holders" shall mean Holders that own at least
-------------------------
fifty-one percent (51%) of the aggregate of (A) the Warrant Shares and shares of
any other securities issued and issuable upon exercise of the Warrants and (B)
the Series A Preferred Conversion Shares and shares of any other securities
issued or issuable upon conversion of the Series A Preferred Shares.
"Majority Series C Holders" shall mean Holders that own at least two-
-------------------------
thirds of the aggregate of the Series C Preferred Conversion Shares and shares
of any other securities issued or issuable upon conversion of the Series C
Preferred Shares.
"Person" shall mean an individual, a corporation, a partnership, a
------
joint venture, a trust, an unincorporated organization, a limited liability
company or partnership, a government and any agency or political subdivision
thereof.
"Preferred Conversion Shares" shall mean the Series A Preferred
---------------------------
Conversion Shares and the Series C Preferred Conversion Shares.
"Preferred Shares" shall mean the Series A Preferred Shares and the
----------------
Series C Preferred Shares.
"Registrable Securities" shall mean (i) any and all shares of Common
----------------------
Stock issued or issuable upon conversion or exercise of any Series A Preferred
Shares,
<PAGE>
Series C Preferred Shares or Warrants, (ii) any and all shares of Common Stock,
and any shares of Common Stock issued or issuable upon the exercise of any
Rights or other securities, acquired by or issuable to the Holders pursuant to
Section 4 of the Stockholders' Agreement, (iii) any and all other shares of
Common Stock, and any shares of Common Stock issued or issuable upon the
exercise of any Rights or other securities, acquired by any Holder from the
Company and (iv) any other shares of Common Stock issued in respect of such
shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
-------- -------
Stock which are Registrable Securities shall cease to be Registrable Securities
upon any sale pursuant to an effective registration statement or Rule 144 under
the Securities Act.
"Registration Expenses" shall mean the expenses so described in
---------------------
Section 5.
"Rights" means any options, warrants or other rights, however
------
denominated, to subscribe for, purchase or otherwise acquire any Common Stock or
Rights to Common Stock, with or without payment of additional consideration in
cash or property, either immediately or upon the occurrence of a specified date
or a specified event or the satisfaction or happening of any other condition or
contingency.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
--------------
any similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Series A Holders" shall mean Holders that hold Series A Preferred
----------------
Shares and/or Series A Preferred Conversion Shares.
"Series A Preferred Conversion Shares" shall mean the shares of Common
------------------------------------
Stock issued and issuable upon conversion of the Series A Preferred Shares.
"Series A Preferred Shares" shall mean the 931,044 shares of Series A
-------------------------
Convertible Preferred Stock, $0.001 par value per share, of the Company issued
to CRL III pursuant to the Series A Purchase Agreement.
"Series A Purchase Agreement" shall mean the Senior Subordinated Note
---------------------------
and Securities Purchase Agreement, dated November 24, 1997, among the Company
and the Capital Resource Parties, as amended.
"Series C Holders" shall mean Holders that hold Series C Preferred
----------------
Shares and/or Series C Preferred Conversion Shares.
"Series C Preferred Conversion Shares" shall mean the shares of Common
------------------------------------
Stock issued and issuable upon conversion of the Series C Preferred Shares.
<PAGE>
"Series C Preferred Shares" shall mean the 2,495,697 shares of the
-------------------------
Series C Convertible Preferred Stock, par value $0.001 per share, of the Company
issued to the Sandler Parties, CRL III, Beyland and Exeter pursuant to the
Series C Purchase Agreement.
"Stockholder Agreement" means the Amended and Restated Stockholders
---------------------
Agreement, dated as of the date hereof, by and among the Company, the Capital
Resource Parties, the Sandler Parties, Beyland, Exeter and certain other
Persons.
"Subordinate Holders" shall mean all Holders other than Series A
-------------------
Holders and Series C Holders.
"Warrant Shares" shall mean the 1,056,616 shares of Common Stock that
--------------
were issued upon exercise of the Warrants held by CRL III immediately prior to
the execution and delivery of this Agreement and any shares of Common Stock that
may hereafter be issued or issuable upon exercise of the outstanding Warrants in
accordance with the terms thereof.
"Warrants" shall mean the Company's Common Stock Purchase Warrants
--------
issued to CRL III pursuant to the Series A Purchase Agreement.
2. Demand Registration.
-------------------
(a) At any time after the earlier of November 24, 2002 or the date on
which the Company becomes subject to Section 13 or Section 15(d) of the Exchange
Act, (A) the Majority Series A Holders and (B) Series C Holders holding at least
thirty percent (30%) of the Registrable Securities held by Series C Holders as
of such time may each request the Company to register under the Securities Act
all or any portion of the Registrable Securities held by such requesting Holders
in the manner specified in such request, and upon receipt of such request the
Company shall promptly deliver notice of such request to all Series A Holders
and Series C Holders, who shall then have twenty (20) days to notify the Company
in writing of their desire to be included in such registration. The Company will
use its best efforts to expeditiously effect the registration of all Registrable
Securities that Series A Holders and Series C Holders request to be included in
such registration under the Securities Act, but only to the extent provided for
in the following provisions of this Agreement; provided, however, that the
Company shall not be required to effect registration pursuant to a request under
this Section 2(a) more than one (1) time for the Series A Holders and one (1)
time for the Series C Holders; and provided further, however, that the Company
shall not be required to effect registration pursuant to a request under this
Section 2 unless the reasonably anticipated aggregate price to the public of
such public offering would exceed $5,000,000. Notwithstanding anything to the
contrary contained herein, no request may be made under this Section 2 within
180 days after the effective date of a registration statement filed by the
Company covering a firm commitment underwritten public offering in which the
holders of Registrable Securities shall have been entitled to join pursuant to
Section 3 or 10 and in which there shall have been effectively registered all
Registrable Securities as to which registration shall have been requested.
Neither the Company nor any Person that is not a Series A
<PAGE>
Holder or Series C Holder shall participate in any registration requested
pursuant to this Section 2 unless the Majority Series A Holders (if Series A
Holders are participating in such registration) and the Majority Series C
Holders (if Series C Holders are participating in such registration) otherwise
agree.
(b) Whenever a requested registration pursuant to Section 2(a) is for
an underwritten offering, only Registrable Securities which are to be included
in the underwriting may be included in the registration. If the managing
underwriter of such offering determines in good faith that the number of
Registrable Securities so included which are to be sold by the holders of the
Registrable Securities should be limited due to market conditions, then the
Series A Holders and Series C Holders participating in such underwriting and
registration shall share pro rata in the number of such Registrable Securities
--- ----
being underwritten and registered for their account, such sharing to be based on
the number of all Registrable Securities held by such holders, respectively.
Whenever a requested registration pursuant to Section 2(a) is for an
underwritten public offering, the Company, subject to the approval of (A) the
Majority Series A Holders, if such registration was requested by the Majority
Series A Holders, or (B) the Majority Series C Holders, if such registration was
requested by the Majority Series C Holders (which approval, in either case, will
not be unreasonably withheld or delayed), may designate the managing
underwriter(s) of such offering. The Company may not cause any other
registration of securities for sale for its own account (other than a
registration effected solely to implement an employee benefit plan or a
transaction to which Rule 145 of the Commission is applicable) to become
effective less than 90 days after the effective date of any registration
required pursuant to this Section 2.
(c) If at the time of any request to register Registrable Securities
pursuant to Section 2(a) the Company is preparing or within thirty (30) days
thereafter commences to prepare a registration statement for a public offering
(other than a registration effected solely to implement an employee benefit plan
or a transaction to which Rule 145 of the Commission is applicable) which in
fact is filed and becomes effective within ninety (90) days after the request,
or is engaged in any activity which, in the good faith determination of the
Company's board of directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of
four months from the effective date of such offering or the date of commencement
of such other activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any two year period. Nothing in
this Section 2(c) shall preclude a holder of Registrable Securities from
enjoying registration rights which it might otherwise possess under Section 3
hereof.
3. Piggyback Registration. If the Company at any time proposes to
----------------------
register any of its securities under the Securities Act (including pursuant to a
demand of any stockholder of the Company exercising registration rights) for
sale to the public (except with respect to registration statements on Forms S-4,
S-8 or another form not available for registering the Registrable Securities for
sale to the public), each such time it will give written notice to all Holders
owning Registrable Securities of its intention to do so. Upon the written
request of any of such Holders of the Registrable Securities given within twenty
(20) days after receipt by such Holder of such
<PAGE>
notice, the Company will, subject to the limits contained in this Section 3, use
its best efforts to cause all such Registrable Securities of said requesting
Holders to be registered under the Securities Act and qualified for sale under
any state blue sky law, all to the extent requisite to permit such sale or other
disposition by such Holder of the Registrable Securities so registered;
provided, however, that if the Company is advised in writing in good faith by
- -------- -------
any managing underwriter of the Company's securities being offered in a public
offering pursuant to such registration statement that the amount to be sold by
persons other than the Company (collectively, "Selling Stockholders") is greater
--------------------
than the amount which can be offered without adversely affecting the offering,
the Company may reduce the amount offered for the accounts of Selling
Stockholders (including such Holders of shares of Registrable Securities) to a
number deemed satisfactory by such managing underwriter provided that no
reduction shall be made in the amount of Registrable Securities offered for the
accounts of the Holders of Registrable Securities unless such reduction is
imposed pro rata with respect to all securities whose holders have a
contractual, incidental "piggy back" right to include such securities in the
registration statement as to which inclusion has been requested pursuant to such
right; provided, however, that there is first excluded from such registration
-------- -------
statement all shares of Common Stock sought to be included therein by (i) any
officer or employee of the Company or any subsidiary of the Company, (ii) any
holder thereof not having any such contractual, incidental registration rights,
(iii) any Subordinate Holders, and (iv) any holder thereof having contractual,
incidental registration rights subordinated and junior to the rights of the
Holders of Registrable Securities.
4. Registration Procedures. If and whenever the Company is required by
-----------------------
the provisions of this Agreement to use its best efforts to effect the
registration of any of its securities under the Securities Act, the Company
will, as expeditiously as possible:
(i) prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective; provided, however, that
-------- -------
notwithstanding any other provision of this Agreement, the Company shall not in
any event be required to use its best efforts to maintain the effectiveness of
any such registration statement for a period in excess of nine (9) months;
(ii) promptly notify each Holder of Registrable Securities of the
effectiveness of the Registration Statement;
(iii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the seller or sellers of such securities shall desire to sell or
otherwise dispose of the same, but only to the extent provided in this
Agreement;
(iv) furnish to each seller such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such seller may reasonably request
in order to facilitate the public sale or other
<PAGE>
disposition of the securities owned by such seller;
(v) use reasonable efforts to register or qualify the securities
covered by such registration statement under such other securities or state blue
sky laws of such jurisdictions as each seller shall reasonably request, and do
any and all other acts and things which may be necessary under such securities
or blue sky laws to enable such seller to consummate the public sale or other
disposition in such jurisdictions of the securities owned by such seller, except
that the Company shall not for any such purpose be required to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(vi) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to one counsel selected by the
holders of Registrable Securities copies of such documents proposed to be filed
which shall be subject to the reasonable approval of such counsel;
(vii) Obtain (A) an opinion of counsel for the Company, dated the
effective date of the registration statement, and (B) a "comfort" letter signed
by the independent public accountants who have certified the Company's financial
statements included in the registration statement, covering substantially the
same matters with respect to the registration statement (and the prospectus
included therein) and (in the case of the accountants' letter) with respect to
events subsequent to the date of the financial statements, as are customarily
covered (at the time of such registration) in opinions of the Company's counsel
and in accountants' letters delivered to the underwriters in underwritten public
offerings of securities; and
(viii) use its best efforts to list the Registrable Securities
covered by such registration statement with any securities exchange on which the
Common Stock of the Company is then listed.
5. Expenses. All expenses incurred in effecting the registrations
--------
provided for in Sections 2, 3 and 10, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company and fees not to exceed $10,000 of one counsel for all of
the selling holders of Registrable Securities, underwriting expenses (other than
fees, commissions or discounts), expenses of any audits incident to or required
by any such registration and expenses of complying with the securities or blue
sky laws of any jurisdictions pursuant to Section 4(v) hereof (all of such
expenses referred to as "Registration Expenses"), shall be paid by the Company;
---------------------
provided, that if an offering pursuant to any registration commenced pursuant to
- --------
Section 2 is abandoned by the Selling Stockholders (other than by reason of
material adverse information pertaining to the Company's business affairs or
financial position, as opposed to stock market conditions, in which event the
Company shall bear all Registration Expenses), such selling shareholders shall
bear pro rata any costs incurred by the Company in conjunction with such
--- ----
registration. The number of registrations to which the holders of Registrable
Securities are entitled pursuant to Section 2 shall not be reduced on account of
any abandoned registration statement.
<PAGE>
6. Indemnification. (a) The Company shall indemnify and hold harmless
---------------
the seller of such securities, each underwriter (as defined in the Securities
Act), and each other Person who participates in the offering of such securities
and each other Person, if any, who controls (within the meaning of the
Securities Act) such seller, underwriter or participating Person (individually
and collectively the "Indemnified Person") against any losses, claims, damages
------------------
or liabilities (collectively the "Liability"), joint or several, to which such
---------
Indemnified Person may become subject under the Securities Act or any other
statute or at common law, insofar as such Liability (or action in respect
thereof) arises out of or is based upon (i) any untrue statement or alleged
untrue statement of any material fact contained, on the effective date thereof,
in any registration statement under which such securities were registered under
the Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading. Except as otherwise
provided in Section 6(d), the Company shall reimburse each such Indemnified
Person in connection with investigating or defending any such Liability;
provided, however, that the Company shall not be liable to any Indemnified
- -------- -------
Person in any such case to the extent that any such Liability arises out of or
is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, preliminary or final
prospectus, or amendment or supplement thereto in reliance upon and in
conformity with information furnished in writing to the Company by such Person
specifically for use therein, or upon such statement or omission therein based
on the authority of an expert within the meaning of that term as defined in the
Securities Act (but only if the Company had no reasonable ground to believe, and
did not believe, that the statements made on the authority of an expert were
untrue or that there was an omission to state a material fact); and provided
--------
further, that the Company shall not be required to indemnify any Person against
- -------
any liability arising from any untrue or misleading statement or omission
contained in any preliminary prospectus if such deficiency is corrected in the
final prospectus or for any Liability which arises out of the failure of any
Person to deliver a prospectus as required by the Securities Act. The Company
shall indemnify and hold harmless the Indemnified Person regardless of any
investigation made by or on behalf of such Indemnified Person and such
obligation shall survive transfer of such securities by such seller.
(b) Each holder of any Registrable Securities shall, by acceptance
thereof, indemnify and hold harmless each other holder of any Registrable
Securities, the Company, its directors and officers, each underwriter and each
other Person, if any, who controls such other holder, the Company, or such
underwriter (individually and collectively also the "Indemnified Person"),
------------------
against any Liability, joint or several, to which any such Indemnified Person
may become subject under the Securities Act or any other statute or at common
law, insofar as such Liability (or actions in respect thereof) arises out of or
is based upon (i) any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which securities were registered under the Securities Act at the
request of such holder, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in the case of (i) and
(ii) to the extent, but only to the extent, that such untrue
<PAGE>
statement or alleged untrue statement or omission or alleged omission was made
in such registration statement, preliminary or final prospectus, amendment or
supplement thereto in reliance upon and in conformity with information furnished
in writing to the Company by such holder specifically for use therein, and then
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission by the holder was not based on the authority of an
expert as to which the holder had no reasonable ground to believe, and did not
believe, that the statement made on the authority of such expert was untrue or
that there was an omission to state a material fact. Subject to Section 6(f),
such holder shall reimburse any Indemnified Person for any legal fees incurred
in investigating or defending any such liability; provided, however, that no
-------- -------
holder of Registrable Securities shall be required to indemnify any Person
against any Liability arising from any untrue or misleading statement or
omission contained in any preliminary prospectus if such deficiency is corrected
in the final prospectus or for any Liability which arises out of the failure of
any Person to deliver a prospectus as required by the Securities Act.
(c) Indemnification similar to that specified in Sections 6(a) and
(b) shall be given by the Company and each holder of any Registrable Securities
(with such modifications as may be appropriate) with respect to any required
registration or other qualification of the Registrable Securities under any
federal or state law or regulation of governmental authority other than the
Securities Act.
(d) In the event the Company, any holder or other Person receives a
complaint, claim or other notice of any liability or action, giving rise to a
claim for indemnification under Sections 6(a), (b) or (c), the Person claiming
indemnification under such paragraphs shall promptly notify the Person against
whom indemnification is sought of such complaint, notice, claim or action, and
such indemnifying Person shall have the right to investigate and defend any such
loss, claim, damage, liability or action. The Person claiming indemnification
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof but the fees and expenses of such counsel
shall not be at the expense of the Person against whom indemnification is sought
(unless the indemnifying party fails to promptly defend, in which case the fees
and expenses of such separate counsel shall be borne by the Person against whom
indemnification is sought). In no event shall a Person against whom
indemnification is sought be obligated to indemnify any Person for any
settlement of any claim or action effected without the indemnifying Person's
prior written consent.
(e) In order to provide for just and equitable contribution if a
claim for indemnification pursuant to the indemnification provisions of this
Section 6 is made but it is found in a final judgment by a court of competent
jurisdiction (not subject to further appeal) that such indemnification may not
been enforced in such case, even though the express provisions hereof provide
for indemnification in such case or the indemnification provided for under this
Section 6, even though so provided for, otherwise is unavailable to or
insufficient to hold any Indemnified Party harmless to the full extent provided
therein with respect to any Liability (or any fees, costs or expenses) for which
such indemnification is provided for, then the Indemnifying Party shall
<PAGE>
contribute to the amount paid or payable by such Indemnified Party as a result
of such Liability (i) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party, on the one hand, and such Indemnified
Party, on the other, in connection with the statements or omissions which
resulted in such Liability or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative fault referred to in clause (i) above but also
the relative benefits received by the Indemnifying Party, on the one hand, and
such Indemnified Party, on the other, from the subject offering or distribution,
as well as any other relevant equitable considerations. Relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by (or omitted to be supplied
by) the Indemnifying Party or the Indemnified Party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The relative benefits received by the Indemnifying
Party, on the one hand, and the Indemnified Party, on the other, shall be deemed
to be in the same proportion as the net proceeds of the offering or other
distribution received by the Indemnifying Party bears to the net proceeds of the
offering or other distribution received by the Indemnified Party. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The Company and the Holders
agree that it would not be just and equitable if contributions pursuant to this
Section 6(e) were to be determined by pro rata allocation (even if all Holders
were treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations referred
to above in this Section 6(e).
(f) The parties agree, to the maximum extent permitted by law, that
the obligations and liability of each Holder with respect to any registration in
which such Holder participates pursuant to Section 2 or 3, whether for
indemnification pursuant to Section 6(b), contribution pursuant to Section 6(e)
or otherwise, shall not in any event exceed in the aggregate the amount of net
proceeds received by such Holder from the sale of the Registrable Shares sold by
such holder in such registration.
7. Compliance with Rule 144. In the event that the Company (i) registers
------------------------
a class of securities under Section 12 of the Exchange Act or (ii) shall
commence to file reports under Section 13 or 15(d) of the Exchange Act,
thereafter, at the request of any holder of the Warrants, the Preferred Shares
or other Registrable Securities who proposes to sell the Registrable Securities
in compliance with Rule 144 of the Commission, the Company shall forthwith
furnish to such holder or holders a written statement of compliance with the
filing requirements of the Commission as set forth in such Rule, as such Rule
may be amended from time to time, and make available to the public and such
holders such information as will enable the holders to make sales of Registrable
Securities pursuant to Rule 144.
8. Consent to be Bound. Each subsequent holder of Warrants, Warrant
-------------------
Shares,
<PAGE>
Preferred Shares, or Registrable Securities must consent in writing to be bound
by the terms and conditions of this Agreement in order to acquire the rights
granted pursuant to this Agreement.
9. Amendments. The provisions of this Agreement may be amended, and the
----------
Company may take any action herein prohibited or omit to perform any act herein
required to be performed by it, only if the Company has obtained the written
consent of all of the following: (i) Holders of at least fifty-one percent (51%)
of the Registrable Securities, (ii) the Majority Series A Holders, and (iii) the
Majority Series C Holders.
10. Form S-3.
--------
(a) After the first public offering of its securities registered under
the Securities Act, the Company shall use its best efforts to qualify and remain
qualified to register securities on Form S-3 under the Securities Act. All
Series A Holders and Series C Holders shall have the right to request any number
of registrations on Form S-3 (such requests shall be in writing and shall state
the number of shares of Registrable Securities to be disposed of and the
intended method of disposition of such shares by such holder or holders). The
Company shall not be required to effect a registration pursuant to this Section
10 if the holder or holders requesting registration propose to dispose of shares
of the Registrable Securities having an aggregate disposition price (before
deduction of underwriting discounts and expenses of sale) of less than $500,000.
This Section shall not be interpreted to restrict the Company from acquiring its
own shares or to require the Company to sell its own shares. The Company shall
give notice to all holders of the Registrable Securities of the receipt of a
request for registration pursuant to this Section 10 and shall provide a
reasonable opportunity for other Holders to participate in the registration.
Subject to the foregoing, the Company will use its best efforts, in each case,
to effect promptly the registration of all shares of the Registrable Securities
on Form S-3 to the extent requested by the Holder or Holders thereof for
purposes of disposition.
(b) If at the time of any request to register Registrable Securities
pursuant to Section 10(a) the Company is preparing or within thirty (30) days
thereafter commences to prepare a registration statement for a public offering
(other than a registration effected solely to implement an employee benefit plan
or a transaction to which Rule 145 of the Commission is applicable) which in
fact is filed and becomes effective within ninety (90) days after the request,
or is engaged in any activity which, in the good faith determination of the
Company's board of directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of
four months from the effective date of such offering or the date of commencement
of such other activity, as the case may be, such right to delay a request to be
exercised by the Company not more than once in any one year period. Nothing in
this Section 10 shall preclude a holder of Registrable Securities from enjoying
registration rights which it might otherwise possess under Section 3 hereof.
11. Assignability of Registration Rights. The registration rights set
------------------------------------
forth in this Agreement are assignable to each assignee as to each Warrant, each
Preferred Share, or each
<PAGE>
share of Registrable Securities conveyed in accordance herewith who agrees in
writing to be bound by the terms and conditions of this Agreement. The
registration rights under this Agreement may be assigned to any Person only if
and to the extent that shares of Registrable Securities are transferred to such
Person. The term "seller" as used in this Agreement refers to a Holder of the
Registrable Securities selling such shares.
12. Rights Which May Be Granted to Subsequent Investors. The Company shall
---------------------------------------------------
not grant subsequent registration rights to any third party which would result
in such party being entitled to participate in any registration requested
pursuant to Section 2, or which would result in any reduction in the number of
shares of Registrable Securities that any Holder would be entitled to include
absent the participation of such party in any registration in which such Holder
is entitled to participate pursuant to Section 3 or 10, or which are otherwise
superior or equal to the registration rights granted pursuant to this Agreement
so long as any of the registration rights under this Agreement remain in effect.
13. Damages. The Company recognizes and agrees that each holder of
-------
Registrable Securities will not have an adequate remedy if the Company fails to
comply with the terms and provisions of this Agreement and that damages will not
be readily ascertainable, and the Company expressly agrees that, in the event of
such failure, it shall not oppose an application by any holder of Registrable
Securities or any other Person entitled to the benefits of this Agreement
requiring specific performance of any and all provisions hereof or enjoining the
Company from continuing to commit any such breach of this Agreement.
14. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to the Purchaser as follows:
(a) The execution, delivery and performance of this Agreement by the
Company have been duly authorized by all requisite corporate action and will not
violate any provision of law, any order of any court or other agency of
government, the Articles of Incorporation or By-laws of the Company or any
provision of any indenture, agreement or other instrument to which it or any of
its properties or assets is bound, conflict with, result in a breach of or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument or result in the creation or imposition
of any lien, charge or encumbrance of any nature whatsoever upon any of the
properties or assets of the Company.
(b) This Agreement has been duly and validly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms.
15. Miscellaneous.
-------------
(a) All notices, requests, demands and other communications provided
for hereunder shall be in writing and mailed (by first class registered or
certified mail, postage prepaid), telegraphed, sent by express overnight courier
service or electronic facsimile
<PAGE>
transmission (with a copy by mail), or delivered to the applicable party at the
addresses indicated below:
If to the Company:
Law Office Information Systems, Inc.
105 North 28th Street
Van Buren, Arkansas 72956
Attn: Kyle D. Parker, President
Telecopy No.: (501) 471-9224
With a copy to:
Thompson & Knight
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
Attention: Kenn W. Webb, Esq.
Telecopy No.: (214) 969-1751
If to the Capital Resource Parties:
Capital Resource Lenders III, L.P. or
CRP Investment Partners III, LLC
c/o Capital Resource Partners
85 Merrimac Street
Suite 200 Boston, Massachusetts 02114
Attention: Robert C. Ammerman
Telecopy No.: (617) 723-9819
With a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attention: Andrew E. Taylor, Jr., Esq.
Telecopy No.: (617) 248-7100
If to Dublind Inc.:
Dublind Partners, Inc.
80 Field Point Road
Second Floor
Greenwich, Connecticut 06830
<PAGE>
Attention: Nestor Olivier
Telecopy No.: (203) 869-6345
If to Sandler IV or Sandler IV FTE:
Sandler Capital Partners IV, L.P.
Sandler Capital Partners IV FTE, L.P.
767 Fifth Avenue, 45th Floor
New York, New York 10153
Attention: Hannah C. Stone
Telecopy No.: (212) 826-0280
With a copy to:
Baker & Botts, LLP
599 Lexington Avenue
New York, New York 10022
Attention: Lee D. Charles, Esq.
Telecopy No.: (212) 705-5125
If to Exeter:
Exeter Capital Partners IV, L.P.
10 East 53rd Street
New York, New York 10022
Attn: Keith R. Fox
Fax: (212) 872-1198
If to Beyland:
Law Office Information Systems, Inc.
105 North 28th Street
Van Buren, Arkansas 72956
Attention: Mark Beyland
Telecopy No.: (501) 471-9224
If to any other holder of Warrants, Warrant Shares, Preferred Shares, or
Registrable Securities:
at such holder's address for notice as set
forth in the books and records of the Company,
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other parties complying as to delivery
with the terms of this subsection (a).
<PAGE>
All such notices, requests, demands and other communications shall, when mailed,
telegraphed or sent, respectively, be effective (i) two days after being
deposited in the mails or (ii) one day after being delivered to the telegraph
Company, deposited with the express overnight courier service or sent by
electronic facsimile transmission, respectively, addressed as aforesaid.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Massachusetts.
(c) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
(d) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
(e) This Agreement shall supersede the Existing Registration Rights
Agreement, and upon the execution and delivery of this Agreement by all parties
hereto, the Existing Registration Rights Agreement shall terminate and be of no
further force or effect.
[Remainder of Page Intentionally Left Blank]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be duly executed as of the date first set forth above.
LAW OFFICE INFORMATION SYSTEMS, INC.
By: /s/ Kyle Parker
--------------------------------------------
Name: Kyle Parker
Title: Chief Executive Officer
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
Its General Partner
By: /s/ Robert C. Ammerman
--------------------------------------------
CRP Investment Partners III, LLC
By:/s/ Robert C. Ammerman
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
/s/ Rowland T. Moriarty
----------------------------------------------
Rowland T. Moriarty
<PAGE>
/s/ Charles J. Lindsay
-------------------------------------------------
Charles J. Lindsay
/s/ Charles J. Lindsay
-------------------------------------------------
Charles J. Lindsay, a Custodian for
Michael D. Lindsay under the Connecticut Uniform
Transfers to Minors Act
/s/ Charles J. Lindsay
--------------------------------------------------
Charles J. Lindsay,
as Custodian of Maxwell C.
Lindsay under the Connecticut Uniform
Transfers to Minors Act
/s/ Charles J. Lindsay
--------------------------------------------------
Charles J. Lindsay,
as Custodian of Susan M.
Lindsay under the Connecticut Uniform
Transfers to Minors Act
/s/ Charles J. Lindsay
--------------------------------------------------
Charles J. Lindsay,
as Custodian of Sally M.
Lindsay under the Connecticut Uniform
Transfers to Minors Act
/s/ George P. Lindsay
--------------------------------------------------
George P. Lindsay
/s/ Charles M. Dubroff
--------------------------------------------------
Charles M. Dubroff
/s/ Nester J. Olivier
--------------------------------------------------
Nester J. Olivier
/s/ Nestor J. Olivier
--------------------------------------------------
Nestor J. Olivier,
as Custodian for Maximilian A.
Olivier under the Connecticut Uniform
Transfers to Minor Act
SANDLER CAPITAL PARTNERS IV, L.P.
By: SANDLER INVESTMENT PARTNERS, General Partner
By: SANDLER CAPITAL MANAGEMENT, General Partner
By: MJDM MEDIA CORP., a General Partner
By: /s/ Edward Grinacoff
-------------------------------------
Edward Grinacoff
President
SANDLER CAPITAL PARTNERS IV, FTE, L.P.
By: SANDLER INVESTMENT PARTNERS, General Partner
By: SANDLER CAPITAL MANAGEMENT, General Partner
By: MJDM MEDIA CORP., a General Partner
By: /s/ Edward Grinacoff
-----------------------------------
Edward Grinacoff
President
/s/ Mark Beyland
___________________________________
Mark Beyland
EXETER CAPITAL PARTNERS IV, L.P.
By: EXETER IV ADVISORS, L.P., General Partner
By: EXETER IV ADVISORS, INC., General Partner
/s/ Keith Fox
By:____________________________________
Title:_________________________________
DUBLIND PARTNERS INC.
By: /s/ Charles Lindsay
----------------------------------------
Name: Charles Lindsay
Title: President
[Signature Page to Registration Rights Agreement]
<PAGE>
EXHIBIT 10.1
LAW OFFICE INFORMATION SYSTEMS, INC.
1996 STOCK OPTION PLAN
1. Purpose of the Plan. The purposes of this Stock Option Plan are to
-------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and any Parent or Subsidiary and to promote the success of the
Company's business. Options granted under the Plan may be Incentive Stock
Options or Nonstatutory Stock Options, as determined by the Administrator at the
time of grant of an option and subject to the applicable provisions of Section
422 of the Code and the regulations promulgated thereunder.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees appointed
-------------
pursuant to Section 4 of the Plan.
(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 of Directors
---------
in accordance with Section 4 of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
------------
(f) "Company" means Law Office Information Systems, Inc.
-------
(g) "Consultant" means any person who is engaged by the Company or any
----------
Parent or Subsidiary to render consulting or advisory services and is
compensated for such services and any director of the Company whether
compensated for such services or not. If and in the event the Company registers
any class of any equity security pursuant to the Exchange Act, the term
Consultant shall thereafter not include directors who are not compensated for
their services or are paid only a director's fee by the Company.
(h) "Continuous Status as an Employee or Consultant" means that the
-----------------------------------------------
employment or consulting relationship with the Company, any Parent or Subsidiary
is not interrupted or terminated. Continuous Status as an Employee or
Consultant shall not be considered interrupted in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor. A
leave of absence approved by the Company shall include sick leave, military
leave, or any other personal leave. For purposes of Incentive Stock Options, no
such leave may exceed 90 days, unless reemployment upon expiration of such leave
is guaranteed by statute or contract, including Company policies. If
reemployment upon expiration of a leave of absence approved by the Company is
not so guaranteed, on the 181st day of such leave any Incentive Stock Option
held by the Optionee shall
1
<PAGE>
cease to be treated as an Incentive Stock Option and shall be treated for tax
purposes as a Nonstatutory Stock Option.
(i) "Disability" means total and permanent disability, as defined in
----------
Section 22(e)(3) of the Code.
(j) "Employee" means any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the Nasdaq National
Market or The Nasdaq Small Cap Market of the Nasdaq Stock Market, its Fair
Market Value shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such exchange or system for the
last market trading day prior to the time of determination, as reported in The
Wall Street Journal or such other source as the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
on the last market trading day prior to the day of determination; or
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(m) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
(o) "Option" means a stock option granted pursuant to the Plan.
------
(p) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(q) "Optionee" means an Employee or Consultant who receives an
--------
Option.
(r) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(s) "Plan" means this 1996 Stock Option Plan.
----
2
<PAGE>
(t) "Section 16(b)" means Section 16(b) of the Securities Exchange
------------
Act of 1934, as amended.
(u) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 11 below.
(v) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 500,000 Shares. The Shares may be authorized, but unused, or
reacquired Common Stock.
If an Option expires or becomes unexercisable without having been exercised
in full, or is surrendered pursuant to an option exchange program authorized by
the Administrator, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
the Plan shall not be returned to the Plan and shall not become available for
future distribution under the Plan, except that if unvested Shares are
repurchased by the Company at their original purchase price, and the original
purchaser of such Shares did not receive any benefits of ownership of such
Shares, such Shares shall become available for future grant under the Plan. For
purposes of the preceding sentence, voting rights shall not be considered a
benefit of Share ownership.
4. Administration of the Plan.
--------------------------
(a) Initial Plan Procedure. Prior to the date, if any, upon which
----------------------
the Company becomes subject to the Exchange Act, the Plan shall be administered
by the Board or a committee appointed by the Board.
(b) Plan Procedure after the Date, if any, upon Which the Company
-------------------------------------------------------------
becomes Subject to the Exchange Act.
- -----------------------------------
(i) Administration With Respect to Directors and Officers Subject to
----------------------------------------------------------------
Section 16(B). With respect to Option grants made to Employees who are also
- -------------
Officers or Directors subject to Section 16(b) of the Exchange Act, the Plan
shall be administered by (A) the Board, if the Board may administer the Plan in
a manner complying with the rules under Rule 16b-3 relating to the disinterested
administration of employee benefit plans under which Section 16(b) exempt
discretionary grants and awards of equity securities are to be made, or (B) a
committee designated by the Board to administer the Plan, which committee shall
be constituted to comply with the rules under Rule 16b-3 relating to the
disinterested administration of employee benefit plans under which Section 16(b)
exempt discretionary grants and awards of equity securities are to be made.
Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill
3
<PAGE>
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by the
rules under Rule 16b-3 relating to the disinterested administration of employee
benefit plans under which Section 16(b) exempt discretionary grants and awards
of equity securities are to be made.
(ii) Administration With Respect to Other Persons. With respect to
--------------------------------------------
Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a committee designated by the Board, which committee shall be constituted to
satisfy the legal requirements, if any, relating to the administration of
incentive stock option plans of state corporate and securities laws, of the
Code, and of any stock exchange or national market system upon which the Common
Stock is then listed or traded (the "Applicable Laws"). Once appointed, such
Committee shall serve in its designated capacity until otherwise directed by the
Board. The Board may increase the size of the Committee and appoint additional
members, remove members (with or without cause) and substitute new members, fill
vacancies (however caused), and remove all members of the Committee and
thereafter directly administer the Plan, all to the extent permitted by
Applicable Laws.
(c) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan and, in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange or national market
system upon which the Common Stock is then listed, the Administrator shall have
the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(l) of the Plan;
(ii) to select the Consultants and Employees to whom Options may from
time to time be granted hereunder;
(iii) to determine whether and to what extent Options are granted
hereunder;
(iv) to determine the number of shares of Common Stock to be covered
by each such award granted hereunder.
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder. Such terms and conditions
may include., but are not limited to, the exercise price, the time or times when
Options may be exercised, any vesting acceleration or waiver of forfeiture
restrictions, and any restriction or limitation regarding any Option or the
Shares relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(vii) to determine whether and under what circumstances an Option may
be settled in cash under Section 9(e) instead of Common Stock.
4
<PAGE>
(viii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option has declined since the date the Option was granted;
(ix) to provide for the early exercise of Options for the purchase
of unvested Shares, subject to such terms and conditions as the Administrator
may determine; and
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan.
(d) Effect of Administrator's Decision. All decisions,
----------------------------------
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options.
5. Eligibility.
-----------
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees. An
Employee or Consultant who has been granted an Option may, if otherwise
eligible, be granted additional Options.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5(b), Incentive Stock Options shall be taken into account in the order
in which they were, granted, and the Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(c) The Plan shall not confer upon any Optionee any right with
respect to the continuation of the Optionee's employment or consulting
relationship with the Company, nor shall it interfere in any way with, the
Optionee's right or the Company's right to terminate the Optionee's employment,
or consulting relationship at any time, with or without cause.
(d) Upon the Company or a successor corporation issuing any class
of common equity securities required to be registered under Section 12 of the
Exchange Act or upon the Plan being assumed by a corporation having a class of
common equity securities required to be registered under Section 12 of the
Exchange Act, the following limitations shall apply to grants of Options to
Employees:
(i) No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 100,000 Shares.
(ii) In connection with his or her initial employment, and Employee
may be: granted Options to purchase up to an additional 100,000 Shares which
shall not count against the limit set forth in subsection (i) above.
5
<PAGE>
(iii) The foregoing limitations shall be adjusted proportionately in
connection with any change in the Company's capitalization as described in
Section 11.
(iv) If an Option is cancelled in the same fiscal year of the Company
in which it was granted (other than in connection with a transaction described
in Section 11), the cancelled Option will be counted against the limit set forth
in subsection (i) above. For this purpose, if the exercise price of an Option
is reduced, the transaction will be treated as a cancellation of the Option and
the grant of a new Option.
6. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors of its approval by the
shareholders of the Company, as described in Section 17 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 13 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
--------------
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time of the Option is granted,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
---------------------------------------
(a) The per share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in the preceding paragraph, the per Share exercise price shall be no
less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per share
exercise price shall be determined by the Administrator.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired
6
<PAGE>
upon exercise of an Option have been owned by the Optionee for more than six
months on the date of surrender and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which such
Option shall be exercised, (5) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price, or
(6) any combination of the foregoing methods of payment. In making its
determination as to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
9. Exercise of Option.
------------------
(a) Procedure for Exercise, Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other fights as a shareholder shall exist with respect the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Upon
----------------------------------------------------
termination of an Optionee's Continuous Status as an Employee or Consultant,
other than upon the Optionee's death or Disability, the Optionee may exercise
his or her Option, but only within such period of time as is specified in the
Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration of the term of such Option as set forth in the Notice of Grant). In
the absence of a specified time in the Notice of Grant, the Option shall remain
exercisable for three (3) months following the Optionee's termination. In the
case of any Incentive Stock Option, such period of time for exercise shall not
exceed three (3) months from the date of termination. If, on the date of
termination, the Optionee is not entitled to exercise the Optionee's entire
Option, the Shares covered by the unexercisable portion of the Option shall
revert
7
<PAGE>
to the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
Notwithstanding the above, in the event of an Optionees change in
status from Consultant to Employee or Employee to Consultant, an Optionee's
Continuous Status as an Employee or Consultant shall not automatically terminate
solely as a result of such change in status. However, in such event, an
Incentive Stock Option held by the Optionee shall cease to be treated as an
Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory
Stock Option three months and one day following such change of status.
(c) Disability of Optionee. In the event of termination of an
----------------------
Optionee's Continuous Status as an Employee or Consultant as a result of his or
her Disability, the Optionee may, but only within twelve (12) months from the
date of such termination (and in no event later than the expiration date of the
term of his or her Option as set forth in the Option Agreement), exercise the
Option to the extent the Optionee was otherwise entitled to exercise it on the
date of such termination. To the extent that the Optionee is not entitled to
exercise the Option on the date of termination, or if the Optionee does not
exercise the Option to the extent so entitled within the time specified herein,
the Option shall terminate, and the Shares covered by the Option shall revert to
the Plan.
(d) Death of Optionee. In the event of the death of an Optionee, the
-----------------
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than, the expiration of the term of such Option
as set forth in the Notice of Grant), by the Optionee's estate or by a person
who has acquired the right to exercise the Option by bequest or inheritance, but
only to the extent that the Optionee was entitled to exercise the Option at the
date of death. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after death,
the Optionee's estate or a person who acquires the right to exercise the Option
by bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. Administrator may at any time offer to buy out
-----------------
for a payment in cash or Shares, an Option previously granted, based on such
terms and conditions as the Administrator shall establish and communicate to the
Optionee at the time that such offer is made.
(f) Rule 16b-3. Options granted to persons subject to Section 16(b)
----------
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
10. Non-Transferability of Options. Options may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
8
<PAGE>
11. Adjustments Upon Changes in Capitalization or Merge.
---------------------------------------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as, the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation, or the sale of substantially all of the assets
of the Company, each outstanding Option shall be assumed or an equivalent option
substituted by the successor corporation or a Parent or Subsidiary of the
successor corporation. In the event that the successor corporation refuses to
assume or substitute for the Option, the Optionee shall have the right to
exercise the Option as to all of the Optioned Stock, including Shares as to
which it would not otherwise be exercisable. If an Option is exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Administrator shall notify the Optionee that the Option shall be fully
exercisable for a period of fifteen (15) days from the date of such notice, and
the Option shall terminate upon the expiration of such period. For the purposes
of this paragraph, the Option shall be considered assumed if, following the
merger or sale of assets, the option confers the right to purchase or receive,
for each Share of Optioned Stock subject to the Option immediately prior to the
merger or sale of assets, the consideration (whether stock, cash, or other
securities or properly) received in the merger or sale of assets by holders of
Common Stock for each Share held on the effective date of the transaction (and
if holders were offered a choice of consideration, the type of consideration
chosen by the holders of
9
<PAGE>
a majority of the outstanding Shares); provided, however, that if such
consideration received in the merger or sale of assets was not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option, for each Share of Optioned Stock
subject to the Option, to be solely common stock of the successor corporation or
its Parent equal in fair market value to the per share consideration received by
holders of Common Stock in the merger or sale of assets.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date on which the Administrator makes the determination
granting such Option, or such other date as is determined by the Administrator.
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 at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but no amendment, alteration, suspension
or discontinuation shall be made which would impair the rights of any Optionee
under any grant theretofore made, without his or her consent. In addition, to
the extent necessary and desirable to comply with Rule 16b-3 under the Exchange
Act or with Section 422 of the Code (or any other applicable law or regulation,
including the requirements of any stock exchange or national market system upon
which the Common Stock is then listed), the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted, and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
14. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or national market system
upon which the Common Stock is then listed or traded, and, shall be further
subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
10
<PAGE>
15. Reservation of Shares. The Company, during the term of this Plan,
---------------------
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The 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. Agreements. Options shall be evidenced by written agreements in such
----------
form as the Administrator shall approve from time to time.
17. Shareholder Approval. Continuance of the Plan shall be subject to
--------------------
approval by the shareholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such shareholder approval shall be obtained
in the degree and manner required under applicable state and federal law and the
rules of any stock exchange or national market system upon which the Common
Stock is then listed or traded.
11
<PAGE>
LAW OFFICE INFORMATION SYSTEMS, INC.
1996 STOCK OPTION PLAN
NOTICE OF GRANT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Notice of Grant.
[Optionee's Name: and Address]
__________________________
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Stock Option Agreement,
as follows:
Grant Number _______________________
Date of Grant _______________________
Vesting Commencement Date _______________________
Exercise Price per Share $______________________
Total Number of Shares Granted _______________________
Total Exercise Price $______________________
Type of Option: ________ Incentive Stock Option
________ Nonstatutory Stock Option
Term/Expiration Date: _______________________
Vesting Schedule:
- ----------------
This Option may be exercised, in whole or in part, in accordance with the
following schedule:
Twenty-five percent (25%) of the Shares subject to this Option shall vest
twelve (12) months after the Vesting Commencement Date, and one forty-eighth
(1/48th) of the Shares subject to the Option shall vest each month thereafter.
Termination Period:
------------------
This Option may be exercised for three (3) months after termination of
employment or consulting relationship, or such longer period as may be
applicable upon death or Disability of
12
<PAGE>
Optionee as provided in the Plan, but in no event later than the Term/Expiration
Date as provided above.
13
<PAGE>
LAW OFFICE INFORMATION SYSTEMS, INC.
1996 STOCK OPTION PLAN
OPTION AGREEMENT
1. Grant of Option. Law Office Information Systems, Inc. (the
---------------
"Company"), hereby grants to the Optionee (the "Optionee") named in the Notice
of Grant, an option (the "Option") to purchase the total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price") subject
to the terms, definitions and provisions of the 1996 Stock Option Plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
If designated in the Notice of Grant as an Incentive Stock Option ("ISO"),
this Option is intended to qualify as an Incentive Stock Option as defined in
Section 422 of the Code. However, if this Option is intended to be Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
2. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the provisions of Section 9 of the Plan as follows:
(a) Right to Exercise.
-----------------
(i) This Option may not be exercised for a fraction of a Share.
(ii) In the event of Optionee's death, disability or other
termination of the Optionee's Continuous Status as an Employee or Consultant,
the exercisability of the Option is governed by Sections 6, 7 and 8 below,
subject to the limitation contained in subsection 2(i)(c).
(iii) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(b) Method of Exercise. This Option shall be exercisable by written
------------------
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accomplished by payment of the Exercise Price. This Option shall be deemed to
be exercised upon receipt by the Company of such written notice accompanied by
the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of law
and the requirements of any stock exchange or national market systems upon which
the Common Stock is then listed. Assuming such
14
<PAGE>
compliance, for income tax purposes the Shares shall be considered transferred
to the Optionee on the date on which the Option is exercised with respect to
such Shares.
3. Optionee's Representations. In the event the Shares purchasable
--------------------------
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his or her Investment
Representation Statement in the form attached hereto as Exhibit B.
4. Lock-Up Period. Optionee hereby agrees that if so requested by the
--------------
Company or any representative of the underwriters, (the "Managing Underwriter")
in connection with any registration of the offering of any securities of the
Company under the Securities Act, Optionee shall not sell or otherwise transfer
any Shares or other securities of the Company during the 180-day period (or such
longer period as may be requested in writing by the Managing Underwriter and
agreed to in writing by the Company) (the "Market Standoff Period") following
the effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall apply only to the
first registration statement of the Company to become effective under the
Securities Act that includes securities to be sold on behalf of the Company to
the public in an underwritten public offering under the Securities Act. The
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such Market Standoff Period.
5. Method of Payment. Payment of the Exercise Price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company option,
have been owned by the Optionee for more than six (6) months on the date of
surrender, and (B) have a Fair Market Value on the date of surrender equal to
the Exercise Price of the Shares as to which the Option is being exercised; or
(iv) to the extent authorized by the Company, delivery of a properly
executed exercise notice together with such other documentation as the
Administrator and the broker, if applicable, shall require to effect an exercise
of the Option and delivery to the Company of the sale or loan proceeds required
to pay the Exercise Price.
6. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations as promulgated by the
Federal Reserve Board. As a condition to the exercise of the Option, the
Company may require Optionee
15
<PAGE>
to make any representation and warranty to the Company as may be required by any
applicable law or regulation
7. Termination of Relationship. In the event an Optionee's Continuous
---------------------------
Status as an Employee or Consultant terminates, Optionee may, to the extent
otherwise so entitled at the date of such termination (the "Termination Date"),
exercise this Option during the Termination Period set out in the Notice of
Grant. To the extent that Optionee was not entitled to exercise this Option at
the date of such termination, or if Optionee does not exercise this Option
within the time specified herein, the Option shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 6
----------------------
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his or her Disability, Optionee may, but
only within twelve (12) months from the date of such termination (and in no
event later than the expiration date of the term of such Option as set forth in
the Notice of Grant) exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee is not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
9. Death of Optionee. In the event of termination of Optionee's
-----------------
Continuous Status as an Employee or Consultant as a result of the death of
Optionee, the Option may be exercised at any time within twelve (12) months
following the date of death (but in no event later than the date of expiration
of the term of this Option as set forth in Section 10 below), by Optionee's
estate or by a person who acquired the right to exercise the Option by bequest
or inheritance, but only to the extent the Optionee could exercise the Option at
the date of death.
10. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs
successors and assigns of the Optionee.
11. Term of Option. This Option may be exercised only within the term set
--------------
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
12. Tax Consequences. Set forth below is a brief summary as of the date
----------------
of this Option of some of the federal tax consequences of exercise of this
Option and disposition of the Shares. THIS SUMMARY IS NECESSARILY INCOMPLETE,
AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT
A TAX ADVISOR BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(a) Exercise of an I SO. If this Option qualifies as an ISO, there
-------------------
will be no regular federal income tax liability upon the exercise of the Option,
although the excess, if any, of the Fair
16
<PAGE>
Market Value of the Shares on the date of exercise over the Exercise Price will
be treated as an adjustment to the alternative minimum tax for federal tax
purposes and may subject the Optionee to the alternative minimum tax in the year
of exercise.
(b) Exercise of an NSO. There may be a regular federal income tax
------------------
liability upon the exercise of an NSO. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to the
excess, if any, of the Fair Market Value of the Shares on the date of exercise
over the Exercise Price. If Optionee is an Employee, the Company will be
required to withhold from Optionee's compensation or collect from Optionee and
pay to the applicable taxing authorities an amount equal to a percentage of this
compensation income at the time of exercise.
(c) Disposition of Shares. In the case of an NSO, if Shares are held
---------------------
for at least one year, any gain realized on disposition of the Shares will be
treated as long-term capital gain for federal income tax purposes. In the case
of an ISO, if Shares transferred pursuant to the Option are held for at least
one year after exercise and are disposed of at least two years after the Date of
Grant, any gain realized on disposition of the Shares will also be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of within such one-year period or within two years
after the Date of Grant, any gain realized on such disposition will be treated
as compensation income (taxable at ordinary income rates) to the extent of the
difference between the Exercise Price and the lesser of (1) the Fair Market
Value of the Shares on the date of exercise, or (2) the sale price of the
Shares.
(d) Notice of Disqualifying Disposition of ISO Shares. If the Option
-------------------------------------------------
granted to Optionee herein is an ISO, and if Optionee sells or otherwise
disposes of any of the Shares acquired pursuant to the ISO on or before the
later of (1) the date two years after the Date of Grant, or (2) the date one
year after the date of exercise, the Optionee shall immediately notify the
Company in writing of such disposition. Optionee agrees that Optionee may be
subject to income tax withholding by the Company on the compensation income
recognized by the Optionee.
Law Office Information Systems, Inc.
By: ________________________________________
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO THE
OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL
OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S 1996 STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL
IT INTERFERE IN ANY WAY WITH OPTIONEE'S RIGHT OR
17
<PAGE>
THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR CONSULTANCY AT ANY
TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof Optionee has reviewed
the Plan and this Option in their entirety, has had an opportunity to obtain the
advice of counsel prior to executing this Option and fully understands all
provisions of the Option. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Administrator upon
any questions arising under the Plan or this Option. Optionee further agrees to
notify the Company upon any change in the residence address indicated below.
Dated:________________ _____________________________________________
Optionee
Residence Address:
_____________________________________________
_____________________________________________
CONSENT OF SPOUSE
-----------------
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
_____________________________________________
Spouse of Optionee
18
<PAGE>
Exhibits to Stock Option Plan
Exhibit A 1996 Stock Option Plan Exercise Notice
Exhibit B Investment Representation Statement
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of June ___, 1999,
between Loislaw.com, Inc., a Delaware corporation (the "Company"), and Kyle D.
Parker, an individual residing in Van Buren, Arkansas (the "Executive").
WHEREAS, the Executive is presently employed by the Company, and is willing
to commit himself to continue to serve the Company on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and the Executive hereby agree as follows:
1. Employment. The Company agrees to continue to employ the Executive,
----------
and the Executive agrees to remain in the employ of the Company, for the period
set forth in Paragraph 2, in the position and with the duties and
responsibilities set forth in Paragraph 3, and upon the other terms and
conditions herein provided.
2. Term. The employment of the Executive by the Company as provided in
----
Paragraph 1 shall be for a period commencing on the date of this Agreement
through and ending on June __, 2002, unless sooner terminated as herein provided
(the "Employment Term").
3. Position and Duties.
-------------------
(a) During the Employment Term, the Executive shall serve as Chairman of
the Board and Chief Executive Officer of the Company. In such capacities, the
Executive, subject to the ultimate control and direction of the Board of
Directors of the Company, shall have and exercise (i) direct charge of and
general supervision over the business and affairs of the Company and (ii) the
duties and functions normally incident to the offices of chairman of the board
and chief executive officer of a company similar to the Company. In addition,
the Executive shall have such other duties, functions, responsibilities, and
authority as are from time to time delegated to the Executive by the Board of
Directors of the Company, provided that such duties, functions,
responsibilities, and authority are reasonable and customary for a person
serving in the aforesaid functions of an enterprise comparable to the Company.
The Executive shall report and be accountable to the Board of Directors of the
Company.
1
<PAGE>
(b) During the Employment Term, the Executive shall devote his full
time, skill, and attention and his best efforts to the business and affairs of
the Company to the extent necessary to discharge fully, faithfully and
efficiently the duties and responsibilities delegated and assigned to the
Executive herein or pursuant hereto, except for usual, ordinary, and customary
periods of vacation and absence due to illness or other disability.
(c) In connection with the Executive's employment by the Company under
this Agreement, the Executive shall be based at the principal executive offices
of the Company in Van Buren, Arkansas, except for such reasonable travel as the
performance of the Executive's duties in the business of the Company may
require.
(d) All services that the Executive may render to the Company or any of
its subsidiaries or affiliates in any capacity during the Employment Term shall
be deemed to be services required by this Agreement and consideration for the
compensation provided for herein.
4. Compensation and Related Matters.
--------------------------------
(a) Base Salary. During the Employment Term, the Company shall pay to
-----------
the Executive for his services hereunder a base salary ("Base Salary") at the
rate of Two Hundred Twenty-Five Thousand Dollars ($225,000.00) per year, payable
in installments in accordance with the general payroll practices of the Company,
or as otherwise mutually agreed upon. The Executive's Base Salary shall be
subject to such adjustments as may be determined from time to time by the
compensation committee of the Board of Directors of the Company in its sole
discretion, but in no event shall the Company pay the Executive a Base Salary at
a rate less than that set forth in the immediately preceding sentence.
(b) Executive Bonus and Benefits. During the Employment Term, the
----------------------------
Executive may be entitled, in the sole discretion of the compensation committee
of the Board of Directors, to annual cash bonuses in amounts not to exceed 50%
of his then-current Base Salary for any calendar year. Further, Executive shall
be entitled to participate in all additional employee benefit plans (including,
stock option plans and long-term incentive plans), programs and arrangements
that are generally made available by the Company to its senior executives.
(c) Medical and Dental Coverage . During the Employment Term, the Company
---------------------------
shall provide, at its cost, full medical and
2
<PAGE>
dental coverage to Employee under the Company's group insurance plans as in
effect from time to time.
(d) Expenses. During the Employment Term, the Executive shall be
--------
entitled to receive prompt reimbursement on a timely basis (according to the
then-current practices of the Company) for all reasonable expenses incurred by
the Executive in performing his duties and responsibilities hereunder upon the
presentation by the Executive of an itemized monthly accounting of such
expenditures, including receipts where required by Company policy or federal
income tax regulations.
(e) Vacations. During the Employment Term, the Executive shall be
---------
entitled to four (4) weeks of paid vacation each year. The Executive shall also
be entitled to all paid holidays given by the Company to its senior executives.
The Executive agrees to utilize his vacation at such time or times as are (i)
consistent with the proper performance of his duties and responsibilities
hereunder and (ii) mutually convenient for the Company and the Executive.
5. Termination of Employment.
-------------------------
(a) Death. The Executive's employment hereunder shall terminate
-----
automatically upon his death.
(b) Disability. If the Disability (as defined below) of the Executive
----------
occurs during the Employment Term, the Company may notify the Executive of the
Company's intention to terminate the Executive's employment hereunder for
Disability. In such event, the Executive's employment hereunder shall terminate
effective on the 15th day following the date such notice of termination is
received by the Executive (the "Disability Effective Date"). For purposes of
this Agreement, the "Disability" of the Executive shall be deemed to have
occurred at such time as the Board of Directors of the Company determines, in
its sole and absolute discretion, (i) that despite any reasonable accommodation
required by law, the Executive is unable to perform the essential functions of
his position hereunder as a result of his physical or mental incapacity and
(ii)that such inability has existed or is likely to exist for a period of three
months or more.
(c) Termination by Company.
----------------------
(i) For Cause. The Company may terminate the Executive's employment
---------
hereunder for Cause (as defined below) (a "For Cause Termination"). For
purposes of this Agreement, "Cause" shall mean any of the following: (A)
any misrepresentation of a material fact to, or concealment of a material
fact from, a member of the Board of Directors of
3
<PAGE>
the Company; (B) the Executive's failure to follow a lawful written
directive of the Board of Directors; (C) the Executive's willful violation
of any material rule, regulation or policy that may be established from
time to time in the Company's business; (D) the Executive's unlawful
possession, use or sale of narcotics or other controlled substances, or
performing job duties while such controlled substances are present in the
Executive's body; (E) the Executive operating a vehicle in the course of
his employment under the influence of alcohol (meaning a blood alcohol
level which would establish a felony or misdemeanor under the applicable
state law, or a conviction of or plea of guilty or no contest to such a
felony or misdemeanor); (F) any act or omission of the Executive in the
scope of his employment (i) that results in the assessment of a criminal
penalty against the Executive or the Company, or (ii) that in the
reasonable judgment of the Board of Directors would result in a material
violation of any federal, state, local or foreign law or regulation; or (G)
the Executive's conviction of or a plea of guilty or no contest to any
crime involving an act of moral turpitude. Whether any termination of
Executive's employment hereunder constitutes a For Cause Termination in
accordance with the foregoing shall be determined in the reasonable
judgment of the Board of Directors.
(ii) Without Cause. The Company may terminate the Executive's
-------------
employment hereunder without Cause for any or no reason. For purposes of
this Agreement, a "Without Cause Termination" shall mean a termination by
the Company of the Executive's employment hereunder other than pursuant to
(x) a For Cause Termination, or (y) Disability.
(d) Constructive Termination. The Executive may terminate his employment
------------------------
hereunder if a Constructive Termination occurs. A "Constructive Termination" of
Executive's employment with the Company shall be deemed to have occurred if the
Company:
(i) demotes Executive to a lesser position, either in title or
responsibility, than the highest position held by him with the Company at
any time during his employment with the Company; or
(ii) decreases Executive's compensation below the highest level in
effect at any time during his employment with the Company or reduces
Executive's benefits and perquisites below the highest levels in effect at
any time during his employment with the Company (other than as a result of
any amendment or termination of any employee or group or other executive
benefit plan, which amendment or
4
<PAGE>
termination is applicable to all executives of the Company).
(e) Notice of Termination. Any termination of the Executive's
---------------------
employment hereunder by the Company or by the Executive (other than a
termination pursuant to Paragraph 5(a)) shall be communicated by a Notice of
Termination (as defined below) to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which
(i) indicates the specific termination provision in this Agreement relied upon,
(ii) in the case of a termination for Disability or a For Cause Termination or a
Constructive Termination, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) specifies the Employment
Termination Date (as defined in Paragraph 5(f) below). The failure by the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Disability or Cause shall not waive any right of the
Company hereunder or preclude the Company from asserting such fact or
circumstance in enforcing the Company's rights hereunder.
(f) Employment Termination Date. For purposes of this Agreement,
---------------------------
"Employment Termination Date" shall mean the effective date of termination of
the Executive's employment hereunder, which date shall be (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated because of his Disability, the Disability
Effective Date, (iii) if the Executive's employment is terminated by the Company
pursuant to a For Cause Termination or a Without Cause Termination, the date
specified in the Notice of Termination, which date shall in no event be earlier
than the date such notice is given, and (iv) if the Executive's employment is
terminated by the Executive pursuant to a Constructive Termination, the date on
which the Notice of Termination is given.
(g) Resignation. In the event of termination of the Executive's
-----------
employment hereunder (for any reason other than the death of the Executive), the
Executive agrees that if at such time he is a member of the Board of Directors
or officer of the Company or a director or officer of any of its subsidiaries,
he will promptly deliver to the Company his written resignation from all such
positions, such resignation to be effective as of the Employment Termination
Date.
5
<PAGE>
6. Company Obligations Upon Termination of Employment.
--------------------------------------------------
(a) Death. If the Executive's employment hereunder is terminated by
-----
reason of the Executive's death, the Company shall pay to the Executive's estate
a sum equal to 12 month's Base Salary at the Executive's last current rate. Any
such amounts payable under this Paragraph 6(a) shall be paid in equal monthly
installments for a period of one year, such payments to begin as of the
Employment Termination Date. In addition, if the Executive's employment
hereunder is terminated by reason of the Executive's death, the Company shall
continue to provide medical insurance at the level provided at the Employment
Termination Date for the Executive's spouse for a period of five years after the
Employment Termination Date and for each of his children for a period beginning
on the Employment Termination Date and ending on the earlier of (i) five years
after the Employment Termination Date and (ii) the date on which such child
ceases to be a "dependent" of Executive's spouse within the meaning of Section
152 of the Internal Revenue Code of 1986, as amended (the "Code"); provided,
that the Company shall be required to provide medical insurance to the
Executive's spouse and his children only for so long as, and to the extent that,
the Company provides medical insurance for its full-time employees; and,
provided, further, that this Paragraph 6(a) shall not prohibit the Company from
modifying or canceling its existing health insurance program.
(b) Disability. If the Executive's employment hereunder is terminated
----------
by reason of the Executive's Disability, the Company shall pay to the Executive
a sum equal to 12 month's Base Salary at the Executive's last current rate. Any
such amounts payable under this Paragraph 6(b) shall be paid in equal monthly
installments for a period of one year, such payments to begin as of the
Employment Termination Date. In addition, if the Executive's employment
hereunder is terminated by reason of the Executive's Disability that, in the
sole discretion of the Board of Directors, is a "permanent and total disability"
as defined in the Company's long-term disability insurance plan, or if the
Company does not maintain such a plan containing a definition of that term, as
defined in Section 22(e)(3) of the Code, then the Company shall continue to
provide medical insurance at the level provided at the Employment Termination
Date for the Executive and his spouse for a period of five years after the
Employment Termination Date and for each of his children for a period beginning
on the Employment Termination Date and ending on the earlier of (i) five years
after the Employment Termination Date and (ii) the date on which such child
ceases to be a dependent of Executive or Executive's spouse within the meaning
of Section 152 of the Code; provided, that the Company shall be required to
6
<PAGE>
provide medical insurance to the Executive, his spouse and his children only for
so long as, and to the extent that, the Company provides medical insurance for
its full-time employees; and provided further, that this Paragraph 6(b) shall
not prohibit the Company from modifying or canceling its existing health
insurance program.
(c) For Cause Termination. If the Executive's employment hereunder is
---------------------
terminated pursuant to a For Cause Termination, the Company shall pay to the
Executive, in a lump sum in cash within 15 days after the Employment Termination
Date, the Executive's Base Salary through the Employment Termination Date, to
the extent not theretofore paid, and, thereafter, the Company shall have no
further obligations to the Executive under this Agreement.
(d) Without Cause Termination. If the Executive's employment hereunder
-------------------------
is terminated by the Company by reason of a Without Cause Termination, the
Company shall pay to the Executive a sum equal to 12 month's Base Salary at the
Executive's last current rate. Any such amounts payable under this Paragraph
6(d) shall be paid in equal monthly installments for a period of one year, such
payments to begin as of the Employment Termination Date.
(e) Constructive Termination. If the Executive's employment hereunder is
------------------------
terminated by the Executive by reason of a Constructive Termination, the Company
shall pay to the Executive a sum equal to 12 month's Base Salary at the
Executive's last current rate. Any such amounts payable under this Paragraph
6(e) shall be paid in equal monthly installments for a period of one year, such
payments to begin as of the Employment Termination Date.
(f) Sole Remedy. The right to receive the payments and insurance, as
-----------
applicable, provided for under this Paragraph 6 shall be the Executive's sole
and exclusive remedy for the termination of his employment hereunder and shall
be in lieu of any claim that he might otherwise have against the Company arising
from such termination.
(g) Coordination of Payments. The payments required by subparagraphs (d)
------------------------
and (e) of this Paragraph 6 are subject to the provisions of Paragraph 7(b)
dealing with the coordination of payments in the event of a Change of Control.
7
<PAGE>
7. Termination in Connection with Change of Control.
------------------------------------------------
(a) Upon the occurrence of a Termination Event (as defined in Paragraph
8(a)), the Company shall:
(i) pay Executive an amount equal to Executive's Base Annual
Compensation (as defined in Paragraph 8(c)) multiplied by a factor of two,
payable as a lump sum cash payment within ten days following the date of
the termination constituting such Termination Event (the "Termination
Date");
(ii) provide Executive with life, disability and medical insurance
at the level provided at either the date of the occurrence of a Change of
Control (as defined in Paragraph 8(b)) or the Termination Date, as
Executive shall in his sole discretion elect by providing written notice to
the Company, for 12 months following the Termination Date or such shorter
period until Executive shall obtain substantially equivalent insurance
coverage from a subsequent employer, if any, in the same manner as if
Executive's employment had not been terminated until the end of such
period. Executive shall immediately notify the Company upon obtaining any
insurance from a subsequent employer and shall provide all information
required by the Company regarding such insurance to enable the Company to
make a determination of whether such insurance is substantially equivalent;
and
(iii) pay all reasonable legal fees and expenses incurred by
Executive in seeking to obtain or enforce any right or benefit provided by
this Agreement including without limitation all such costs incurred in
contesting or disputing any determination made by the Company under this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment
hereunder. Reimbursements of such costs shall be made by the Company
within 15 days after Executive's presentation to the Company of any
statements of such costs and thereafter shall bear interest at the rate of
18% per annum or, if different, the maximum rate allowed by law until paid
by the Company, and all accrued and unpaid interest shall bear interest at
the same rate, all of which interest shall be compounded daily.
(b) Coordination With Paragraph 6. If, in connection with the
-----------------------------
termination of Executive's employment hereunder, Executive is entitled to
receive payments pursuant to this Paragraph 7 and Executive would also be
entitled to receive
8
<PAGE>
termination payments under Paragraph 6 in accordance with the terms thereof,
Paragraph 7 shall take precedence and Executive shall not be entitled to receive
any payments under Paragraph 6.
8. Definitions.
-----------
(a) A "Termination Event" shall be deemed to have occurred if:
(i) at any time within six months after a Change of Control,
Executive or the Company terminates Executive's employment for any reason,
or for no reason; or
(ii) at any time within 12 months after a Change of Control, the
Company or any successor thereto terminates Executive's employment for any
reason other than for (A) Cause, (B) Disability or (C) death.
For purposes of this Paragraph 8(a), Executive's employment shall be deemed to
have been terminated upon the actual termination of his employment or upon the
occurrence of a Constructive Termination.
(b) A "Change of Control" shall be deemed to have occurred if:
(i) individuals who, as of the date hereof, constitute the Board
of Directors (the "Incumbent Board") of the Company cease for any reason to
constitute at least 51% of the Board, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be, for
purposes of this Agreement, considered as though such person were a member
of the Incumbent Board;
(ii) the Company shall consummate a reorganization, merger or
consolidation, in each case, with respect to which persons who were the
stockholders of the Company immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own outstanding
voting securities representing more than 50% of the combined voting power
entitled to vote generally in the election of directors ("Voting
Securities") of the reorganized, merged or consolidated company;
9
<PAGE>
(iii) the stockholders of the Company shall approve a sale of all
or substantially all of the stock or assets of the Company; or
(iv) any "person," as that term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any of its subsidiaries, any employee benefit plan of the
Company or any of its subsidiaries, or any entity organized, appointed or
established by the Company for or pursuant to the terms of such a plan),
together with all "affiliates" and "associates" (as such terms are defined
in Rule 12b-2 under the Exchange Act) of such person (as well as any
"Person" or "group" as those terms are used in Sections 13(d) and 14(d) of
the Exchange Act), shall become the "beneficial owner" or "beneficial
owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing in the
aggregate 40% or more of either the then outstanding shares of common
stock, par value $.001 per share, of the Company ("Common Stock") or the
Voting Securities of the Company, in either such case other than solely as
a result of acquisitions of such securities directly from the Company.
Notwithstanding the foregoing, a "Change in Control" of the Company
shall not be deemed to have occurred for purposes of subparagraph (iv) of
this Paragraph 8(b) solely as the result of an acquisition of securities by
the Company which, by reducing the number of shares of Common Stock or
other Voting Securities of the Company outstanding, increases (i) the
proportionate number of shares of Common Stock beneficially owned by any
person to 40% or more of the shares of Common Stock then outstanding or
(ii) the proportionate voting power represented by the Voting Securities of
the Company beneficially owned by any person to 40% or more of the combined
voting power of all then outstanding Voting Securities; provided, however,
that if any person referred to in clause (i) or (ii) of this sentence shall
thereafter become the beneficial owner of any additional shares of Common
Stock or other Voting Securities of the Company (other than a result of a
stock split, stock dividend or similar transaction), then a Change in
Control of the Company shall be deemed to have occurred for purposes of
subparagraph (iv) of this Paragraph 8(b).
(c) "Base Annual Compensation" shall, as determined on the Termination
Date, be equal to the greater of (i) Executive's Base Salary on the date of the
earliest Change of Control to occur during the 18-month period prior to the
Termination Date
10
<PAGE>
plus any bonuses or special incentive payments received in the 12 months prior
to such Change of Control or (ii) Executive's Base Salary on the Termination
Date plus any bonuses or special incentive payments received in the 12 months
prior to the Termination Date.
9. Adjustments. Any provision of this Agreement to the contrary
-----------
notwithstanding, if, in the Company's determination, the total sum of (i) the
payments and benefits to be paid or provided to (or with respect to) Executive
under this Agreement which are considered to be "parachute payments" within the
meaning of Section 280G of the Code, and (ii) any other payments and benefits
which are considered to be "parachute payments," as so defined, to be paid or
provided to (or with respect to) Executive by the Company or a member of the
Company's affiliated group (within the meaning of Section 280G(d)(5) of the
Code) (the "Total Amount") exceeds the amount Executive can receive without
having to pay excise tax with respect to all or any portion of such payments or
benefits under Section 4999 of the Code (the "Reduced Amount"), then the amount
payable to Executive pursuant to Paragraphs 7(a)(i) and (ii) of this Agreement
shall be reduced to the greater of zero or the highest amount which will not
result in Executive having to pay excise tax with respect to any payments and
benefits under Section 4999 of the Code; provided, however, that in the event
that the Reduced Amount minus any and all applicable federal, state and local
taxes (including but not limited to income and employment taxes imposed by the
Code) is less than the Total Amount minus any and all applicable federal, state
and local taxes (including but not limited to income and employment taxes
imposed by the Code and excise taxes applicable to such payments under Section
4999 of the Code), then the reduction of the amount payable to Executive under
Paragraphs 7(a)(i) and (ii) of this Agreement provided for in the preceding
provisions of this Paragraph 9 shall not be made.
10. Compliance With Other Agreements. The Executive represents and
--------------------------------
warrants to the Company that the execution, delivery and performance by the
Executive of this Agreement do not and will not conflict with or result in a
violation of any provision of, or constitute a default under, any contract,
agreement, instrument or obligation to which the Executive is a party or by
which he is bound.
11. Noncompetition and Related Matters. Without the prior written
----------------------------------
consent of the Company, Executive will not, directly or indirectly:
(a) persuade or attempt to persuade any customer, client, business
partner, licensor, licensee, sales representative,
11
<PAGE>
supplier or distributor of the Company or any of its subsidiaries to cease doing
business with the Company or any of its subsidiaries, or to reduce the amount of
business it does with the Company or any of its subsidiaries;
(b) persuade or attempt to persuade any potential customer, client,
supplier, business partner, licensor, licensee, sales representative, supplier
or distributor to which the Company or any of its subsidiaries has made a
presentation, or with which the Company or any of its subsidiaries has been
having discussions, not to do business with the Company or any of its
subsidiaries, or to undertake with any other person or business any business or
activity of a type and character similar to or competitive with that conducted
by the Company or any of its subsidiaries (a "Competitive Activity");
(c) solicit for himself or any person other than the Company or any of
its subsidiaries the business of any person which is a customer, client,
business partners, licensor, licensee, sales representative, supplier or
distributor of the Company or any of its subsidiaries, or was a customer,
client, business partner, licensor, licensee, sales representative, supplier or
distributor of the Company or any of its subsidiaries within two years prior to
the Termination Date or the Employment Termination Date, as applicable;
(d) persuade or attempt to persuade any employee of the Company or any
of its subsidiaries, or any individual who was its employee during the six
months prior to the Termination Date, to leave the employ of the Company or any
of its subsidiaries, or to become employed by any person engaged in a
Competitive Activity;
(e) anywhere in the world where the Company or any of its subsidiaries
is conducting any business, directly or indirectly, own, manage, operate,
control, be employed by or participate in the ownership, management, operation
or control of, or be connected in any manner with any person or business engaged
in a Competitive Activity; provided, however, that ownership of securities of a
company whose securities are registered under the United States Securities
Exchange Act of 1934, as amended, not in excess of 1% of any class of such
securities shall by itself not be considered a violation of this Paragraph 11.
The provisions of this Paragraph 11 shall be in effect during the
Employment Term and shall continue in effect for a period of 12 months following
the Employment Termination Date. Notwithstanding the foregoing, if Executive's
employment with the Company is terminated by the Company for Disability or by
reason of a Without Cause Termination or is terminated by the Executive
12
<PAGE>
by reason of a Constructive Termination, Executive shall be bound by the
restrictions set forth in this Paragraph 11 after the Employment Termination
Date (i) if and only for so long (but not to exceed 12 months) as the Company
complies with its obligations under Paragraphs 6(b), (d) or (e), as applicable,
or (ii) if and only if the Company has made the payments to Executive required
under Paragraph 7(a)(i), if applicable, provided that Executive shall cease
being bound by such restrictions if the Company fails to satisfy its obligations
under Paragraph 7(a)(ii) or (iii).
12. Confidentiality. The Executive recognizes and acknowledges that the
---------------
Company's trade secrets and other confidential or proprietary information, as
they may exist from time to time, are valuable, special, and unique assets of
the Company's business, access to and knowledge of which are essential to the
performance of the Executive's duties hereunder. The Executive confirms that
all such trade secrets and other information constitute the exclusive property
of the Company. During the Employment Term and thereafter without limitation of
time, the Executive shall hold in strict confidence and shall not, directly or
indirectly, disclose or reveal to any person, or use for his own benefit or for
the benefit of anyone else, any trade secrets, confidential dealings, or other
confidential or proprietary information of any kind, nature or description
(whether or not acquired, learned, obtained or developed by the Executive alone
or in conjunction with others during the Employment Term) belonging to or
concerning the Company or any of its subsidiaries or any of their customers or
clients or others with whom they now or hereafter have a business relationship,
except (i) with the prior written consent of the Company duly authorized by its
Board of Directors, (ii) in the course of the proper performance of the
Executive's duties hereunder, (iii) for information (x) that becomes generally
available to the public other than as a result of unauthorized disclosure by the
Executive or his affiliates or (y) that becomes available to the Executive
subsequent to the termination of his employment hereunder and on a
nonconfidential basis from a source other than the Company or its subsidiaries
who is not bound by a duty of confidentiality, or other contractual, legal or
fiduciary obligation, to the Company or such customers, clients or others having
a business relationship, or (iv) as required by applicable law or legal process.
The provisions of this Paragraph 12 shall continue in effect notwithstanding
termination of the Executive's employment hereunder for any reason.
13. Business Records. Given the competitive environment in which the
----------------
Company does business and the fiduciary relationship that the Executive will
have with the Company hereunder, the Executive agrees to promptly deliver to the
Company, upon
13
<PAGE>
termination of his employment hereunder, or at any other time when the Company
so requests, all memoranda, notes, records, drawings, manuals and other
documents (and all copies thereof and therefrom) in any way relating to the
business or affairs of the Company or any of its subsidiaries or any of their
clients, whether made or compiled by the Executive or furnished to him by the
Company or any of its employees, customers, clients, consultants or agents,
which the Executive may then possess or have under his control. The Executive
confirms that all such memoranda, notes, records, drawings, manuals and other
documents (and all copies thereof and therefrom) constitute the exclusive
property of the Company. The obligation of confidentiality set forth in
Paragraph 12 shall continue notwithstanding the Executive's delivery of any such
documents to the Company. The provisions of this Paragraph 13 shall continue in
effect notwithstanding termination of the Executive's employment hereunder for
any reason.
14. Intellectual Property.
---------------------
(a) Disclosure. The Executive shall promptly disclose to the Company
----------
all ideas, inventions, discoveries, processes, designs, methods, substances,
articles, computer programs and improvements, whether or not patentable or
copyrightable (all of the foregoing being hereinafter collectively called
"Intellectual Property"), which the Executive conceives, invents, discovers,
creates or develops, alone or with others, during the Employment Term, if such
conception, invention, discovery, creation or development (i) occurs in the
course of the Executive's employment with the Company, or (ii) occurs with the
use of the Company's or any of its subsidiaries' time, materials or facilities,
or (iii) in the opinion of the Board of Directors of the Company, relates or
pertains in any way to the Company's or any of its subsidiaries' purposes,
activities or affairs.
(b) Assignment. The Executive hereby assigns and agrees to assign to
----------
the Company, its successors, assigns or designees, any and all of the
Executive's right, title and interest in and to all Intellectual Property that
the Executive is obligated to disclose to the Company pursuant to Paragraph
14(a).
(c) Assistance. The Executive shall assist the Company in the
----------
preparation of and shall execute and deliver all disclosures, applications for
patents or reissue of patents, rights of priority, assignments and other
documents, give all testimony, and in general do all lawful things reasonably
requested by the Company to obtain, maintain and enforce United States and
foreign patents and to obtain, maintain and enforce on behalf of the Company or
its designee legal title and all rights
14
<PAGE>
in and to all Intellectual Property referred to in the preceding provisions of
this Paragraph 14.
(d) Records. The Executive shall prepare and maintain adequate and
-------
current written records of all Intellectual Property within the scope of
Paragraphs 14(a) through 14(c) in the form of notes, sketches, drawings,
memoranda or reports, all of which shall be promptly submitted by the Executive
to the Company and shall be owned exclusively by the Company.
(e) Consideration and Expenses. The Executive shall perform his
--------------------------
obligations under this Paragraph 14 at the Company's expense, but without any
additional compensation other than that which the Executive receives by reason
of his employment with the Company or pursuant to any separate agreement between
the Company and the Executive or any separate policy of the Company that may be
in effect from time to time during the Employment Term.
(f) Power of Attorney. If the Company or its designee is unable for any
-----------------
reason whatsoever to obtain the Executive's signature to any documents that the
Company is entitled to require him to sign pursuant to this Paragraph 14, the
Executive hereby irrevocably designates and appoints the Company as his agent
and attorney-in-fact to act for and on behalf of him and in his stead to
execute, deliver and file all such documents (including, without limitation, all
applications for United States and foreign patents or for the reissue of such
patents) and to do all other lawful acts that the Company is entitled to require
the Executive to do pursuant to this Paragraph 14.
(g) Survival. The provisions of this Paragraph 14 shall continue in
--------
effect notwithstanding termination of the Executive's employment hereunder for
any reason.
15. Assistance in Litigation. During the Employment Term and for a
------------------------
period of three years thereafter, the Executive shall, upon reasonable notice,
furnish such information and proper assistance to the Company as may reasonably
be required by the Company in connection with any litigation in which the
Company or any of its subsidiaries or affiliates is, or may become, a party.
The Company shall reimburse the Executive for all reasonable out-of-pocket
expenses incurred by the Executive in rendering such assistance. The provisions
of this Paragraph 16 shall continue in effect notwithstanding termination of the
Executive's employment hereunder for any reason.
16. Withholding Taxes. The Company may withhold from any payments to be
-----------------
made to the Executive hereunder such amounts (including social security
contributions and federal income
15
<PAGE>
taxes) as shall be required by federal, state and local withholding tax laws.
17. No Effect on Other Contractual Rights. The provisions of this
-------------------------------------
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable to the Executive, or in any way diminish the Executive's
rights as an employee of the Company, whether existing now or hereafter, under
any employee benefit plan, program or arrangement or other contract or agreement
of the Company providing benefits to the Executive.
18. Arbitration. The Company and the Executive agree to submit to final
-----------
and binding arbitration any and all disputes, claims (whether in tort, in
contract, statutory or otherwise) and/or disagreements concerning the
interpretation or application of this Agreement; provided, however, that
notwithstanding the foregoing, in no event shall any dispute, claim or
disagreement arising under Paragraphs 11, 12, 13 and 14 be submitted to
arbitration pursuant to this Paragraph 18 or otherwise. Any dispute, claim
and/or disagreement subject to arbitration pursuant to the terms of this
Paragraph 18 shall be resolved by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association or any successor
organization (the "Association") then in effect. Arbitration under this
provision must be initiated within 30 days of the action, inaction or occurrence
about which the party initiating the arbitration is complaining. Within ten
days of the initiation of an arbitration hereunder, each party will designate an
arbitrator pursuant to Rule 14 of the Association's Rules, and within 10 days
thereafter the appointed arbitrators will appoint a neutral arbitrator from the
panel in the manner prescribed in Rule 13 of the Association's Rules; provided,
however, that if the Company and the Executive mutually agree, the arbitration
may be conducted by a single arbitrator selected by agreement of the Company and
the Executive. The Executive and the Company agree that the decision of the
arbitrators selected hereunder will be final and binding on both parties. This
arbitration provision is expressly made pursuant to and shall be governed by the
Federal Arbitration Act, 9 U.S.C. Sections 1-14. The parties hereto agree that
pursuant to Section 9 of such Act a judgment of any state court located in
Crawford County, Arkansas, shall be entered upon the award made pursuant to the
arbitration.
19. Injunctive Relief. In recognition of the fact that a breach by the
-----------------
Executive of any of the provisions of Paragraphs 11, 12, 13 and 14 will cause
irreparable damage to the Company for which monetary damages alone will not
constitute an adequate remedy, the Company shall be entitled as a matter of
right
16
<PAGE>
(without being required to prove damages or furnish any bond or other security)
to obtain a restraining order, an injunction, an order of specific performance
or other equitable or extraordinary relief from any court of competent
jurisdiction restraining any further violation of such provisions by the
Executive or requiring him to perform his obligations hereunder. Such right to
equitable or extraordinary relief shall not be exclusive but shall be in
addition to all other rights and remedies to which the Company may be entitled
at law or in equity, including without limitation the right to recover monetary
damages for the breach by the Executive of any of the provisions of this
Agreement.
20. Survival. Neither the expiration of the term of the Executive's
--------
employment hereunder nor any other termination of this Agreement shall impair
the rights or obligations of either party hereto which shall have accrued
hereunder prior to such expiration or termination. The provisions of Paragraphs
11, 12, 13, 14, 15, 18 and 19 and the rights and obligations of the parties
thereunder, shall survive the expiration or termination of the term of the
Executive's employment hereunder.
21. Notices. All notices, requests, demands and other communications
-------
required or permitted to be given or made hereunder by either party hereto shall
be in writing and shall be deemed to have been duly given or made (i) when
delivered personally, or (ii) when deposited in the United States mail, first
class registered or certified mail, postage prepaid, return receipt requested,
to the party for which intended at the following addresses (or at such other
addresses as shall be specified by the parties by like notice, except that
notices of change of address shall be effective only upon receipt):
If to the Company, at:
Loislaw.com, Inc.
105 North 28th Street
Van Buren, AR 72956
Attn: Chief Executive Officer
with a copy to:
Kenn W. Webb, Esq.
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
17
<PAGE>
If to the Executive:
Kyle D. Parker
1530 S. 37th Street
Fort Smith, AR 72903
22. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto concerning the subject matter hereof and supersedes
all prior agreements and understandings, both written and oral, between the
parties with respect to such subject matter.
23. Binding Effect; Assignment; No Third Party Benefit. This Agreement
--------------------------------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns; provided,
however, that the Executive shall not assign or otherwise transfer this
Agreement or any of his rights or obligations hereunder without the prior
written consent of the Company (except that any rights that the Executive may
have hereunder at the time of his death may be transferred by will or pursuant
to the laws of descent and distribution). Nothing in this Agreement, express or
implied, is intended to or shall confer upon any person other than the parties
hereto, and their respective heirs, legal representatives, successors and
permitted assigns, any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
The Company may: (i) as long as it remains obligated with respect to this
Agreement, cause its obligations hereunder to be performed by a subsidiary or
subsidiaries for which Executive performs services, in whole or in part; (ii)
assign this Agreement and its rights hereunder in whole, but not in part, to any
corporation with or into which it may hereafter merge or consolidate or to which
it may transfer all or substantially all of its assets, if said corporation
shall by operation of law or expressly in writing assume to the reasonable
satisfaction of Executive all liabilities of the Company hereunder as fully as
if it had been originally named the Company herein; but may not otherwise assign
this Agreement or its rights hereunder. Subject to the foregoing, this
Agreement shall inure to the benefit of and be enforceable by the Company's
successors and assigns.
24. Nonalienation of Benefits. The Executive shall not have any right to
-------------------------
pledge, hypothecate, anticipate or in any way create a lien upon any payments or
other benefits provided under this Agreement; and no benefits payable hereunder
shall be assignable in anticipation of payment either by voluntary or
involuntary acts, or by operation of law, except by will or pursuant to the laws
of descent and distribution.
18
<PAGE>
25. Amendment. This Agreement may not be modified or amended in any
---------
respect except by an instrument in writing signed by both of the parties hereto.
26. Waiver. Any term or condition of this Agreement may be waived at any
------
time by the party hereto that is entitled to have the benefit thereof, but such
waiver shall only be effective if evidenced by a writing signed by such party,
and a waiver on one occasion shall not be deemed to be a waiver of the same or
any other type of breach on a future occasion. No failure or delay by a party
hereto in exercising any right or power hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right or power.
27. Authority. No person, other than pursuant to a resolution duly
---------
adopted by the members of the Board of Directors of the Company, shall have
authority on behalf of the Company to agree to modify, amend or waive any
provision of this Agreement or take any action in reference hereto.
28. Severability. If any provision of this Agreement is held to be
------------
unenforceable, (a) this Agreement shall be considered divisible, (b) such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and (c) in all other respects this Agreement shall remain in full force and
effect; provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
29. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARKANSAS WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
30. Counterparts. This Agreement may be executed by the parties hereto
------------
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement.
31. Interest on Late Payments. The Company's obligation to pay Executive
-------------------------
any amounts under this Agreement, if not paid by the time specified for payment
herein, shall bear interest at the rate of 18% per annum or, if different, the
maximum rate allowed by law until paid by the Company, and all accrued and
unpaid interest shall bear interest at the same rate, all of which interest
shall be compounded daily.
19
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer, and the Executive has executed this
Agreement, as of the date first set forth above.
LOISLAW.COM, INC.
By:_____________________________________
Mark O. Beyland
President and Chief Financial Officer
________________________________________
Kyle D. Parker
20
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (this "Agreement"), dated as of June ___, 1999,
between Loislaw.com, Inc., a Delaware corporation (the "Company"), and Mark
Beyland, an individual residing in Van Buren, Arkansas (the "Executive").
WHEREAS, the Executive is presently employed by the Company, and is willing
to commit himself to continue to serve the Company on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, the
Company and the Executive hereby agree as follows:
1. Employment. The Company agrees to continue to employ the Executive,
----------
and the Executive agrees to remain in the employ of the Company, for the period
set forth in Paragraph 2, in the position and with the duties and
responsibilities set forth in Paragraph 3, and upon the other terms and
conditions herein provided.
2. Term. The employment of the Executive by the Company as provided in
----
Paragraph 1 shall be for a period commencing on the date of this Agreement
through and ending on June 13, 2002, unless sooner terminated as herein provided
(the "Employment Term").
3. Position and Duties.
-------------------
(a) During the Employment Term, the Executive shall serve as President
and Chief Financial Officer of the Company. In such capacities, the Executive,
subject to the ultimate control and direction of the Board of Directors of the
Company, shall have and exercise (i) direct charge of and general supervision
over the business and affairs of the Company and (ii) the duties and functions
normally incident to the office of chief financial officer of a company similar
to the Company. In addition, the Executive shall have such other duties,
functions, responsibilities, and authority as are from time to time delegated to
the Executive by the Board of Directors of the Company, provided that such
duties, functions, responsibilities, and authority are reasonable and customary
for a person serving in the aforesaid functions of an enterprise comparable to
the Company. The Executive shall report and be accountable to the Board of
Directors and the Chairman of the Board and Chief Executive Officer of the
Company.
1
<PAGE>
(b) During the Employment Term, the Executive shall devote his full
time, skill, and attention and his best efforts to the business and affairs of
the Company to the extent necessary to discharge fully, faithfully and
efficiently the duties and responsibilities delegated and assigned to the
Executive herein or pursuant hereto, except for usual, ordinary, and customary
periods of vacation and absence due to illness or other disability.
(c) In connection with the Executive's employment by the Company under
this Agreement, the Executive shall be based at the principal executive offices
of the Company in Van Buren, Arkansas, except for such reasonable travel as the
performance of the Executive's duties in the business of the Company may
require.
(d) All services that the Executive may render to the Company or any of
its subsidiaries or affiliates in any capacity during the Employment Term shall
be deemed to be services required by this Agreement and consideration for the
compensation provided for herein.
4. Compensation and Related Matters.
--------------------------------
(a) Base Salary . During the Employment Term, the Company shall pay to
-----------
the Executive for his services hereunder a base salary ("Base Salary") at the
rate of One Hundred Seventy-Five Thousand Dollars ($175,000.00) per year,
payable in installments in accordance with the general payroll practices of the
Company, or as otherwise mutually agreed upon. The Executive's Base Salary shall
be subject to such adjustments as may be determined from time to time by the
compensation committee of the Board of Directors of the Company in its sole
discretion, but in no event shall the Company pay the Executive a Base Salary at
a rate less than that set forth in the immediately preceding sentence.
(b) Executive Bonus and Benefits . During the Employment Term, the
----------------------------
Executive may be entitled, in the sole discretion of the compensation committee
of the Board of Directors, to annual cash bonuses in amounts not to exceed 50%
of his then-current Base Salary for any calendar year; provided, however, that
Executive's bonus for the year ended December 31, 1999 shall not be less than
$37,500. Further, Executive shall be entitled to participate in all additional
employee benefit plans (including, stock option plans and long-term incentive
plans), programs and arrangements that are generally made available by the
Company to its senior executives.
2
<PAGE>
(c) Medical and Dental Coverage . During the Employment Term, the
---------------------------
Company shall provide, at its cost, full medical and dental coverage to Employee
under the Company's group insurance plans as in effect from time to time.
(d) Expenses . During the Employment Term, the Executive shall be
--------
entitled to receive prompt reimbursement on a timely basis (according to the
then-current practices of the Company) for all reasonable expenses incurred by
the Executive in performing his duties and responsibilities hereunder upon the
presentation by the Executive of an itemized monthly accounting of such
expenditures, including receipts where required by Company policy or federal
income tax regulations.
(e) Vacations . During the Employment Term, the Executive shall be
---------
entitled to four (4) weeks of paid vacation each year. The Executive shall also
be entitled to all paid holidays given by the Company to its senior executives.
The Executive agrees to utilize his vacation at such time or times as are (i)
consistent with the proper performance of his duties and responsibilities
hereunder and (ii) mutually convenient for the Company and the Executive.
5. Termination of Employment.
-------------------------
(a) Death . The Executive's employment hereunder shall terminate
-----
automatically upon his death.
(b) Disability . If the Disability (as defined below) of the Executive
----------
occurs during the Employment Term, the Company may notify the Executive of the
Company's intention to terminate the Executive's employment hereunder for
Disability. In such event, the Executive's employment hereunder shall terminate
effective on the 15th day following the date such notice of termination is
received by the Executive (the "Disability Effective Date"). For purposes of
this Agreement, the "Disability" of the Executive shall be deemed to have
occurred at such time as the Board of Directors of the Company determines, in
its sole and absolute discretion, (i) that despite any reasonable accommodation
required by law, the Executive is unable to perform the essential functions of
his position hereunder as a result of his physical or mental incapacity and (ii)
that such inability has existed or is likely to exist for a period of three
months or more.
(c) Termination by Company .
----------------------
(i) For Cause. The Company may terminate the Executive's employment
---------
hereunder for Cause (as defined below) (a "For Cause Termination"). For
purposes of this Agreement, "Cause" shall mean any of the following: (A)
any
3
<PAGE>
misrepresentation of a material fact to, or concealment of a material fact
from, a member of the Board of Directors of the Company; (B) the
Executive's failure to follow a lawful written directive of the Board of
Directors; (C) the Executive's willful violation of any material rule,
regulation or policy that may be established from time to time in the
Company's business; (D) the Executive's unlawful possession, use or sale of
narcotics or other controlled substances, or performing job duties while
such controlled substances are present in the Executive's body; (E) the
Executive operating a vehicle in the course of his employment under the
influence of alcohol (meaning a blood alcohol level which would establish a
felony or misdemeanor under the applicable state law, or a conviction of or
plea of guilty or no contest to such a felony or misdemeanor); (F) any act
or omission of the Executive in the scope of his employment (i) that
results in the assessment of a criminal penalty against the Executive or
the Company, or (ii) that in the reasonable judgment of the Board of
Directors would result in a material violation of any federal, state, local
or foreign law or regulation; or (G) the Executive's conviction of or a
plea of guilty or no contest to any crime involving an act of moral
turpitude. Whether any termination of Executive's employment hereunder
constitutes a For Cause Termination in accordance with the foregoing shall
be determined in the reasonable judgment of the Board of Directors.
(ii) Without Cause. The Company may terminate the Executive's
-------------
employment hereunder without Cause for any or no reason. For purposes of
this Agreement, a "Without Cause Termination" shall mean a termination by
the Company of the Executive's employment hereunder other than pursuant to
(x) a For Cause Termination, or (y) Disability.
(d) Constructive Termination . The Executive may terminate his
------------------------
employment hereunder if a Constructive Termination occurs. A "Constructive
Termination" of Executive's employment with the Company shall be deemed to have
occurred if the Company:
(i) demotes Executive to a lesser position, either in title or
responsibility, than the highest position held by him with the Company at
any time during his employment with the Company; or
(ii) decreases Executive's compensation below the highest level in
effect at any time during his employment with the Company or reduces
Executive's benefits and perquisites below the highest levels in effect at
any time during his employment with the Company (other than as a
4
<PAGE>
result of any amendment or termination of any employee or group or other
executive benefit plan, which amendment or termination is applicable to all
executives of the Company).
Any termination of Executive's duties and responsibilities as Chief Financial
Officer of the Company shall not constitute a Constructive Termination under
subparagraph (i) of this paragraph 5(d).
(e) Notice of Termination . Any termination of the Executive's
---------------------
employment hereunder by the Company or by the Executive (other than a
termination pursuant to Paragraph 5(a)) shall be communicated by a Notice of
Termination (as defined below) to the other party hereto. For purposes of this
Agreement, a "Notice of Termination" shall mean a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
in the case of a termination for Disability or a For Cause Termination or a
Constructive Termination, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the Executive's
employment under the provision so indicated, and (iii) specifies the Employment
Termination Date (as defined in Paragraph 5(f) below). The failure by the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Disability or Cause shall not waive any right of the
Company hereunder or preclude the Company from asserting such fact or
circumstance in enforcing the Company's rights hereunder.
(f) Employment Termination Date . For purposes of this Agreement,
---------------------------
"Employment Termination Date" shall mean the effective date of termination of
the Executive's employment hereunder, which date shall be (i) if the Executive's
employment is terminated by his death, the date of his death, (ii) if the
Executive's employment is terminated because of his Disability, the Disability
Effective Date, (iii) if the Executive's employment is terminated by the Company
pursuant to a For Cause Termination or a Without Cause Termination, the date
specified in the Notice of Termination, which date shall in no event be earlier
than the date such notice is given, and (iv) if the Executive's employment is
terminated by the Executive pursuant to a Constructive Termination, the date on
which the Notice of Termination is given.
5
<PAGE>
(g) Resignation . In the event of termination of the Executive's
-----------
employment hereunder (for any reason other than the death of the Executive), the
Executive agrees that if at such time he is a member of the Board of Directors
or officer of the Company or a director or officer of any of its subsidiaries,
he will promptly deliver to the Company his written resignation from all such
positions, such resignation to be effective as of the Employment Termination
Date.
6. Company Obligations Upon Termination of Employment.
--------------------------------------------------
(a) Death . If the Executive's employment hereunder is terminated by
-----
reason of the Executive's death, the Company shall pay to the Executive's estate
a sum equal to 12 month's Base Salary at the Executive's last current rate. Any
such amounts payable under this Paragraph 6(a) shall be paid in equal monthly
installments for a period of one year, such payments to begin as of the
Employment Termination Date. In addition, if the Executive's employment
hereunder is terminated by reason of the Executive's death, the Company shall
continue to provide medical insurance at the level provided at the Employment
Termination Date for the Executive's spouse for a period of five years after the
Employment Termination Date and for each of his children for a period beginning
on the Employment Termination Date and ending on the earlier of (i) five years
after the Employment Termination Date and (ii) the date on which such child
ceases to be a "dependent" of Executive's spouse within the meaning of Section
___ of the Internal Revenue Code of 1986, as amended (the "Code"); provided,
that the Company shall be required to provide medical insurance to the
Executive's spouse and his children only for so long as, and to the extent that,
the Company provides medical insurance for its full-time employees; and,
provided, further, that this Paragraph 6(a) shall not prohibit the Company from
modifying or canceling its existing health insurance program.
(b) Disability . If the Executive's employment hereunder is terminated
----------
by reason of the Executive's Disability, the Company shall pay to the Executive
a sum equal to 12 month's Base Salary at the Executive's last current rate. Any
such amounts payable under this Paragraph 6(b) shall be paid in equal monthly
installments for a period of one year, such payments to begin as of the
Employment Termination Date. In addition, if the Executive's employment
hereunder is terminated by reason of the Executive's Disability that, in the
sole discretion of the Board of Directors, is a "permanent and total disability"
as defined in the Company's long-term disability insurance plan, or if the
Company does not maintain such a plan containing a definition of that term, as
defined in Section 22(e)(3) of the Code, then the Company shall continue to
provide medical insurance at the level provided at the Employment Termination
Date for the Executive and
6
<PAGE>
his spouse for a period of five years after the Employment Termination Date and
for each of his children for a period beginning on the Employment Termination
Date and ending on the earlier of (i) five years after the Employment
Termination Date and (ii) the date on which such child ceases to be a dependent
of Executive or Executive's spouse within the meaning of Section _____ of the
Code; provided, that the Company shall be required to provide medical insurance
to the Executive, his spouse and his children only for so long as, and to the
extent that, the Company provides medical insurance for its full-time employees;
and provided further, that this Paragraph 6(b) shall not prohibit the Company
from modifying or canceling its existing health insurance program.
(c) For Cause Termination . If the Executive's employment hereunder is
---------------------
terminated pursuant to a For Cause Termination, the Company shall pay to the
Executive, in a lump sum in cash within 15 days after the Employment Termination
Date, the Executive's Base Salary through the Employment Termination Date, to
the extent not theretofore paid, and, thereafter, the Company shall have no
further obligations to the Executive under this Agreement.
(d) Without Cause Termination . If the Executive's employment hereunder
-------------------------
is terminated by the Company by reason of a Without Cause Termination, the
Company shall pay to the Executive a sum equal to 12 month's Base Salary at the
Executive's last current rate. Any such amounts payable under this Paragraph
6(d) shall be paid in equal monthly installments for a period of one year, such
payments to begin as of the Employment Termination Date.
(e) Constructive Termination . If the Executive's employment hereunder
------------------------
is terminated by the Executive by reason of a Constructive Termination, the
Company shall pay to the Executive a sum equal to 12 month's Base Salary at the
Executive's last current rate. Any such amounts payable under this Paragraph
6(e) shall be paid in equal monthly installments for a period of one year, such
payments to begin as of the Employment Termination Date.
(f) Sole Remedy . The right to receive the payments and insurance, as
-----------
applicable, provided for under this Paragraph 6 shall be the Executive's sole
and exclusive remedy for the termination of his employment hereunder and shall
be in lieu of any claim that he might otherwise have against the Company arising
from such termination.
7
<PAGE>
(g) Coordination of Payments . The payments required by subparagraphs
------------------------
(d) and (e) of this Paragraph 6 are subject to the provisions of Paragraph 7(b)
dealing with the coordination of payments in the event of a Change of Control.
7. Termination in Connection with Change of Control.
------------------------------------------------
(a) Upon the occurrence of a Termination Event (as defined in Paragraph
8(a)), the Company shall:
(i) pay Executive an amount equal to Executive's Base Annual
Compensation (as defined in Paragraph 8(c)) multiplied by a factor of two,
payable as a lump sum cash payment within ten days following the date of
the termination constituting such Termination Event (the "Termination
Date");
(ii) provide Executive with life, disability and medical insurance
at the level provided at either the date of the occurrence of a Change of
Control (as defined in Paragraph 8(b)) or the Termination Date, as
Executive shall in his sole discretion elect by providing written notice to
the Company, for 12 months following the Termination Date or such shorter
period until Executive shall obtain substantially equivalent insurance
coverage from a subsequent employer, if any, in the same manner as if
Executive's employment had not been terminated until the end of such
period. Executive shall immediately notify the Company upon obtaining any
insurance from a subsequent employer and shall provide all information
required by the Company regarding such insurance to enable the Company to
make a determination of whether such insurance is substantially equivalent;
and
(iii) pay all reasonable legal fees and expenses incurred by
Executive in seeking to obtain or enforce any right or benefit provided by
this Agreement including without limitation all such costs incurred in
contesting or disputing any determination made by the Company under this
Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of Section 4999 of the Code to any payment
hereunder. Reimbursements of such costs shall be made by the Company
within 15 days after Executive's presentation to the Company of any
statements of such costs and thereafter shall bear interest at the rate of
18% per annum or, if different, the maximum rate allowed by law until paid
by the Company, and all accrued and unpaid interest shall bear interest at
the same rate, all of which interest shall be compounded daily.
8
<PAGE>
(b) Coordination With Paragraph 6. If, in connection with the
-----------------------------
termination of Executive's employment hereunder, Executive is entitled to
receive payments pursuant to this Paragraph 7 and Executive would also be
entitled to receive termination payments under Paragraph 6 in accordance with
the terms thereof, Paragraph 7 shall take precedence and Executive shall not be
entitled to receive any payments under Paragraph 6.
8. Definitions.
-----------
(a) A "Termination Event" shall be deemed to have occurred if:
(i) at any time within six months after a Change of Control,
Executive or the Company terminates Executive's employment for any reason,
or for no reason; or
(ii) at any time within 12 months after a Change of Control, the
Company or any successor thereto terminates Executive's employment for any
reason other than for (A) Cause, (B) Disability or (C) death.
For purposes of this Paragraph 8(a), Executive's employment shall be deemed to
have been terminated upon the actual termination of his employment or upon the
occurrence of a Constructive Termination.
(b) A "Change of Control" shall be deemed to have occurred if:
(i) individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") of the Company cease for any reason to
constitute at least 51% of the Board, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders was approved by a vote of at least
a majority of the directors then comprising the Incumbent Board shall be,
for purposes of this Agreement, considered as though such person were a
member of the Incumbent Board;
(ii) the Company shall consummate a reorganization, merger or
consolidation, in each case, with respect to which persons who were the
stockholders of the Company immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own outstanding
voting securities representing more than 50% of the combined voting power
entitled to vote generally in the election of
9
<PAGE>
directors ("Voting Securities") of the reorganized, merged or consolidated
company;
(iii) the stockholders of the Company shall approve a sale of all
or substantially all of the stock or assets of the Company; or
(iv) any "person," as that term is defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any of its subsidiaries, any employee benefit plan of the
Company or any of its subsidiaries, or any entity organized, appointed or
established by the Company for or pursuant to the terms of such a plan),
together with all "affiliates" and "associates" (as such terms are defined
in Rule 12b-2 under the Exchange Act) of such person (as well as any
"Person" or "group" as those terms are used in Sections 13(d) and 14(d) of
the Exchange Act), shall become the "beneficial owner" or "beneficial
owners" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act),
directly or indirectly, of securities of the Company representing in the
aggregate 40% or more of either the then outstanding shares of common
stock, par value $.001 per share, of the Company ("Common Stock") or the
Voting Securities of the Company, in either such case other than solely as
a result of acquisitions of such securities directly from the Company.
Notwithstanding the foregoing, a "Change in Control" of the Company
shall not be deemed to have occurred for purposes of subparagraph (iv) of
this Paragraph 8(b) solely as the result of an acquisition of securities by
the Company which, by reducing the number of shares of Common Stock or
other Voting Securities of the Company outstanding, increases (i) the
proportionate number of shares of Common Stock beneficially owned by any
person to 40% or more of the shares of Common Stock then outstanding or
(ii) the proportionate voting power represented by the Voting Securities of
the Company beneficially owned by any person to 40% or more of the combined
voting power of all then outstanding Voting Securities; provided, however,
that if any person referred to in clause (i) or (ii) of this sentence shall
thereafter become the beneficial owner of any additional shares of Common
Stock or other Voting Securities of the Company (other than a result of a
stock split, stock dividend or similar transaction), then a Change in
Control of the Company shall be deemed to have occurred for purposes of
subparagraph (iv) of this Paragraph 8(b).
10
<PAGE>
(c) "Base Annual Compensation" shall, as determined on the Termination
Date, be equal to the greater of (i) Executive's Base Salary on the date of the
earliest Change of Control to occur during the 18-month period prior to the
Termination Date plus any bonuses or special incentive payments received in the
12 months prior to such Change of Control or (ii) Executive's Base Salary on the
Termination Date plus any bonuses or special incentive payments received in the
12 months prior to the Termination Date.
9. Adjustments. Any provision of this Agreement to the contrary
-----------
notwithstanding, if, in the Company's determination, the total sum of (i) the
payments and benefits to be paid or provided to (or with respect to) Executive
under this Agreement which are considered to be "parachute payments" within the
meaning of Section 280G of the Code, and (ii) any other payments and benefits
which are considered to be "parachute payments," as so defined, to be paid or
provided to (or with respect to) Executive by the Company or a member of the
Company's affiliated group (within the meaning of Section 280G(d)(5) of the
Code) (the "Total Amount") exceeds the amount Executive can receive without
having to pay excise tax with respect to all or any portion of such payments or
benefits under Section 4999 of the Code (the "Reduced Amount"), then the amount
payable to Executive pursuant to Paragraphs 7(a)(i) and (ii) of this Agreement
shall be reduced to the greater of zero or the highest amount which will not
result in Executive having to pay excise tax with respect to any payments and
benefits under Section 4999 of the Code; provided, however, that in the event
that the Reduced Amount minus any and all applicable federal, state and local
taxes (including but not limited to income and employment taxes imposed by the
Code) is less than the Total Amount minus any and all applicable federal, state
and local taxes (including but not limited to income and employment taxes
imposed by the Code and excise taxes applicable to such payments under Section
4999 of the Code), then the reduction of the amount payable to Executive under
Paragraphs 7(a)(i) and (ii) of this Agreement provided for in the preceding
provisions of this Paragraph 9 shall not be made.
10. Compliance With Other Agreements. The Executive represents and
--------------------------------
warrants to the Company that the execution, delivery and performance by the
Executive of this Agreement do not and will not conflict with or result in a
violation of any provision of, or constitute a default under, any contract,
agreement, instrument or obligation to which the Executive is a party or by
which he is bound.
11. Noncompetition and Related Matters. Without the prior written
----------------------------------
consent of the Company, Executive will not, directly or indirectly:
11
<PAGE>
(a) persuade or attempt to persuade any customer, client, business
partner, licensor, licensee, sales representative, supplier or distributor of
the Company or any of its subsidiaries to cease doing business with the Company
or any of its subsidiaries, or to reduce the amount of business it does with the
Company or any of its subsidiaries;
(b) persuade or attempt to persuade any potential customer, client,
supplier, business partner, licensor, licensee, sales representative, supplier
or distributor to which the Company or any of its subsidiaries has made a
presentation, or with which the Company or any of its subsidiaries has been
having discussions, not to do business with the Company or any of its
subsidiaries, or to undertake with any other person or business any business or
activity of a type and character similar to or competitive with that conducted
by the Company or any of its subsidiaries (a "Competitive Activity");
(c) solicit for himself or any person other than the Company or any of
its subsidiaries the business of any person which is a customer, client,
business partners, licensor, licensee, sales representative, supplier or
distributor of the Company or any of its subsidiaries, or was a customer,
client, business partner, licensor, licensee, sales representative, supplier or
distributor of the Company or any of its subsidiaries within two years prior to
the Termination Date or the Employment Termination Date, as applicable;
(d) persuade or attempt to persuade any employee of the Company any of
its subsidiaries, or any individual who was its employee during the six months
prior to the Termination Date, to leave the employ of the Company or any of its
subsidiaries, or to become employed by any person engaged in a Competitive
Activity;
(e) anywhere in the world where the Company or any of its subsidiaries
is conducting any business, directly or indirectly, own, manage, operate,
control, be employed by or participate in the ownership, management, operation
or control of, or be connected in any manner with any person or business engaged
in a Competitive Activity; provided, however, that ownership of securities of a
company whose securities are registered under the United States Securities
Exchange Act of 1934, as amended, not in excess of 1% of any class of such
securities shall by itself not be considered a violation of this Paragraph 11.
The provisions of this Paragraph 11 shall be in effect during the
Employment Term and shall continue in effect for a period of 12 months following
the Employment Termination Date.
12
<PAGE>
Notwithstanding the foregoing, if Executive's employment with the Company is
terminated by the Company for Disability or by reason of a Without Cause
Termination or is terminated by the Executive by reason of a Constructive
Termination, Executive shall be bound by the restrictions set forth in this
Paragraph 11 after the Employment Termination Date (i) if and only for so long
(but not to exceed 12 months) as the Company complies with its obligations under
Paragraphs 6(b), (d) or (e), as applicable, or (ii) if and only if the Company
has made the payments to Executive required under Paragraph 7(a)(i), if
applicable, provided that Executive shall cease being bound by such restrictions
if the Company fails to satisfy its obligations under Paragraph 7(a)(ii) or
(iii).
12. Confidentiality. The Executive recognizes and acknowledges that the
---------------
Company's trade secrets and other confidential or proprietary information, as
they may exist from time to time, are valuable, special, and unique assets of
the Company's business, access to and knowledge of which are essential to the
performance of the Executive's duties hereunder. The Executive confirms that
all such trade secrets and other information constitute the exclusive property
of the Company. During the Employment Term and thereafter without limitation of
time, the Executive shall hold in strict confidence and shall not, directly or
indirectly, disclose or reveal to any person, or use for his own benefit or for
the benefit of anyone else, any trade secrets, confidential dealings, or other
confidential or proprietary information of any kind, nature or description
(whether or not acquired, learned, obtained or developed by the Executive alone
or in conjunction with others during the Employment Term) belonging to or
concerning the Company or any of its subsidiaries or any of their customers or
clients or others with whom they now or hereafter have a business relationship,
except (i) with the prior written consent of the Company duly authorized by its
Board of Directors, (ii) in the course of the proper performance of the
Executive's duties hereunder, (iii) for information (x) that becomes generally
available to the public other than as a result of unauthorized disclosure by the
Executive or his affiliates or (y) that becomes available to the Executive
subsequent to the termination of his employment hereunder and on a
nonconfidential basis from a source other than the Company or its subsidiaries
who is not bound by a duty of confidentiality, or other contractual, legal or
fiduciary obligation, to the Company or such customers, clients or others having
a business relationship, or (iv) as required by applicable law or legal process.
The provisions of this Paragraph 12 shall continue in effect notwithstanding
termination of the Executive's employment hereunder for any reason.
13
<PAGE>
13. Business Records. Given the competitive environment in which the
----------------
Company does business and the fiduciary relationship that the Executive will
have with the Company hereunder, the Executive agrees to promptly deliver to the
Company, upon termination of his employment hereunder, or at any other time when
the Company so requests, all memoranda, notes, records, drawings, manuals and
other documents (and all copies thereof and therefrom) in any way relating to
the business or affairs of the Company or any of its subsidiaries or any of
their clients, whether made or compiled by the Executive or furnished to him by
the Company or any of its employees, customers, clients, consultants or agents,
which the Executive may then possess or have under his control. The Executive
confirms that all such memoranda, notes, records, drawings, manuals and other
documents (and all copies thereof and therefrom) constitute the exclusive
property of the Company. The obligation of confidentiality set forth in
Paragraph 12 shall continue notwithstanding the Executive's delivery of any such
documents to the Company. The provisions of this Paragraph 13 shall continue in
effect notwithstanding termination of the Executive's employment hereunder for
any reason.
14. Intellectual Property.
---------------------
(a) Disclosure . The Executive shall promptly disclose to the Company
----------
all inventions, discoveries, processes, designs, methods, substances, articles,
computer programs and improvements, whether or not patentable or copyrightable
(all of the foregoing being hereinafter collectively called "Intellectual
Property"), which the Executive conceives, invents, discovers, creates or
develops, alone or with others, during the Employment Term, if such conception,
invention, discovery, creation or development (i) occurs in the course of the
Executive's employment with the Company, or (ii) occurs with the use of the
Company's or any of its subsidiaries' time, materials or facilities, or (iii) in
the opinion of the Board of Directors of the Company, relates or pertains in any
way to the Company's or any of its subsidiaries' purposes, activities or
affairs.
(b) Assignment . The Executive hereby assigns and agrees to assign to
----------
the Company, its successors, assigns or designees, any and all of the
Executive's right, title and interest in and to all Intellectual Property that
the Executive is obligated to disclose to the Company pursuant to Paragraph
14(a).
(c) Assistance . The Executive shall assist the Company in the
----------
preparation of and shall execute and deliver all disclosures, applications for
patents or reissue of patents, rights of priority, assignments and other
documents, give all
14
<PAGE>
testimony, and in general do all lawful things reasonably requested by the
Company to obtain, maintain and enforce United States and foreign patents and to
obtain, maintain and enforce on behalf of the Company or its designee legal
title and all rights in and to all Intellectual Property referred to in the
preceding provisions of this Paragraph 14.
(d) Records . The Executive shall prepare and maintain adequate and
-------
current written records of all Intellectual Property within the scope of
Paragraphs 14(a) through 14(c) in the form of notes, sketches, drawings,
memoranda or reports, all of which shall be promptly submitted by the Executive
to the Company and shall be owned exclusively by the Company.
(e) Consideration and Expenses . The Executive shall perform his
--------------------------
obligations under this Paragraph 14 at the Company's expense, but without any
additional compensation other than that which the Executive receives by reason
of his employment with the Company or pursuant to any separate agreement between
the Company and the Executive or any separate policy of the Company that may be
in effect from time to time during the Employment Term.
(f) Power of Attorney . If the Company or its designee is unable for any
-----------------
reason whatsoever to obtain the Executive's signature to any documents that the
Company is entitled to require him to sign pursuant to this Paragraph 14, the
Executive hereby irrevocably designates and appoints the Company as his agent
and attorney-in-fact to act for and on behalf of him and in his stead to
execute, deliver and file all such documents (including, without limitation, all
applications for United States and foreign patents or for the reissue of such
patents) and to do all other lawful acts that the Company is entitled to require
the Executive to do pursuant to this Paragraph 14.
(g) Survival . The provisions of this Paragraph 14 shall continue in
--------
effect notwithstanding termination of the Executive's employment hereunder for
any reason.
15. Assistance in Litigation. During the Employment Term and for a
------------------------
period of three years thereafter, the Executive shall, upon reasonable notice,
furnish such information and proper assistance to the Company as may reasonably
be required by the Company in connection with any litigation in which the
Company or any of its subsidiaries or affiliates is, or may become, a party.
The Company shall reimburse the Executive for all reasonable out-of-pocket
expenses incurred by the Executive in rendering such assistance. The provisions
of this Paragraph 16 shall continue in effect notwithstanding termination of the
Executive's employment hereunder for any reason.
15
<PAGE>
16. Withholding Taxes. The Company may withhold from any payments to be
-----------------
made to the Executive hereunder such amounts (including social security
contributions and federal income taxes) as shall be required by federal, state
and local withholding tax laws.
17. No Effect on Other Contractual Rights. The provisions of this
-------------------------------------
Agreement, and any payment provided for hereunder, shall not reduce any amounts
otherwise payable to the Executive, or in any way diminish the Executive's
rights as an employee of the Company, whether existing now or hereafter, under
any employee benefit plan, program or arrangement or other contract or agreement
of the Company providing benefits to the Executive.
18. Arbitration. The Company and the Executive agree to submit to final
-----------
and binding arbitration any and all disputes, claims (whether in tort, in
contract, statutory or otherwise) and/or disagreements concerning the
interpretation or application of this Agreement; provided, however, that
notwithstanding the foregoing, in no event shall any dispute, claim or
disagreement arising under Paragraphs 11, 12, 13 and 14 be submitted to
arbitration pursuant to this Paragraph 18 or otherwise. Any dispute, claim
and/or disagreement subject to arbitration pursuant to the terms of this
Paragraph 18 shall be resolved by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association or any successor
organization (the "Association") then in effect. Arbitration under this
provision must be initiated within 30 days of the action, inaction or occurrence
about which the party initiating the arbitration is complaining. Within ten
days of the initiation of an arbitration hereunder, each party will designate an
arbitrator pursuant to Rule 14 of the Association's Rules, and within 10 days
thereafter the appointed arbitrators will appoint a neutral arbitrator from the
panel in the manner prescribed in Rule 13 of the Association's Rules; provided,
however, that if the Company and the Executive mutually agree, the arbitration
may be conducted by a single arbitrator selected by agreement of the Company and
the Executive. The Executive and the Company agree that the decision of the
arbitrators selected hereunder will be final and binding on both parties. This
arbitration provision is expressly made pursuant to and shall be governed by the
Federal Arbitration Act, 9 U.S.C. Sections 1-14. The parties hereto agree that
pursuant to Section 9 of such Act a judgment of any state court located in
Crawford County, Arkansas, shall be entered upon the award made pursuant to the
arbitration.
16
<PAGE>
19. Injunctive Relief. In recognition of the fact that a breach by the
-----------------
Executive of any of the provisions of Paragraphs 11, 12, 13 and 14 will cause
irreparable damage to the Company for which monetary damages alone will not
constitute an adequate remedy, the Company shall be entitled as a matter of
right (without being required to prove damages or furnish any bond or other
security) to obtain a restraining order, an injunction, an order of specific
performance or other equitable or extraordinary relief from any court of
competent jurisdiction restraining any further violation of such provisions by
the Executive or requiring him to perform his obligations hereunder. Such right
to equitable or extraordinary relief shall not be exclusive but shall be in
addition to all other rights and remedies to which the Company may be entitled
at law or in equity, including without limitation the right to recover monetary
damages for the breach by the Executive of any of the provisions of this
Agreement.
20. Survival. Neither the expiration of the term of the Executive's
--------
employment hereunder nor any other termination of this Agreement shall impair
the rights or obligations of either party hereto which shall have accrued
hereunder prior to such expiration or termination. The provisions of Paragraphs
11, 12, 13, 14, 15, 18 and 19 and the rights and obligations of the parties
thereunder, shall survive the expiration or termination of the term of the
Executive's employment hereunder.
21. Notices. All notices, requests, demands and other communications
-------
required or permitted to be given or made hereunder by either party hereto shall
be in writing and shall be deemed to have been duly given or made (i) when
delivered personally, or (ii) when deposited in the United States mail, first
class registered or certified mail, postage prepaid, return receipt requested,
to the party for which intended at the following addresses (or at such other
addresses as shall be specified by the parties by like notice, except that
notices of change of address shall be effective only upon receipt):
If to the Company, at:
Loislaw.com, Inc.
105 North 28th Street
Van Buren, AR 72956
Attn: Chief Executive Officer
17
<PAGE>
with a copy to:
Kenn W. Webb, Esq.
Thompson & Knight, P.C.
1700 Pacific Avenue, Suite 3300
Dallas, Texas 75201
If to the Executive:
Mark Beyland
105 North 28th Street
Van Buren, AR 72956
22. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties hereto concerning the subject matter hereof and supersedes
all prior agreements and understandings, both written and oral, between the
parties with respect to such subject matter.
23. Binding Effect; Assignment; No Third Party Benefit. This Agreement
--------------------------------------------------
shall be binding upon and inure to the benefit of the parties hereto and their
respective heirs, legal representatives, successors and assigns; provided,
however, that the Executive shall not assign or otherwise transfer this
Agreement or any of his rights or obligations hereunder without the prior
written consent of the Company (except that any rights that the Executive may
have hereunder at the time of his death may be transferred by will or pursuant
to the laws of descent and distribution). Nothing in this Agreement, express or
implied, is intended to or shall confer upon any person other than the parties
hereto, and their respective heirs, legal representatives, successors and
permitted assigns, any rights, benefits or remedies of any nature whatsoever
under or by reason of this Agreement.
The Company may: (i) as long as it remains obligated with respect to this
Agreement, cause its obligations hereunder to be performed by a subsidiary or
subsidiaries for which Executive performs services, in whole or in part; (ii)
assign this Agreement and its rights hereunder in whole, but not in part, to any
corporation with or into which it may hereafter merge or consolidate or to which
it may transfer all or substantially all of its assets, if said corporation
shall by operation of law or expressly in writing assume to the reasonable
satisfaction of Executive all liabilities of the Company hereunder as fully as
if it had been originally named the Company herein; but may not otherwise assign
this Agreement or its rights hereunder. Subject to the foregoing, this
Agreement shall inure to the benefit of and be enforceable by the Company's
successors and assigns.
18
<PAGE>
24. Nonalienation of Benefits. The Executive shall not have any right to
-------------------------
pledge, hypothecate, anticipate or in any way create a lien upon any payments or
other benefits provided under this Agreement; and no benefits payable hereunder
shall be assignable in anticipation of payment either by voluntary or
involuntary acts, or by operation of law, except by will or pursuant to the laws
of descent and distribution.
25. Amendment. This Agreement may not be modified or amended in any
---------
respect except by an instrument in writing signed by both of the parties hereto.
26. Waiver. Any term or condition of this Agreement may be waived at any
------
time by the party hereto that is entitled to have the benefit thereof, but such
waiver shall only be effective if evidenced by a writing signed by such party,
and a waiver on one occasion shall not be deemed to be a waiver of the same or
any other type of breach on a future occasion. No failure or delay by a party
hereto in exercising any right or power hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right or power.
27. Authority. No person, other than pursuant to a resolution duly
---------
adopted by the members of the Board of Directors of the Company, shall have
authority on behalf of the Company to agree to modify, amend or waive any
provision of this Agreement or take any action in reference hereto.
28. Severability. If any provision of this Agreement is held to be
------------
unenforceable, (a) this Agreement shall be considered divisible, (b) such
provision shall be deemed inoperative to the extent it is deemed unenforceable,
and (c) in all other respects this Agreement shall remain in full force and
effect; provided, however, that if any such provision may be made enforceable by
limitation thereof, then such provision shall be deemed to be so limited and
shall be enforceable to the maximum extent permitted by applicable law.
29. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND
-------------
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARKANSAS WITHOUT REGARD TO
THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF.
30. Counterparts. This Agreement may be executed by the parties hereto
------------
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement.
19
<PAGE>
31. Interest on Late Payments. The Company's obligation to pay Executive
-------------------------
any amounts under this Agreement, if not paid by the time specified for payment
herein, shall bear interest at the rate of 18% per annum or, if different, the
maximum rate allowed by law until paid by the Company, and all accrued and
unpaid interest shall bear interest at the same rate, all of which interest
shall be compounded daily.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on
its behalf by its duly authorized officer, and the Executive has executed this
Agreement, as of the date first set forth above.
LOISLAW.COM, INC.
By:
---------------------------------
Name: Kyle D. Parker
Title: Chairman of the Board and
Chief Executive Officer
------------------------------------
Mark O. Beyland
20
<PAGE>
Exhibit 10.4
REIMBURSEMENT AGREEMENT
-----------------------
This Agreement (this "Agreement") is executed and entered into as of
January 29, 1999 by and among Law Office Information Systems, Inc., an Arkansas
corporation (the "Company"), Kyle D. Parker, as Trustee for The Parker Trust
dated March 15, 1989 (the "Parker Trust"), Melissa Ann Parker and Capital
Resource Lenders III, L.P., a Delaware limited partnership ("CRL III").
Reference is hereby made to that certain Senior Subordinated Note and Securities
Purchase Agreement dated as of November 24, 1997 by and between the Company and
CRL III, as amended by that certain Amendment dated as of June 29, 1998 by and
among the Company, CRL III, CRP Investment Partners III, L.L.C. ("CRP
Investment") and Rowland Moriarty ("Moriarty" and together with CRL III and CRP
Investment, the "Purchasers"), that certain Amendment No. 2 dated as of August
20, 1998 by and among the Company and the Purchasers, that certain Amendment No.
3 dated as of November 30, 1998 by and among the Company and the Purchasers, and
that certain Amendment No. 4 dated as of the date hereof by and among the
Company and the Purchasers (as so amended, the "Purchase Agreement").
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Purchase Agreement.
W I T N E S S E T H:
-------------------
WHEREAS, the Company and Fleet National Bank, a national banking
association (the "Bank"), have entered into that certain Credit Agreement dated
as of August 20, 1998, as amended by that certain First Amendment to Credit
Agreement dated as of December 31, 1998 (as the same may from time to time be
amended, modified or supplemented, hereinafter referred to as the "Loan
Agreement"), pursuant to which the Bank has agreed, subject to the terms and
conditions set forth therein, to establish a credit facility in the original
aggregate principal amount of $10,000,000 in favor of the Company; and
WHEREAS, in connection with the Loan Agreement, CRL III executed that
certain Limited Guaranty dated August 20, 1998 (the "Guaranty") in favor of the
Bank, pursuant to which CRL III has agreed to guarantee certain obligations of
the Company under the Loan Agreement.
NOW THEREFORE, in consideration of the premises and the agreements herein
contained, and intending to be bound hereby, the parties hereby agree as
follows:
1. Reimbursement. The Company agrees, subject to Section 2 hereof, that
-------------
it will repay to CRL III, immediately upon demand given by CRL III, any amounts
which may have been paid by CRL III (the "Reimbursement Amount") to the Bank, or
any of its successor and assigns, under the Guaranty, together with interest
from the date of payment to the Bank to the date of reimbursement hereunder at a
rate of 15.5% per annum. At the request of CRL III, the Company shall issue to
CRL III, or its assigns, a promissory note or notes (the "Reimbursement Note")
in the aggregate principal amount of such Reimbursement Amount. Such
Reimbursement Note shall (i) be due and payable on September 30, 2004, (ii) bear
interest (based on a 360-day year counting actual days elapsed) on the principal
amount thereof until due and payable at the rate of 15.5% per annum, which
<PAGE>
interest shall be payable quarterly in arrears on the last Business Day of
March, June, September and December in each year, and at maturity or prior
prepayment of the Reimbursement Note in full, and (iii) be, in all other
respects, on the same terms, and in the same form as, the Notes issued to the
Purchasers under the Purchase Agreement.
2. Optional Conversion. CRL III shall have the right and option (the
-------------------
"Conversion Option"), at any time after payment of the Reimbursement Amount is
made to the Bank, to convert any portion of the then outstanding principal
balance of the Reimbursement Amount (whether evidenced by the Reimbursement Note
issued in accordance with Section 1 hereof or otherwise) together with all
accrued and unpaid interest due thereon (collectively, the "Conversion Amount"),
into shares of the Company's Series A Convertible Preferred Stock, $0.001 par
value per share (the "Series A Preferred Stock"), on the same terms and
conditions set forth in the Purchase Agreement and the Company's Articles of
Incorporation, as amended and in effect on the date hereof, such that: as soon
as practicable after CRL III exercises the Conversion Option, the Company shall
issue to CRL III or its assigns that number of shares of Series A Preferred
Stock equal to the quotient obtained by dividing (x) the Conversion Amount, by
(y) 3.2222.
3. Further Assurances. From and after the date of this Agreement, upon
------------------
the request of CR III, the Company, Kyle D. Parker as Trustee for the Parker
Trust and Melissa Ann Parker shall execute and deliver such instruments,
documents, agreements and other writings as may be reasonably necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement. Without limiting the generality of the foregoing,
the parties hereto agree: (i) to execute all necessary amendments to the
Operative Documents (including, without limitation, the Stockholders' Agreement,
the Registration Rights Agreement and the Preferred Stock Subordination
Agreement, each as amended and in effect) and the Company's Articles of
Incorporation, as amended and in effect; and (ii) to take such other action
including the voting of (or acting by written consent with respect to) any and
all shares of capital stock of the Company that such party is entitled to vote,
as may be necessary, from time to time, to ensure that the Company's Articles of
Incorporation and By-laws, as amended and in effect, do not conflict with the
intent and purposes of this Agreement.
4. Representations and Warranties of the Company. The Company hereby
---------------------------------------------
represents and warrants to CRL III that: (i) the Company is a duty organized
and validly existing corporation under the laws of the State of Arkansas, (ii)
the Company has taken all corporate action required to make all the provisions
of this Agreement the valid and enforceable obligations they purport to be, and
(iii) neither the execution and delivery of this Agreement nor the consummation
of any transaction contemplated hereby has constituted or resulted in or will
constitute or result in a default or violation of any law or regulation
applicable to the Company or any term or provision of the Company's Articles of
Incorporation or By-laws or any agreement or instrument by which it is bound or
to which its properties or assets are subject.
5. Survival of Representations. The representations and warranties made
---------------------------
in this Agreement shall survive the execution and delivery hereof.
2
<PAGE>
6. Miscellaneous.
-------------
(a) Descriptive Headings. The descriptive headings in this Agreement
--------------------
are inserted for convenience only and do not constitute a part of this
Agreement.
(b) Governing Law. The construction, validity and interpretation of
-------------
this Agreement will be governed by and construed in accordance with the domestic
laws of the Commonwealth of Massachusetts without giving effect to any choice of
law or conflict of law provision or rule (whether of the Commonwealth of
Massachusetts or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the Commonwealth of Massachusetts.
(c) Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
(d) Costs, Expenses, Taxes. The Company agrees to pay on demand all
----------------------
costs and expenses of CRL III in connection with the preparation, execution and
performance of this Agreement and the transactions contemplated hereby,
including the reasonable fees and out-of-pocket expenses of Messrs. Testa,
Hurwitz & Thibeault, LLP counsel for CRL III, with respect thereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above set forth.
LAW OFFICE INFORMATION SYSTEMS, INC.
By: /s/ Kyle Parker
--------------------------------------
Name: Kyle Parker
Title: CEO
THE PARKER TRUST DATED MARCH 15, 1989
By: /s/ Kyle Parker
--------------------------------------
Name: Kyle Parker
Title: CEO
/s/ Melissa A. Parker
------------------------------------------
Melissa Ann Parker
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
Its General Partner
By: /s/ Robert C. Ammerman
--------------------------------------
Managing Member
4
<PAGE>
AMENDMENT NO. 1
TO
REIMBURSEMENT AGREEMENT
This Amendment No. 1 dated as of June 16, 1999 (the "Amendment") by and
among Law Office Information Systems, Inc., an Arkansas corporation (the
"Company"), Kyle D. Parker, as Trustee for The Parker Trust dated March 15,
1989, as amended (the "Parker Trust"), Melissa Ann Parker, an individual (Ms.
Parker") and Capital Resource Lenders III, L.P., a Delaware limited partnership
("CRL III") amends that certain Reimbursement Agreement dated as of January 29,
1999 by and among the Company, the Parker Trust, Ms. Parker and CRL III (the
"Reimbursement Agreement"). Capitalized terms not otherwise defined herein
shall have the meanings ascribed to them in the Purchase Agreement.
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereby agree as follows:
1. Paragraph 2 of the Reimbursement Agreement is hereby amended and
restated in its entirety to read as follows:
2. Optional Conversion. Until such time as the Company consummates
-------------------
an underwritten initial public offering of the Company's common stock
registered under the Securities Act of 1933, as amended, CRL III shall have
the right and option (the "Conversion Option"), at any time after payment
of the Reimbursement Amount is made to the Bank, to convert any portion of
the then outstanding principal balance of the Reimbursement Amount (whether
evidenced by the Reimbursement Note issued in accordance with Section 1
hereof or otherwise) together with all accrued and unpaid interest due
thereon (collectively, the "Conversion Amount"), into shares of the
Company's Series A Convertible Preferred Stock, $0.001 par value per share
(the "Series A Preferred Stock"), on the same terms and conditions set
forth in the Purchase Agreement and the Company's Articles of
Incorporation, as amended and in effect on the date hereof, such that: as
soon as practicable after CRL III exercises the Conversion Option, the
Company shall issue to CRL III or its assigns that number of shares of
Series A Preferred Stock equal to the quotient obtained by dividing (x) the
Conversion Amount, by (y) 3.2222.
2. This Amendment may be executed in counterparts, each of which is
deemed to be an original and all of which together shall be deemed to constitute
one and the same agreement. In addition to any other lawful means of execution
or delivery, this Amendment may be executed by facsimile signatures and may be
delivered by the exchange of counterparts of signature pages by means of
telecopier transmission.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the day and year first above set forth.
LAW OFFICE INFORMATION SYSTEMS, INC.
By: /s/ Kyle Parker
-------------------------------
Name: Kyle Parker
Title: Chief Executive Officer
KYLE D. PARKER, TRUSTEE OF THE PARKER TRUST DATED MARCH 15, 1989
By: /s/ Kyle Parker
-------------------------------
Kyle D. Parker, Trustee
/s/ Melissa Ann Parker
----------------------------------
Melissa Ann Parker
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
Its General Partner
By: /s/ Robert C. Ammerman
-------------------------------
Managing Member
2
<PAGE>
Exhibit 10.5
EMPLOYMENT AGREEMENT
This Agreement sets for the terms and conditions of your employment with Law
Office Information Systems, Inc. (LOIS). The attached confidentiality and
equipment loan Agreement are an integral part of this Agreement. This Agreement
constitutes the entire understanding between the parties hereto and any prior
written or oral promises or modifications hereto are hereby merged into and
become a part of this Agreement.
Position: You are an employee of Law Office Information Systems, Inc. Your
- --------
principal job will be to market LOIS to prospective customers, high priests,
Court systems, Bar Associations, CLE Organizations, and the like. You are
expected to work to develop new states, new products and establish the
relationships set forth above, as well as working on ventures with other
publishers. The nature of your responsibilities and your job position may
change from time to time. You will also work in presenting the company to the
financial community, as needed. The nature of your responsibilities will
require extensive travel both within and outside the U.S.
Salary and Benefits: Your compensation will be $10,000 per month, and may be
- --------------------
increased from time to time upon the approval of the Board of Directors. You
and your family will also be covered by the Company's health and dental plan.
LOIS will also reimburse you for ordinary and necessary travel and other
business expenses relating to your business activities with LOIS. The Company's
philosophy is to operate with minimum operating expense, therefore, it is
important that you work in a manner that minimizes these expenses.
Duration Requirement. You agree to remain employed by LOIS for a minimum of two
- ---------------------
(2) years after the date of an offering requiring registration under the
Securities Act of 1934 ("Public Offering") by LOIS, or until August 1, 1999,
whichever comes first. In the event of a merger of LOIS with or into another
corporation, or the sale of substantially all of the assets of the Company, then
and in that event, this Duration Requirement is hereby removed, if agreed to by
the other party to such transaction.
Equity: Upon the execution of this Agreement, you will be granted options by
- -------
the Parker Trust to purchase 140,000 shares of LOIS stock at an exercise price
of $2.50 per share. You will be able to exercise these options according to the
-----
conditions outlined below.
1. If LOIS makes a Public Offering: Subject to the requirements of the
--------------------------------
Securities and Exchange Commission, after August 1, 1999 or two years after
the date of the Public Offering, whichever occurs sooner, you will be able
to exercise options to purchase 105,000 shares. The remaining options to
purchase 35,000 shares shall be exercisable without restriction,
immediately upon the date the Company files a registration statement for
the Public Offering.
2. If LOIS is acquired or merged: In the event of the merger of LOIS with or
-----------------------------
into another corporation, or the sale of substantially all of the assets of
the Company, you may exercise options to purchases all 140,000 shares
immediately prior to or concurrent with the completion of that sale or
merger, with the understanding that you agree to sell or exchange your
entire interest in LOIS stock to the acquiring party in a transaction
recommended by the Board of Directors. The proceeds from the exercise of
105,000 of your options shall remain
1
<PAGE>
in the Parker Trust until August 1, 1999, unless the acquiring party agrees
to remove the Duration Requirement detailed above. If the Duration
Requirement is removed, the proceeds from your 105,000 shares shall be paid
directly to you. In all instances, the proceeds from the sale of the
remaining 35,000 shares shall be paid directly to you.
3. If the event that items 1 or 2 (above) do not occur: You will be able to
----------------------------------------------------
exercise all 140,000 options on August 1, 1999 or at any time thereafter
until August 1, 2009, and accrue all proceeds directly to you.
Further, it is agreed that while the Duration Requirement is in effect you may
instruct the Parker Trust to sell shares for which you hold options in any
Public Offering or in the public marketplace, subject to approval of the
Company's underwriters and compliance with applicable securities laws. In such
event, the proceeds from these sales, less the exercise price, shall be held in
your account in the Parker Trust and invested in an financial institution
selected by the Parker Trust. The amount of this account together with any
interest earned on these funds shall be distributed to you after your satisfying
all conditions of exercise.
You may also sell your stock if the Company does not elect to make a Public
Offering or is not acquired or merged. In that event, LOIS or the Parker Trust
has the first right of refusal to match any bona fide offer of purchase. LOIS
or the Parker Trust shall be notified in writing of said intent to sell; the
party making said purchase; and the amount of said purchase. Within 15 days
thereafter and neither LOIS or the Parker Trust has matched the offer, you can
sell to the party with the bona fide offer.
Additional Equity and Dilution: During your employment you may be able to gain
- ------------------------------
additional equity interest in the Company through participation in the Company's
Stock Option Plan. The amount of options, if any, that you may receive will be
determined by the Board of Directors. It is also understood that from time to
time, the Company may issue additional shares of stock, which will dilute your
ownership in the Company.
Termination and Severance: If you elect to terminate your employment with LOIS
- --------------------------
within 2 years after completion of a Public Offering, or August 1, 1999,
whichever comes first, all options under this Agreement shall lapse. You also
agree that you will not be entitled to any severance from LOIS or any
governmental institution or agency if you terminate this agreement.
If LOIS terminates your employment without "legal cause," then and in that
event, you shall receive a severance package equal to the amount of your monthly
salary plus health benefits, payable for a period of 6 months. Thereafter, you
agree that you will not file for any unemployment benefits with any governmental
agency or institution. Furthermore, options held by you at the time of such
termination which would be exercisable but for the requirement for continued
employment described in the previous paragraphs, shall be exercisable for 30
days following termination. In the event that you had instructed the Parker
Trust to sell stock subject to an option covered in this agreement, you shall
receive those moneys within 30 days.
If LOIS terminates your employment for "legal cause" during said time period
mentioned in the preceding sentence, all unexercised options shall be terminated
and your entitlement to any funds
2
<PAGE>
held in the Parker Trust shall be forfeited. Termination for legal cause shall
mean termination for any of the following reasons: Willful breach or habitual
neglect of duty, or; conviction of any crime, or; conduct lacking moral
turpitude, or; dishonesty, or; violation of any statutory or common law duty,
or; violation of a fiduciary duty to LOIS, or; accepting any item of value in
the aggregate in excess of $1,000.00 from any direct or indirect competitor of
LOIS for any reason, unless approved by the Board of Directors.
The Agreement is deemed to have been signed and executed on July 2, 1996.
Accepted as to form and content: Accepted as to form and content:
/s/ Kyle D. Parker /s/ W. Clark Wigley
Kyle D. Parker, W. Clark Wigley
President and C.E.O.,
Law Office Information Systems, Inc.
3
<PAGE>
EXHIBIT 10.6
CORPORATE LICENSE AND SERVICES AGREEMENT
[VERITY LOGO]
This Agreement is made between Verity, Inc., a Delaware Corporation, located at
894 Ross Drive, Sunnyvale, CA 94089 ("Verity") and Law Office Information
Systems, Inc., an Arkansas corporation, located at 105 North 28/th/, Van Buren,
AR 72956 ("Customer"). The Agreement shall be effective as of February 18, 1998
("Effective Date") and shall replace the Software License and Services Agreement
and Amendment to Software License and Service Agreement dated April 30, 1996 in
its entirety. Verity is the owner of proprietary information indexing and
retrieval software. Verity and Customer agree that the following terms and
conditions will apply to each license granted and all services provided under
this Agreement.
1. PRODUCT LICENSE
"Products" are the computer software owned or distributed by Verity and
specified in an order form ("Order Form") for which Customer is granted a
license pursuant to this Agreement; and any related documentation, user guides,
installation instructions and release notes ("Documentation"), and updates
provided by Verity to Customer. "Application" means the resulting product
package including the Product coupled with the Customer's value added
applications software and/or database with which the Product is to be coupled.
"Run-Time Software" means Verity's programs, in object code form, which are
required for the execution of the Application. "Subscriber" means a third party
who is granted access to the Application by Customer on an interactive basis.
"On-Line Service" means any dial-up, remote access, interactive, Internet-based
or other on-line service or World Wide Web site supported by one or more
servers.
1.1 Rights Granted
--------------
(a) Grant. Verity hereby grants to Customer the non-exclusive, non-
-----
transferable, non-assignable right to: (i) use the Products solely for
Customer's own internal data processing operations either on the number of CPUs
or by the number of concurrent users as defined on an Order Form or amendment
hereto, or if not specified, by a single user on a single computer; (ii copy the
Products for archival or backup purposes only; (ii reproduce the Documentation
up to the total number of Product licenses acquired by Customer, and (iv use the
Run-Time Software as part of the Application for the purposes of making such
Application accessible to and usable by end users of such Application as
Subscribers for up to the number of Subscribers permitted pursuant to Exhibit A.
---------
Customer has no right to distribute to third parties any Products or Application
via an On-Line Service.
(b) Restrictions. Customer shall not: (i) use the Products outside of the
------------
country to which Verity initially delivers such Products to Customer; (ii
reproduce or modify the Products except as allowed herein; (ii cause or allow
discovery of source code in any way; (iv rent or lease the Products or their
direct derivatives; or (v) make or pass on any warranty on behalf of Verity to
such Subscribers and shall ensure that neither it nor any of its agents or
employees shall make or pass on any warranty on behalf of Verify for such
Subscribers.
(c) Title. Title to and ownership of all proprietary rights in the Products,
-----
and in any Product development made by Verity, will at all times remain the
property of Verity or its licensors. Title and ownership of all proprietary
rights in the Application, apart from the Run-Time Software, including any
copyright, patent, trade secrets, trademark or other intellectual property
rights will at all times remain the property of Customer.
(d) Proprietary Notices. Customer agrees to reproduce the copyright, trademark
-------------------
and other proprietary notices contained on or in the Products as delivered to
Customer on all copies of such Products and not to remove such notices.
(e) Branding. Customer shall: (i) include a copyright notice on an applicable
--------
web page of the Application indicating that portions of the Application
including technology used under license from Verity, Inc.; (ii) cooperate with
and support Verity in its press release materials and provide client
testimonial; and (iii) include the Verity logo on any HTML document that
includes the search function or in the alternate on the results list provided by
the search. Further, Customer agrees to issue a joint and mutually agreed upon
press release announcing the project involving the licensed Product ("Project")
and Verity's participation and value not more than thirty (30) days from the
Effective Date.
1.2 Delivery and Acceptance. Verity will use its best efforts to delivery
-----------------------
those Products ordered by Customer within fifteen (15) days after Verity accepts
the Order Form for such Products. All shipments will be made F.O.B. Verity's
shipping location. The Products shall be deemed accepted on delivery.
1.3 Record and Report. Customer shall keep complete and accurate records
-----------------
relating to its use of the Products and Application in accordance with standard
business practices. Within thirty (30) days after each calendar quarter,
Customer shall provide Verity with a written sales report detailing, at a
minimum, information regarding the number of aggregate Subscribers and the
number of new Subscribers added during such quarter, including (i) the number of
such Subscribers broken down by State of location; (ii) an accounting of the
sublicense fees associated such Subscribers; and (iii) maintenance and support
fees due to Verity associated with such Subscribers. To assure compliance with
the payment and reporting requirements of this Agreement, Verity or its
independent auditors may inspect Customer's applicable records from time to
time, but no more frequently than once per year. In the event any inspection of
Customer's records indicates an underpayment of an amount equal to or greater
than five percent (5%) of any amounts due hereunder, Customer shall promptly
reimburse Verity for all reasonable expenses associated with such inspection
along with the deficient amounts.
2. PRODUCT MAINTENANCE AND PROFESSIONAL SERVICES
Maintenance Services shall be provided in accordance with Verity's Maintenance
Services Program as provided in Exhibit C. Verity will provide Maintenance
---------
Services for a Product during each period for which Customer has paid Verity's
fee for such Maintenance Services ("Maintenance Fee"). Initial Maintenance
Services, if purchased, begin either on the date the Products are shipped to
Customer, or the effective date set forth on the Order Form ("Commencement
Date"). Verity will make available to Customer professional consulting and
training services for the Product under the terms and conditions of Verity's
then-standard applicable services agreement in consideration for payment of
Verity's fee for such services and reasonable out of pocket expenses.
Customer will be responsible for providing all support services required by its
Subscribers. Customer shall be responsible for creating and distributing
documentation relating to the Products or Application for Subscribers. Customer
shall have the right to incorporate portions of Verity's Documentation into
Customer's documentation, provided the copyright and trademark provisions
(Proprietary Notices) are complied with. Customer agrees that no confidential
information shall be made available to Subscriber.
<PAGE>
3. TERM AND TERMINATION
The pricing stated on Exhibit A shall remain in effect for a period of three (3)
years. The term of this Agreement will begin on the Effective Date and will
continue unless terminated pursuant to this Section 3. Either party may
terminate this Agreement upon thirty (30) days written notice to the other of a
material breach of this Agreement by the other party if the defaulting party has
not cured such breach within such thirty (30) day period; provided, however,
that Verity may terminate this Agreement immediately upon delivery of notice in
connection with any breach by Customer of Section 1.1(a), (b), (c) or (d). Upon
termination of this Agreement for any reason, the license granted to Customer in
Section 1.1 and all other rights granted to Customer under this Agreement shall
immediately cease, and Customer shall immediately return to Verity, or certify
the destruction of, all copies of Products in Customer's possession. However,
if the Agreement terminates or expires for any other reason other than Verity's
termination of Customer in accordance with this Section, then the Customer shall
have the right to continue to use internally at no additional charge both the
Products and the Application actually deployed prior to the date of expiration
or termination. Notwithstanding the above, after the termination of this
Agreement, the number of Subscribers who are actively using an Application
through a personal computer or server upon which such an Application,
respectively, is installed as of the date of termination, and no new Subscribers
may be added. The rights and obligations contained in Sections 1.1(b), 1.1(c),
1.1(d), 1.3, 5.4, 6 and 8 and any payments due hereunder shall survive any
termination of this Agreement.
4. INFRINGEMENT INDEMNITY
Verity agrees to defend, indemnity and hold Customer harmless from all
settlements agreed to by Verity and all costs and damages awarded to a third
party to the extent they arise out of a claim that the Products as delivered to
Customer infringe a U.S. copyright, U.S. Patent. Such obligation is subject to
the following conditions: (i) Customer shall notify Verity in writing within
thirty (30) days of the date Customer first becomes aware of a claim; (ii)
Verity has sole control of the settlement, compromise, negotiation and defense
of any such action; and (iii) Customer gives Verity all reasonably available
information, assistance and authority, at Verity's reasonable expense, to enable
Verity to do so. Verity may, at its option, obtain the right to continued use
of the Products, substitute other equivalent software, or modify the Products so
they are no longer infringing, or, if none of the foregoing remedies are
commercially feasible, terminate Customer's right to the allegedly infringing
Products and refund to Customer the amount which Customer has paid for such
Products. The foregoing indemnity shall not apply to any infringement claim
arising from Products which have been modified by parties other than Verity or
use of the Products in conjunction with other software or hardware where use
with such other software or hardware gives rise to an infringement claim. THE
FOREGOING STATES CUSTOMER'S SOLE AND EXCLUSIVE REMEDY WITH RESPECT TO CLAIMS OF
INFRINGEMENT OF THIRD PARTY PROPRIETARY RIGHTS OF ANY KIND, AND VERITY EXPRESSLY
DISCLAIMS ANY IMPLIED WARRANTY OF NONINFRINGEMENT.
Customer agrees to defend, indemnify and hold Verity harmless from all
settlements agreed to by Customer and all costs and damages awarded to a third
party to the extent they arise out of: (i) Customer's or its Subscribers use of
any product not provided by Verity but used in conjunction with the Product if
such claim would have been avoided by exclusive use of the Product, or (ii)
negligence, misrepresentation, or error or omission on the part of Customer or
representatives of Customer, (iii) Customer's or Subscribers' infringement of
any content providers intellectual property, or (iv) any claims, or express or
implied warranties or representations made by Customer or Customer's employees
or agents not authorized by this Agreement.
5. WARRANTIES AND DISCLAIMERS
5.1 Warranty for Products. Verity warrants to Customer that Products will
---------------------
perform substantially in accordance with the Documentation for a period of
ninety (90) days after the Commencement Date for such Product ("Warranty
Period"). If during the Warranty Period, Customer reports a Product error which
prevents the Product from meeting this warranty, Verity will correct the error,
in accordance with its Maintenance Services Program. If Verity is unable to
correct or provide a reasonable work-around for the error, Verity will accept
the return of the defective Products and Verity will refund the license fees
paid by Customer for such Products. This limited warranty shall not apply if
the Product has been modified without Verity's express authorization. The
foregoing is Customer's sole and exclusive remedy for breach of warranty by
Verity for the Products.
5.2 Warranty for Product Media. Verity warrants to Customer that during the
--------------------------
Warranty Period the media on which a Product is furnished by Verity under this
Agreement is free of defects in materials and workmanship under normal use. If
Customer reports a defect in the media during the Warranty Period Verity will
replace it at no charge. The foregoing is Customer's sole and exclusive remedy
for breach of warranty by Verity for the Product media.
5.3 Warranty for Professional Services. Verity warrants that any professional
----------------------------------
services provided to Customer pursuant to Section 2 will be of a professional
quality, conforming to generally accepted industry standards and practices for
similar services and products. If Verity fails to perform such services as
warranted hereunder and Customer reports such failure to Verity during the
ninety (90) day period after the completion of such services, Verity will, at
its expense, reperform the services. The foregoing is Customer's sole and
exclusive remedy for breach of warranty by Verity for professional services.
5.4 Disclaimer of Warranties. Except for the warranties provided above, all
------------------------
Products are provided on an "AS IS" basis. Verity does not warrant that the
Products will meet Customer's requirements, that the operation of the Products
will be uninterrupted and error-free, or that the Products will operate in
combination with hardware and/or software products not supplied by Verity.
EXCEPT FOR THE EXPRESS WARRANTIES STATED ABOVE, VERITY MAKES NO ADDITIONAL
WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO ANY OTHER MATTER WHATSOEVER.
IN PARTICULAR, ANY AND ALL WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NON-INFRINGEMENT ARE HEREBY EXPRESSLY DISCLAIMED.
6. LIMITATIONS OF LIABILITY
6.1 Limitations on Damages: VERITY SHALL NOT BE LIABLE OR OBLIGATED IN ANY
----------------------
MANNER FOR ANY LOSS OF USE, INTERRUPTION OR BUSINESS, OR ANY INDIRECT, SPECIAL,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND (INCLUDING LOST PROFITS)
REGARDLESS OF THE FORM OF ACTION, WHETHER IN CONTRACT, TORT, NEGLIGENCE, STRICT
PRODUCT LIABILITY, OR OTHERWISE, EVEN IF VERITY HAS BEEN INFORMED OF THE
POSSIBILITY THEREOF IN ADVANCE. NOTWITHSTANDING ANY OTHER PROVISION OF THIS
AGREEMENT, VERITY'S LIABILITY TO CUSTOMER OR SUBSCRIBERS UNDER THIS AGREEMENT
SHALL NOT EXCEED, IN THE AGGREGATE, THE LICENSE FEES DUE TO VERITY UNDER THIS
AGREEMENT FOR THE PRODUCT WHICH IS THE BASIS OF THE CLAIM..
6.2 Limitations on Time. No action may be brought under this agreement at any
-------------------
time more than twelve (12) months after the cause of action arose.
2
<PAGE>
7. FEES AND PAYMENTS
Customer agrees to pay Verity the fees set forth in the relevant Order Form for
the Products and services provided to Customer under this Agreement. Invoices
for payment of Product license fees and initial Maintenance Fees shall be
rendered to Customer upon Verity's shipment of the Products. Maintenance
renewal fees will be invoiced in accordance with the then-current Maintenance
Services Program. Invoices for payment of professional services and/or Product
training will be rendered monthly. Payment is due when thirty (30) days from
the date of invoice. In addition to any payments due to Verity under this
Agreement, Customer will pay all applicable taxes based upon Verity's net
income.
8. GENERAL
8.1 Controlling Law and Forum. This Agreement shall be governed by the laws of
-------------------------
the U.S. and the State of California without application of the principles of
conflicts of laws. The jurisdiction for any legal action shall be a state or
federal court in Santa Clara County, California.
8.2 Notices. All notices required under this Agreement shall be in writing and
-------
shall be deemed given upon receipt. All notices must be delivered, if to
Customer, to the address and recipient of Customer set forth on the order form,
and if to Verity, to the Controller at the address set forth above.
8.3 Waiver and Severability. The waiver by either party of any default or
-----------------------
breach of this Agreement shall not constitute a waiver of any other default or
breach. Unenforceability or invalidity of any provision of this Agreement shall
not render this Agreement unenforceable as a whole.
8.4 Force Majeure. Except for the payment of money, neither party will be
-------------
liable for any failure or delay in performance under the Agreement which might
be due to strikes, shortages, riots, insurrection, fires, flood, storm,
explosion, acts of God, war, government action, inability to obtain delivery of
parts, supplies, or labor, labor conditions, earthquakes or any other cause
which is beyond the reasonable control of such party.
8.5 Injunctive Relief. It is expressly agreed that a material breach of this
-----------------
Agreement will cause irreparable harm to Verity and that a remedy at law would
be inadequate. Therefore, in addition to any and all remedies available at law,
Verity will be entitled to an injunction or other equitable remedies in all
legal proceedings in the event of any such threatened or actual breach of this
Agreement.
8.6 Export Control. Customer agrees that it would not export or reexport the
--------------
Products, or a direct derivative of the Products without the appropriate U.S.
government licenses.
8.7 Government End Users. RESTRICTED RIGHTS: If the Software is acquired under
--------------------
the terms of a proposal or agreement with the United States Government or any
contractor therefor, the Software is subject to the following: (a) For
acquisition by or on behalf of civilian agencies, as necessary to obtain
protection as "commercial computer software" and related documentation in
accordance with the terms of this Commercial Software Agreement as specified in
48 C.F.R. 12.212 of the Federal Acquisition Regulations and its successors; (b)
For acquisition by or on behalf of units of the Department of Defense ("DoD") as
necessary to obtain protection as "commercial computer software" and related
documentation in accordance with the terms of this commercial computer software
license as specified in 48 C.F.R. 227-7202-2 of the DoD F.A.R. Supplement and
its successors.
8.8 Entire Agreement. This Agreement, including the order forms and
----------------
attachments, constitutes the entire agreement between the parties regarding its
subject matter. This Agreement supersedes all prior proposals, agreements or
other communications between the parties, oral or written, regarding such
subject matter. This Agreement shall not be modified unless in writing and
signed by authorized representatives of Verity and Customer. Neither party may
assign any rights or obligations under this Agreement without the prior written
consent of the other party. It is expressly understood and agreed that the
terms and conditions of this Agreement shall apply to all orders and shall, to
the extent that there may be conflicts, supersede any terms on any purchase
orders issued by Customer.
Customer: LOIS, Inc. Verity, Inc.
By:/s/Kyle D. Parker By:/s/J.E. Ticehurst
----------------- ------------------
Name: Kyle D. Parker Name: J.E.Ticehurst
---------------- ----------------
Title:President & CEO Title:VP & Controller
--------------- ---------------
3
<PAGE>
EXHIBIT A
LICENSED PRODUCTS AND FEES
1. LICENSED PRODUCTS:
------------------
SEARCH '97 INFORMATION SERVER on NT Platform - on a single Server for
support of up to 50,000 Subscribers
SEARCH '97 AGENT SERVER on NT Platform - on a single Server for support of
up to 50,000 Subscribers
"Server" means a computing device acting as a server for a network of
interconnected computing devices, whether within an enterprise or other Web,
intranet or Internet environment, upon which the Products or an Application may
be installed or accessed.
2. LICENSE FEE: In consideration for the licenses granted hereunder, Upon the
-----------
Effective Date, Customer shall pay to Verity a one-time, nonrefundable,
nonrecoupable license fee in the amount of Two Hundred Ninety Thousand Eight
Hundred and Seventy Five Dollars (US$290,875).
Within thirty (30) days following the end of each calendar quarter, Customer
shall pay to Verity Five Dollars (US$5.00) per Subscriber with respect to each
new Subscriber added during such quarter beyond the first 50,000 Subscribers.
Beyond the first 50,000 subscribers, the number of Subscribers may only be
supplemented in blocks of 10,000 Subscribers.
Within the first sixty (60) days from the Effective Date, customer may
obtain one (1) copy of the Search '97 Developer's Kit on the NT Platform for the
amount of Nineteen Thousand Dollars (US$19,000) and the applicable twenty
percent (20%) maintenance fee.
3. MAINTENANCE AND SUPPORT: In consideration for maintenance and support
-----------------------
services provided, Customer shall pay to Verity:
(i) the annual maintenance fee in the amount of US$57,475 (the "Base Rate"),
due and payable upon the Effective Date,
(ii) on or before each anniversary of the Effective Date, the amount equal
to the sum of (A) the Base Rate, (B) the number calculated by multiplying the
total number of subscribers as of such anniversary (beyond the first 50,000
Subscribers) multiplied by One Dollar (US$1.00) and
(iii) within thirty (30) days following the end of each quarter, Customer
shall pay to Verity the amount as stated above under Section 3(ii) for each new
Subscriber added by Customer during such quarter, with such amounts being
prorated to reflect the number of months of usage by each such Subscriber for
the year ending February 28 during which the subscriber is added.
Within the first sixty (60) days from the Effective Date, Customer may elect
to obtain Dedicated Support in addition to the maintenance and support services
provided pursuant to the Verity Maintenance Services Program from Verity for an
annual fee in the amount of $85,000 ("Dedicated Support Rate") by providing
Verity with written notice of such election. If Customer obtains Dedicated
Support, Customer shall within thirty (30) days from receipt of such notice of
election and each anniversary thereof, pay to Verity the amount equal to the sum
of the Dedicated Support Rate.
"Dedicated Support" means having designated employee(s) or agent(s) of
Verity as primary contact for technical support matters relating to the
deployment of the Application(s). Such individual(s) shall be available seven
(7) days a week, twenty-four (24) hours a day.
CONSULTING SERVICES: Verity shall provide Customer with consulting, as outlined
- -------------------
in Exhibit B, for an amount equal to $63,000 plus travel and living expenses.
---------
Such consulting fee shall be due and payable within thirty (30) days from the
Effective Date.
<PAGE>
EXHIBIT B
First Week
. Install Search '97 Information Server on the staging system.
. Change the document preparation program to discontinue the addition of HTML
tags.
. Modify and test the collection building scripts.
. Build a collection with the S97IS advanced features (Summary, Cluster, QBE) on
the staging system.
Second Week
. Build search page templates for all of the LOIS products to include S97IS
features.
. Build result page templates for all of the LOIS products. Present sample
result pages with advanced features. (Summary, Cluster, QBE) for evaluation
. Build the document viewing templates. Include previous and next document
links.
Third Week
. Build and test security, by verifying web server authentication challenge
points. Test performance, by loading the server with search and document
viewing requests.
. Switch server to production. Monitor performance.
Fourth Week
. Build confidence in S971S implementation. During this period, both the new
and old search servers should be maintained to provide a fallback capability,
if necessary. Verity consultant available for phone and email support.
Fifth Week
. Prepare for the S97As installation by upgrading the old search server to NT 4.
Verity consultant available for phone and email support.
Sixth Week
. Install Search '97 Agent Server and Information Server on the old search
server. Copy production S971S templates and collection.
. Build S97As user registration screen and CGI to crate an S97AS user.
Seventh Week
. Modify HTML pages with links to and from S97AS.
. Modify search script to fit the look of S97AS pages with the LOIS site.
. Build agent delivery email message.
Eighth Week
. Evaluate option of automatically creating two agents, one for email delivery
and the other for homepage delivery.
. Integrate billing CGIs at authentication challenge points.
Ninth Week
. Test security, by verifying web server and agent server authentication
challenge points. Test performance, by loading the server with agents that
will generate email and homepage hits.
. Activate links to S97aS for production use. Monitor Performance.
Summary of user navigation through LOIS after Agent Server is added.
The LOIS online service has a member and a visitor entry. When clicking on the
member door icon, an authentication dialog is presented. Once the userid and
password are entered, then a page is generated with links to the member's
purchased products. An additional link, to the Agent Server homepage for that
member should be added to this page. Clicking on the Agent Server homepage link
will present an authentication dialog. Either the member enters their userid
and password or chooses to register as a user of Agent Server. A registration
form captures the user's information and invokes a CGI to crate an Agent Server
user. The new user is then presented with a registration confirmation page that
has a link to their new Agent Server homepage. Once they view their homepage, a
member can review their hits and follow the links to the documents unimpeded.
After a click on the visitor's door icon, the visitor's path to Agent Server is
the same as a member's. The important difference is the authentication dialog
presented to a visitor before access to a document is granted. At this
challenge point, billing information should be collected and verified. Once the
billing transaction is complete, the document is presented.
<PAGE>
EXHIBIT C
SOFTWARE SUPPORT TERMS AND CONDITIONS
For all Licensees who purchase Maintenance services, Verity provides support in
the form of Error Corrections, Software Updates, and Telephone Hotline Support.
For Software which is supported, Maintenance Services are provided only for (i)
the current release of the Software, (ii) the most recent previous release of
the Software, and (iii) any other release of the Software for one year after its
general availability; after which time Verity shall have no obligation to
support such release, unless otherwise agreed to in a separate written agreement
between the parties.
The initial effective date of Maintenance Services is the date Software is
shipped from Verity's facility.
DESCRIPTION OF SERVICES PROVIDED DURING A MAINTENANCE PERIOD
A) Error Corrections. Verity shall exercise commercially reasonable
-----------------
efforts to correct any error reported by the Licensee in the current unmodified
release of the Software in accordance with the priority level reasonably
assigned to such error by Verity. If a reported error has caused the Software to
be inoperable, or the Licensee's notice to Verity states that the reported error
is substantial and material with respect to the Licensee's use of the product,
Verity shall use its reasonable commercial efforts to correct expeditiously such
error or to provide a software patch or bypass around such error. The Licensee
acknowledges that all reported errors may not be corrected.
B) Software Updates. Verity provides, at no additional cost, one (1) copy
----------------
of all published revisions to the printed documentation and one (1) copy of, or
authorization to copy, new releases of the products, which are not designated by
Verity as new products for which it charges a separate fee. Verity, may in its
sole discretion, modify the Software and deliver Software Updates to Licensee
which may add new and/or eliminate existing features, functions, operating
environment and/or hardware platforms to the Software. Licensee may continue to
reproduce and distribute the previous version of the Software until the date on
which such Licensee products are revised, at which time Licensee will
incorporate the Software Update(s) into such products.
C) Telephone Hotline Support. Verity provides telephone assistance to all
-------------------------
Licensees who have purchased Maintenance services. Telephone Hotline Support
hours of operation and telephone numbers for the relevant geographic region may
be found on Verity's web site at www.verity.com. Verity Support personnel are
available to answer questions related to Verity's supported products and how
they perform with compatible hardware systems. Assistance in the development of
custom applications for Verity's products is not included in standard hotline
support. If Licensees wish to acquire such support, it is available through
Verity's Consulting group at the then-current consulting rates.
PRIORITY LEVELS OF ERRORS
In the performance of Maintenance Services, Verity applies priority ratings to
problems reported by Licensees.
A) Priority I Errors
-----------------
Description: Program errors that prevent some function or process from
-----------
substantially meeting the functional specification and which seriously
affect the overall performance of the function or process and no work-
around is known.
Verity Response: Verity shall promptly initiate the following procedures:
---------------
(1) assign senior Verity engineers to correct the error; (2) notify senior
Verity Management that such errors have been reported and that steps are
being taken to correct the error; (3) provide Licensee with periodic
reports on the status of corrections; (4) commence work to provide Licensee
with a work-around until final solution is available; (5) provide final
solution to Licensee as soon as it is available.
B) Priority II Errors.
------------------
<PAGE>
Description: Program errors that prevent some function or process from
-----------
substantially meeting functional specification, but has a reasonable work-
around.
Verity Response: Verity shall provide a work-around to the Licensee and shall
---------------
exercise commercially reasonable efforts to include the fix for the error in
the next software maintenance release.
C) Priority III Errors.
-------------------
Description: Program errors that prevent some portion of a function from
-----------
substantially meeting functional specification but do not seriously affect the
overall performance of the function.
Verity Response: Verity may include the fix for the error the next major
---------------
release of the Software.
<PAGE>
Amendment No. 1 to the Corporate License and Services Agreement
between
Law Office Information Systems, Inc. ("Customer")
and
Verity, Inc. ("Verity")
This Amendment No. 1 to Corporate License and Services Agreement ("Amendment No.
1") amends and supplements that certain corporate License and Services Agreement
by and between VERITY, INC. and LAW OFFICE INFORMATION SYSTEMS, INC made
effective February 18, 1998 (the "Agreement"). Verity and Customer agree that
this Amendment No. 1 is attached and made a part of the Agreement and unless
otherwise defined capitalized terms in the Amendment No. 1 shall have the same
meaning as in the Agreement.
The parties hereby agree as follows:
1. Exhibit A, Section 1 of the Agreement labeled "Licensed Products" is amended
to include the following:
"Licensed Products:
-----------------
Verity K-2 Toolkit on NT Platform - on a single Server for support of up to
50,000 Subscribers.
Verity Profiler on NT Platform - maximum of 50,000 Subscribers."
2. Exhibit A, Section 2 of the Agreement labeled "License Fee" is amended to
include the following:
"License Fee In consideration for the licenses granted in this Amendment No. 1,
-----------
upon the Effective Date of the Amendment, Customer shall pay to Verity a one-
time, non-refundable, non-recoupable license fee in the amount of Three Hundred
Thousand Dollars (US$300,000). Such license fee shall be due and payable upon
execution of this Amendment. The parties agree to enter into good faith
negotiations regarding license fees for any Subscribers beyond the first 50,000
Subscribers."
3. Exhibit A, Section 3 of the Agreement labeled "Maintenance and Support" is
amended to include the following:
"Maintenance and Support. In consideration for maintenance and support services
-----------------------
provided regarding the licenses granted in this Amendment No. 1, Customer shall
pay to Verity the annual maintenance fee in the amount of Sixty Thousand Dollars
(US$60,000) due and payable upon execution of this Amendment. The parties agree
to enter into good faith negotiations regarding maintenance and support fees for
any Subscribers beyond the first 50,000 Subscribers."
4. Exhibit A, Section of the Agreement labeled "Consulting Services" is amended
to include the following:
"Consulting Services. Verity shall provide Customer with consulting, at the
-------------------
rate of One Thousand Eight Hundred Dollars (US$1,800) per day per consultant for
an amount up to One Hundred and Twenty Two Thousand Four Hundred Dollars
(US$122,400), plus travel and living expenses. Such consulting fee shall be due
and payable within thirty (30) days from the date of an applicable Verity
invoice."
5. Entire Agreement. The Agreement together with the Exhibits, and this
Amendment No. 1 replaces and supersedes all other agreements, written or oral
with respect to its subject matter. Except as expressly amended and
supplemented hereby, the Agreement remains in full force and effect. In the
event of any conflict between the terms of this Amendment No 1 and the terms of
the Agreement, the terms of this Amendment No. 1 shall prevail.
6. Counterparts. This Amendment No. 1 may be executed in counterparts.
7. Effective Date/Term. The foregoing is agreed to be effective as of the last
execution date below ("Amendment Effective Date"). This Amendment No. 1 shall
continue in full force and effect thereafter until the expiration and
termination of the Agreement.
<PAGE>
Verity: Customer
By:/s/ J.F. Ticehurst By: /s/ J. Scott Thompson
----------------------- --------------------------------
Name: J.F. TICEHURST Name: J. Scott Thompson
--------------------- -----------------------------
Vice President Administration &
Title: Controller Title: Chief Information Officer
------------------- ----------------------------
Date: February 8, 1999 Date: February 3, 1999
-------------------- ----------------------------
<PAGE>
Amendment No. 2 to the Corporate License and Services Agreement
between
Law Office Information Systems, Inc. ("Customer")
and
Verity, Inc. ("Verity")
This Amendment No. 2 to Corporate License and Services Agreement ("Amendment No.
2") amends and supplements that certain Corporate License and Services Agreement
by and between VERITY, INC. and LAW OFFICE INFORMATION SYSTEMS, INC. made
effective February 18, 1998, and Amendment No. 1 dated February 8, 1999
(collectively the "Agreement") Verity and Customer agree that this Amendment
No. 1 is attached and made a part of the Agreement and unless otherwise defined
capitalized terms in the Amendment No. 2 shall have the same meaning as in the
Agreement.
The parties hereby agree as follows:
1. Exhibit A, Section 1 of the Agreement labeled "Licensed Products" is amended
to include the following.
"Licensed Products:
-----------------
Two (2) copies of the intranet Solutions Intra.doc (R) Developers System on
the NT Platform (part# IMS-IDK-NT) solely for purposes of development of
Application. Deployment rights are provided for below.
Two (2) copies of the IntraNet Solutions Intra.doc(R) on the NT Platform
(part# IMS-FULL-NT) for support of an unlimited number of Contributors and
Consumers.
Four (4) copies of the IntraNet Solutions Intra.doc(R) Archive Replicator on
the NT Platform (part# IMS-ARREP-NT); and
One Thousand (1,000) copies of the IntraNet Solutions Intra.doc(R) ODMA
(Word, WordPerfect) (part# IMS-ODMA-WIN) for support of a maximum number of
1,000 desk tops.
"Contributor" means a designated number of persons who have the ability to
submit and edit managed content as well as the ability to perform standard end-
user functions including the search, view, and print of managed content.
"Consumers" means a designated number of persons who have the ability to perform
standard end-user functions including the search, view, edit, and print of
managed content.
2. Exhibit A, Section 2 of the Agreement labeled "License Fee" is amended to
include the following:
"License Fee: In consideration for the licenses granted in this Amendment No. 2
-----------
upon the Effective Date of this Amendment, Customer shall pay to Verity a one-
time, non-refundable, non-recoupable license fee in the amount of Two Hundred
and Twenty Two Thousand Five Hundred Dollars (US$222,500). Such license fee
shall be due and payable within sixty (60) days of this Amendment Effective
Date."
3. Exhibit A, Section 3 of the Agreement labeled "Maintenance and Support" is
amended to include the following:
"Maintenance and Support. In consideration for maintenance and support services
-----------------------
provided by IntraNet Solutions regarding the licenses granted in this Amendment
No. 2, Customer shall pay to Verity an additional annual maintenance fee in the
amount of Forty Four Thousand Five Hundred Dollars (US$44,500) due and payable
within sixty (60) days of this Amendment Effective Date. Maintenance and
support with respect to the IntraNet Solutions' products shall be provided
directly by IntraNet Solutions and in accordance with IntraNet Solutions'
standard maintenance and support terms and conditions, a copy of which will be
provided to Customer upon Customer's written request."
4. Exhibit A of the Agreement labeled "Consulting Services" is amended to
include the following:
<PAGE>
"Consulting Services: Verity through IntraNet Solutions' personnel and
-------------------
consultants shall provide Customer with consulting, at the rate of One Thousand
Eight Hundred Dollars (US$1,800) per day per consultant for an amount up to
Twenty One Thousand Six Hundred Dollars (US$21,600), plus travel and living
expenses. Such consulting fee shall be due and payable within thirty (30) days
from the date of an applicable Verity invoice."
5. Entire Agreement. The Agreement together with the exhibits, and this
Amendment No. 2 replaces and supersedes all other agreements, written or oral
with respect to its subject matter. Except as expressly amended and
supplemented hereby, the Agreement remains in full force and effect. In the
event of any conflict between the terms of this Amendment No. 2 and the terms of
the Agreement, the terms of this Amendment No. 2 shall prevail.
6. Counterparts. This Amendment No. 2 may be executed in counterparts.
7. Effective Date/Term. The foregoing is agreed to be effective as of the last
execution date below ("Amendment Effective Date:). This Amendment No. 2 shall
continue in full force and effect thereafter until the expiration or termination
of the Agreement.
Verity: Customer:
/s/ J.E. Tiehurst /s/ Kyle D. Parker
By____________________________ By:__________________________________
J.E. Tiehurst Kyle D. Parker
Name:_________________________ Name:________________________________
VP & Controller President & CEO
Title:________________________ Title:_______________________________
4-19-99
Date:_________________________ Date:________________________________
<PAGE>
EXHIBIT 10.7
CREDIT AGREEMENT
Credit Agreement made as of this 20th day of August, 1998, by and between
LAW OFFICE INFORMATION SYSTEMS, INC., an Arkansas corporation (hereinafter
referred to as the "Borrower") and FLEET NATIONAL BANK, a national banking
association (hereinafter referred to as the "Bank").
WHEREAS, the Borrower wishes to establish a credit facility with the Bank
under which the Borrower may borrow funds from the Bank to finance the purchase
of equipment and the development of its databases and for general working
capital purposes; and
WHEREAS, the Bank has agreed to establish a credit facility for the
Borrower under the terms and conditions hereinafter set forth;
NOW, THEREFORE, the parties hereby agree as follows:
ARTICLE I. DEFINITIONS
- --------- -----------
Section 1.01 Definitions.
------------ -----------
As used herein and in the other Credit Documents, the following terms shall
have the following meanings:
"Banking Day" shall mean any day which the Bank is open to conduct
commercial banking business in Boston, Massachusetts.
"Credit Documents" shall mean this Agreement, the Notes, the Guaranty, the
Security Agreement, the Intellectual Property Security Agreements, the CRL
Subordination Agreement and all other documents, instruments and agreements now
or hereafter executed in connection with any of them.
"CRL" shall mean Capital Resource Lenders III, L.P.
"CRL Subordinated Creditors" shall mean CRL, CRP and Moriarty.
"CRP" shall mean CRP Investment Partners III, L.L.C.
"Default" shall mean an event which, under Article VI with the giving of
notice or the lapse of time, or both, would constitute an Event of Default.
"Guarantor" shall mean CRL and each Subsidiary of the Borrower.
"Moriarty" shall mean Rowland T. Moriarty
"Notes" shall mean collectively, the Equipment Line of Credit Note and each
Equipment Line of Credit Term Note, the SBLC Line of Credit Note, the SBLC Line
of Credit Term Note and the
<PAGE>
Revolving Credit Note, all substitutions and replacements of any of the
foregoing, and any other notes issued by the Borrower to the Bank pursuant to
this Agreement.
"Prime Rate" shall mean the annual rate of interest announced by the Bank
from time to time, at the principal office of the Bank, One Federal Street,
Boston, Massachusetts 02110, as its prime rate. The Prime Rate is a reference
rate and does not necessarily represent the lowest or best rate being charged to
any customer.
"Subsidiary" shall mean any corporation, business trust or other business
entity in which the Borrower or a Subsidiary owns or has options to acquire 50%
or more of the voting control.
The following terms are defined in the following sections:
Additional CRL Subordinated Notes Section 4.01(p)
Adjusted EBITDA Section 5.31
Affiliate Section 5.15
Bank Preamble
Base Financial Statements Section 3.04(a)
Borrower Preamble
Borrowing Base Section 2.02(a)
Borrower Rights Section 3.18(a)
Capital Expenditures Section 5.24
Closing Section 7.06
Closing Date Section 2.08(a)
Closing Fee Section 2.08(a)
Code Section 3.10
Commitment Fee Section 2.09(b)
Compensation Section 5.19
Compliance Certificate Section 5.05(d)
Credit Section 2.01
CRL August Note Section 2.11
CRL Guaranty Section 4.01(f)
CRL Purchase Agreement Section 4.01(1)
CRL Subordination Agreement Section 4.01(1)
CRL Subordinated Debt Agreements Section 5.34
CRL Subordinated Notes Section 4.01(1)
Debt Service Section 5.24
Deferred Facility Fee Section 2.09(c)
EBITDA Section 5.31
Equipment Line of Credit Section 2.01
Equipment Line of Credit Advance(s) Section 2.03(a)
Equipment Line of Credit Conversion Date Section 2.03(d)
Equipment Line of Credit Note Section 2.03(b)
Equipment Line of Credit Termination Date Section 2.03(a)
Equipment Line of Credit Termination Note A Section 2.03(d)
Equipment Line of Credit Termination Note B Section 2.03(d)
2
<PAGE>
Equipment Line of Credit Termination Note(s) Section 2.03(d)
ERISA Section 3.10
Event(s) of Default Article VI
Fleet Preamble
GAAP Section 3.04(a)
Intellectual Property Rights Section 3.18(d)
Intellectual Property Security Agreements Section 4.01(e)
L/C Section 2.05(a)
L/C Obligations Section 2.04(a)
Maximum Equipment Line of Credit Section 2.03(a)
Maximum Revolving Credit Section 2.02(a)
Maximum SBLC Line of Credit Section 2.04(a)
Qualified Accounts Section 2.02(a)
Qualified Equipment Section 2.03(f)
Restricted Payment(s) Section 5.18
Revolving Credit Section 2.01
Revolving Credit Advance(s) Section 2.02(a)
Revolving Credit Maturity Date Section 2.02(a)
Revolving Credit Note Section 2.02(b)
SBLC Line of Credit Section 2.01
SBLC Line of Credit Note Section 2.04(b)
SBLC Line of Credit Advance Section 2.04(a)
SBLC Line of Credit Conversion Date Section 2.04
SBLC Line of Credit Term Note Section 2.04(d)
Security Agreement Section 4.01(d)
Security Documents Section 4.01(e)
Special Counsel Section 4.01(b)
Stock Section 5.18
Taxes Section 3.08
Section 1.02. Accounting Terms.
------------ ----------------
Unless otherwise specified herein, all accounting terms used herein shall
be construed in accordance with generally accepted accounting principles
consistently applied.
ARTICLE II. AMOUNT AND TERMS OF THE CREDIT.
- ---------- ------------------------------
Section 2.01. The Credit.
------------ ----------
Subject to the terms and conditions hereof, and in reliance on the
representations and warranties contained herein, the Bank hereby establishes a
credit facility in favor of the Borrower in the maximum aggregate principal
amount of $10,000,000 as set forth below (the "Credit"). The Credit shall
consist of (i) a secured working capital revolving line of credit in the maximum
principal amount of $1,500,000 (the "Revolving Credit"), (ii) a secured
converting equipment line of credit in the maximum principal amount of
$1,500,000 (the "Equipment Line of Credit") and (iii) a secured
3
<PAGE>
converting SBLC line of credit in the maximum principal amount of $7,000,000
(the "SBLC Line of Credit").
Section 2.02. The Revolving Credit.
------------ --------------------
(a) General Terms. Subject to the terms and conditions hereof and
-------------
provided that no Default or Event of Default has occurred or is continuing, the
Borrower may, from time to time from the date hereof up to June 30, 1999 (the
"Revolving Credit Maturity Date") borrow and reborrow from the Bank, and the
Bank shall advance funds to the Borrower as requested pursuant to Section
2.02(e) (a "Revolving Credit Advance" and collectively, the "Revolving Credit
Advances"); provided, however, that the aggregate of all Revolving Credit
-------- -------
Advances outstanding at any time shall not exceed the lesser of (i) $1,500,000
or (ii) the "Borrowing Base" (the "Maximum Revolving Credit").
The Borrowing Base shall equal the sum of (i) 80% of Qualified Accounts (as
hereinafter defined), plus (ii) 80% of the Net Present Value of Electronic Funds
Transfer Receivables (as hereinafter defined).
Qualified Accounts" (without any duplication of any accounts falling within
the definition of Net Present Value of Electronic Funds Transfer Receivables)
shall mean all accounts of the Borrower arising in the ordinary course of
business (i) in which the Bank has a perfected security interest; (ii) which are
not with respect to sales or services to a supplier, employee, shareholder,
Subsidiary or Affiliate of the Borrower, or to the United States of America or
any agency thereof, or to an account debtor located outside of the United States
of America; (iii) which are not on account of consigned goods; (iv) which are
not with respect to accounts of account debtors of the Borrower who have any
accounts or portions thereof evidenced by a promissory note; (v) which are
accounts billed in a manner consistent with past business practices of the
Borrower and not more than 90 days due from the date of issuance of the invoice;
(vi) which are not subject to any dispute, setoff, finance charge, credit,
allowance or adjustment by the account debtor; and (vii) which the Bank has not
otherwise determined to be unsatisfactory.
"Net Present Value of Electronic Funds Transfer Receivables" shall mean all
accounts receivable of the Borrower relating to electronic funds monthly
transfer arrangements between the Borrower and its customers and subscribers
that are due within one year of the date of determination of the relevant
Borrowing Base, discounted to net present value using a discount rate equal to
the Revolving Credit interest rate (as provided in Section 2.02(d)) as of the
date of determination of the relevant Borrowing Base.
The Borrower shall furnish to the Bank not later than fifteen (15) days
following the end of each monthly accounting period a Borrowing Base Certificate
in the form of Exhibit 2.02(a) attached hereto, completed and signed by the
---------------
Borrower's chief financial officer. The Borrowing Base shown on such
certificate shall be as of the last day of said monthly accounting period. If a
Borrowing Base Certificate is not delivered within the specified period the Bank
shall not be obligated to make further Revolving Credit Advances until a
Borrowing Base Certificate as of the most recent month ended is delivered.
4
<PAGE>
(b) The Revolving Credit Note. All amounts owed by the Borrower with
-------------------------
respect to Revolving Credit Advances shall be evidenced by a revolving credit
note in the principal amount of $1,500,000, dated the date hereof in the form
attached hereto as Exhibit 2.02(b) (the "Revolving Credit Note").
---------------
(c) Revolving Credit Payment. Revolving Credit Advances may be repaid
------------------------
at any time. The aggregate of all Revolving Credit Advances shall not at any
time exceed the Maximum Revolving Credit. If at any time the aggregates
outstanding Revolving Credit Advances exceeds the Maximum Revolving, Credit,
then the Borrower shall immediately pay such excess to the Bank, and the Bank
may, without prior notice to the Borrower, charge any of Borrower's accounts
with the Bank in order to effect such payment.
(d) Interest. Revolving Credit Advances made by the Bank shall bear
--------
interest prior to the occurrence of an Event of Default or maturity (computed on
the basis of actual number of days elapsed over a 360-day year) on the unpaid
principal balance outstanding from time to time at a fluctuating rate per annum
equal to the aggregate of (i) the Prime Rate, plus (ii) one-half of one percent
(.5%). From and after the occurrence and during the continuation of an Event of
Default or maturity (whether by demand, acceleration or otherwise), the unpaid
principal balance of the Revolving Credit shall bear interest at a fluctuating
rate per annum equal to four percent (4%) above the rate of interest otherwise
payable with respect to the Revolving Credit. Interest shall be payable monthly
in arrears on the first day of the next succeeding month commencing September 1,
1998. The effective rate of interest shall change on each date on which the
Prime Rate shall change.
(e) Requests for Advances. Each Revolving Credit Advance shall be
---------------------
made on the day on which the Bank receives notice from the Borrower or, if such
day is not a Banking Day, on the next succeeding Banking Day, provided the Bank
receives notice from the Borrower prior to 11:00 a.m. Boston time on such
Banking Day. Each request for a Revolving Credit Advance shall be made to the
Bank in writing (including by facsimile) or by telephone by a duly authorized
representative of the Borrower, and the Bank may rely upon any telephone request
which it reasonably believes is made by such a representative. The Borrower
agrees to indemnify and hold the Bank harmless for any action, including the
making of Revolving Credit Advances hereunder, or loss or expense, taken or
incurred by the Bank in good faith reliance upon such telephone request. At the
time of the initial request for a Revolving Credit Advance made under this
Section 2.02(e), the Borrower shall have provided the Bank with a Compliance
Certificate in the form required by Section 5.09 hereof. The Borrower hereby
agrees (i) that the Bank shall be entitled to rely upon the most recent
Compliance Certificate in its possession until it is superseded by another
Compliance Certificate, and (ii) that each request for a Revolving Credit
Advance, whether by telephone or in writing or otherwise, shall constitute a
confirmation of the representations and warranties contained in the most recent
Compliance Certificate then in the Bank's possession.
(f) Payment Upon Revolving Credit Maturity Date. The Revolving Credit
-------------------------------------------
shall expire on the Revolving Credit Maturity Date and all Revolving Credit
Advances then outstanding shall be due and payable on the Revolving Credit
Maturity Date together with all accrued and unpaid interest thereon and any
other amounts then due.
5
<PAGE>
Section 2.03. The Equipment Line of Credit.
------------ ----------------------------
(a) General Terms. Subject to the terms and conditions hereof
-------------
and provided that no Default or Event of Default has occurred or is continuing,
the Borrower may, from time to time from the date hereof up to June 30, 1999
(the "Equipment Line of Credit Termination Date") borrow from the Bank, and the
Bank shall advance funds to the Borrower as requested pursuant to Section
2.03(f) (each, an "Equipment Line of Credit Advance" and collectively, the
"Equipment Line of Credit Advances"); provided, however, that the aggregate of
-------- -------
all outstanding Equipment Line of Credit Advances (including Equipment Line of
Credit Advances evidenced by Equipment Line of Credit Term Notes (as defined
below)) shall at no time exceed $1,500,000 (the "Maximum Equipment Line of
Credit"). The Borrower may not reborrow Equipment Line of Credit Advances once
repaid and, to the extent that some portion of the Equipment Line of Credit is
not borrowed prior to the Equipment Line of Credit Termination Date, the
Borrower shall have no further right to borrow under this Section 2.03. Each
Equipment Line of Credit Advance shall be an amount up to 80% of the Borrower's
net invoice cost (purchase price less taxes, trade-ins, discounts freight
charges, insurance, software, installation or similar items) of "Qualified
Equipment" (as defined in Section 2.03(f)), to be purchased with proceeds of
such Equipment Line of Credit Advance.
Equipment Line of Credit Advances made by the Bank shall automatically be
converted into Equipment Line of Credit Term Notes pursuant to Section 2.03(d).
(b) The Equipment Line of Credit Note. All amounts owed by the
---------------------------------
Borrower with respect to Equipment Line of Credit Advances shall be evidenced by
a converting equipment line of credit note in the original principal amount of
$1,500,000, dated the date hereof in the form attached hereto as Exhibit 2.03(b)
---------------
(the "Equipment Line of Credit Note").
(c) Equipment Line of Credit Payment. If at any time the aggregate
--------------------------------
outstanding Equipment Line of Credit Advances (including Equipment Line of
Credit Advances evidenced by, Equipment Line of Credit Term Notes) exceeds the
Maximum Equipment Line of Credit, then the Borrower shall immediately pay such
excess to the Bank, and the Bank may, without prior notice to the Borrower,
charge any of Borrower's accounts with the Bank in order to effect such payment.
(d) The Equipment Line Credit Term Notes. On each of December 31,
------------------------------------
1998 and June 30, 1999 (each an "Equipment Line of Credit Conversion Date"), the
aggregate outstanding Equipment Line of Credit Advances as of each such date
shall automatically be converted to a term note (hereinafter referred to
respectively as "Equipment Line of Credit Term Note A" and "Equipment Line of
Credit Term Note B"; and collectively, as the "Equipment Line of Credit Term
Note(s)") dated as of each such date, in the form attached hereto as Exhibit
-------
2.03(d). Each Equipment Line of Credit Term Note shall be in the original
- -------
principal amount of the outstanding Equipment Line of Credit Advances as of the
applicable Equipment Line of Credit Conversion Date. The conversion of
Equipment Line of Credit Advances into an Equipment Line of Credit Term Note
shall not constitute a prepayment of such Equipment Line of Credit Advances.
Unless sooner prepaid pursuant to Section 2.09 or accelerated pursuant to
Article VI hereof, the Borrower shall (i) repay the principal of Equipment Line
of Credit Term Note A in thirty-five (35) equal monthly installments of an
amount equal to 2.778% of the original principal amount of Equipment Line of
Credit Term Note A, payable on the first day of each month commencing on
February 1, 1999, with a final installment in the
6
<PAGE>
amount of the entire unpaid balance of Equipment Line of Credit Term Note A
(including principal, all accrued but unpaid interest and any other amounts then
due) due and payable on February 1, 2002, and (ii) repay the principal of
Equipment Line of Credit Term Note B in thirty-five (35) equal monthly
installments of an amount equal to 2.778% of the original principal amount of
Equipment Line of Credit Term Note B, payable on the first day of each month
commencing on August 1, 1999, with a final installment in the amount of the
entire unpaid balance of Equipment-Line of Credit Term Note B (including
principal, all accrued but unpaid interest and any other amounts then due) due
and payable on August 1, 2002. Interest shall be payable on each Equipment Line
of Credit Term Note as provided in Section 2.03(e).
(e) Interest. Equipment Line of Credit Advances made by the-Bank and
--------
amounts outstanding under the Equipment Line of Credit Term Notes shall bear
interest prior to the occurrence of an Event of Default or maturity (computed on
the basis of actual number of days elapsed over a 360-day year) on the unpaid
principal balance outstanding from time to time at a fluctuating rate per annum
equal to the aggregate of (i) the Prime Rate, plus (ii) one and one-half percent
(1.5%). From and after the occurrence and during the continuation of an Event
of Default or maturity (whether by demand, acceleration or otherwise), the
unpaid principal balance of the Equipment Line of Credit (including amounts
outstanding under Equipment Line of Credit Term Notes) shall bear interest at a
fluctuating rate per annum equal to four percent (4%) above the rate of interest
otherwise payable with respect to the Equipment Line of Credit. Interest shall
be payable monthly in arrears on the first day of the next succeeding month
commencing September 1, 1998. The effective rate of interest shall change on
each date on which the Prime Rate shall change.
(f) Requests for Advances. Subject to the conditions of Section
---------------------
2.03(a), each Equipment Line of Credit Advance shall be made on a Banking Day on
notice given by the Borrower to the Bank prior to 11:00 a.m. Boston time on the
date three (3) days prior to the date of the proposed borrowing. Each request
for an Equipment Line of Credit Advance shall be made to the Bank in writing
(including by facsimile) or by telephone by a duly authorized representative of
the Borrower, and the Bank may rely upon any telephone request which it
reasonably believes is made by such a representative, and shall specify (i) the
requested date of such Equipment Line of Credit Advance, and (ii) the amount of
such Equipment Line of Credit Advance (which must be a minimum of $100,000).
The Borrower agrees to indemnify and hold the Bank harmless for any action,
including the making of Equipment Line of Credit Advances hereunder, or loss or
expense, taken or incurred by the Bank in good faith reliance upon such
telephone request. At the time of the initial request for a Equipment Line of
Credit Advance made under this Section 2.03(f), the Borrower shall have provided
the Bank with a Compliance Certificate in the form required by Section 5.09(c)
hereof. The Borrower hereby agrees (i) that the Bank shall be entitled to rely
upon the most recent Compliance Certificate in its possession until it is
superseded by another Compliance Certificate, and (ii) that each request for a
Equipment Line of Credit Advance, whether by telephone or in writing or
otherwise, shall constitute a confirmation of the representations and warranties
contained in the most recent Compliance Certificate then in the Bank's
possession. Notwithstanding the foregoing, each Equipment Line of Credit
Advance shall be subject to the prior satisfactory review by the Bank, in its
sole discretion, of the equipment to be purchased by such Equipment Line of
Credit Advance. Each notice of Equipment Line of Credit Advance shall be
accompanied by all invoices for the purchase of such equipment (which invoices
shall be dated not more than ninety (90) days prior to the date of delivery of
such invoices to the Bank) and a certificate signed by the Borrower in the form
7
<PAGE>
of Exhibit 2.03(f) attached hereto, certifying that (a) the equipment has been
---------------
delivered to the Borrower, (b) the Borrower has paid, or will pay with the
requested Equipment Line of Credit Advance, the full purchase price, and (c) the
equipment meets the definition of "Qualified Equipment." Notwithstanding the
foregoing, the initial notice for an Equipment Line of Credit Advance (made on
the Closing Date) may include invoices totalling up to $300,000 which are dated
more than ninety (90) days prior to the Closing Date, but dated no earlier than
January 1, 1998.
"Qualified Equipment" means equipment utilized in the conduct of the
Borrower's business which is: (i) in good working order and condition; (ii)
located at place of business of the Borrower which has been identified to the
Bank; (iii) subject to first priority security interest in favor of the Bank;
(iv) upon payment in full thereof, owned by the Borrower free and clear of any
lien, security interest, claim or other encumbrance except those in favor of the
Bank; and (v) has not otherwise been designated by the Bank in its discretion as
unacceptable for any reason.
(g) Expiration of Equipment Line Of Credit. The Equipment Line of
--------------------------------------
Credit shall expire on the Equipment Line of Credit Termination Date whereupon
(i) all Equipment Advances then outstanding shall be converted into an Equipment
Line of Credit Term Note as provided in Section 2.03(d) above, and (ii) no
further advances may be made thereunder.
Section 2.04. SBLC Line of Credit.
------------ -------------------
(a) General Terms. Subject to the terms and conditions hereof and
-------------
provided that no Default or Event of Default has occurred or is continuing, the
Borrower may, from time to time from the date hereof (i) up to December 31, 1998
directly borrow up to a maximum amount of $2,500,000 of the SBLC Line of Credit
from the Bank, and the Bank shall advance funds to the Borrower as requested
pursuant to Section 2.04(f) (each, an "SBLC Line of Credit Advance" and
collectively, the "SBLC Line of Credit Advances") to finance the development of
the Borrower's law library databases, and (ii) up to June 30, 1999, request and
the Bank shall arrange to issue for the account of the Borrower, standby letters
of credit pursuant to Section 2.05; provided, however, that the aggregate of (A)
-------- -------
all outstanding SBLC Line of Credit Advances (including SBLC Line of Credit
Advances evidenced by the SBLC Line of Credit Term Note (as defined below)), and
(B) the maximum aggregate liability of the Bank under all outstanding letters of
credit issued by the Bank under Section 2.05 and under all outstanding letters
of credit listed on Schedule 2.04 attached hereto ("L/C Obligations") shall at
-------------
no time exceed $7,000,000 (the "Maximum SBLC Line of Credit"). The Borrower may
not reborrow SBLC Line of Credit Advances once repaid and to the extent that
some portion of the SBLC Line of Credit is not borrowed prior to June 30, 1999,
the Borrower shall have no further right to borrow under this Section 2.04 or
request L/C's under Section 2.05.
SBLC Line of Credit Advances made by the Bank shall automatically be
converted into SBLC Line of Credit Term Notes pursuant to Section 2.04(d).
(b) The SBLC Line of Credit Note. All amounts owed by the Borrower
----------------------------
with respect to SBLC Line of Credit Advances shall be evidenced by a converting
SBLC line of credit note in the original principal amount of $2,500,000, dated
the date hereof in the form attached hereto as Exhibit 2.04(b) (the "SBLC Line
---------------
of Credit Note").
8
<PAGE>
(c) SBLC Line of Credit Payment. If at any time the aggregate amount
---------------------------
of outstanding SBLC Line of Credit Advances (including SBLC Line of Credit
Advances evidenced by the SBLC Line of Credit Term Note) and L/C Obligations
exceeds the Maximum SBLC Line of Credit, then the Borrower shall immediately pay
such excess to the Bank, and the Bank may, without prior notice to the Borrower,
charge any of Borrower's accounts with the Bank in order to effect such payment.
(d) The SBLC Line Credit Term Note. On December 31, 1998 (the "SBLC
------------------------------
Line of Credit Conversion Date"), the aggregate outstanding SBLC Line of Credit
Advances as of such date shall automatically be converted to a term note
(hereinafter referred to as "SBLC Line of Credit Term Note") dated as of such
date, in the form attached hereto as Exhibit 2.04(d). The SBLC Line of Credit
---------------
Term Note shall be in the original principal amount of the outstanding SBLC Line
of Credit Advances as of the SBLC Line of Credit Conversion Date. The
conversion of SBLC Line of Credit Advances into an SBLC Line of Credit Term Note
shall not constitute a prepayment of such SBLC Line of Credit Advances. Unless
sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article VI
hereof, the Borrower shall repay the principal of the SBLC Line of Credit Term
Note in thirty-five (35) equal monthly installments of an amount equal to 2.778%
of the original principal amount of the SBLC Line of Credit Term Note, payable
on the first day of each month commencing on February 1, 1999, with a final
installment in the amount of the entire unpaid balance of the SBLC Line of
Credit Term Note (including principal, all accrued but unpaid interest and any
other amounts then due) due and payable on February 1, 2002. Interest shall be
payable on the SBLC Line of Credit Term Note as provided in Section 2.04(e).
(e) Interest. SBLC Line of Credit Advances made by the Bank and
--------
amounts outstanding under the SBLC Line of Credit Term Note shall bear interest
prior to the occurrence of an Event of Default or maturity (computed on the
basis of actual number of days elapsed over a 360-day year) on the unpaid
principal balance outstanding from time to time at a fluctuating rate per annum
equal to the aggregate of (i) the Prime Rate, plus (ii) one and one-half percent
(1.5%). From and after the occurrence and during the continuation of an Event
of Default or maturity (whether by demand, acceleration or otherwise), the
unpaid principal balance of the SBLC Line of Credit (including amounts
outstanding under SBLC Line of Credit Term Note) shall bear interest at a
fluctuating rate per annum equal to four percent (4%) above the rate of interest
otherwise payable with respect to the SBLC Line of Credit. Interest shall be
payable monthly in arrears on the first day of the next succeeding month
commencing September 1, 1998. The effective rate of interest shall change on
each date on which the Prime Rate shall change.
(f) Requests for Advances. Subject to the conditions of Section
---------------------
2.04(a), each SBLC Line of Credit Advance to the Borrower shall be made on a
Banking Day on notice given by the Borrower to the Bank prior to 11:00 a.m.
Boston time on the date of the proposed borrowing. Each request for an SBLC Line
of Credit Advance shall be made to the Bank in writing (including by facsimile)
or by telephone by a-duly authorized representative of the Borrower, and the
Bank may rely upon any telephone request which it reasonably believes is made by
such a representative, and shall specify the amount of such SBLC Line-of Credit
Advance (which must be a minimum of $100,000). The Borrower agrees to indemnify
and hold the Bank harmless for any action, including the making of SBLC Line of
Credit Advances hereunder, or loss or expense, taken or incurred by the Bank in
good faith reliance upon such telephone request. At the time of the initial
request for a
9
<PAGE>
SBLC Line of Credit Advance made under this Section 2.04(f), the Borrower shall
have provided the Bank with a Compliance Certificate in the form required by
Section 5.09(c) hereof. The Borrower hereby agrees (i) that the Bank shall be
entitled to rely upon the most recent Compliance Certificate in its possession
until it is superseded by another Compliance Certificate, and (ii) that each
request for a SBLC Line of Credit Advance, whether by telephone or in writing or
otherwise, shall constitute a confirmation of the representations and warranties
contained in the most recent Compliance Certificate then in the Bank's
possession.
(g) Expiration of SBLC Line of Credit. The SBLC Line of Credit
---------------------------------
shall expire (i) with respect to direct borrowings of SBLC Line of Credit
Advances on December 31, 1998, and (ii) with respect to letters of credit under
Section 2.05, on June 30, 1999, whereupon no further advances may be made
thereunder.
Section 2.05 Letters of Credit.
-----------------
(a) Issuance procedures. The Borrower may request, and the Bank
-------------------
will arrange to issue standby letters of credit (individually, an "L/C", and
collectively, with all outstanding letters of credit listed on Schedule 2.04
-------------
attached hereto which shall be deemed to have been requested under this Section
2.05, the "L/C's") for the account of the Borrower; provided that after giving
effect to all such L/C's the L/C Obligations at such time shall not exceed
$7,000,000 less (i) the aggregate principal amount of all SBLC Line of Credit
Advances outstanding at such time, and (ii) the aggregate principal amount of
the SBLC Line of Credit Term Note. All L/C's shall have an expiration date not
later than June 30, 2001. The Company shall deliver to the Bank an L/C
application and L/C agreement together with the proposed form of such L/C
(which, together with all schedules and exhibits thereto, shall be in form and
substance satisfactory to the Bank and its counsel) and such other certificates,
documents and other papers and information as the Bank may reasonably request.
Any foreign beneficiary must be satisfactory to the Bank. Within five Banking
Days following receipt of the above-described documents in satisfactory form,
the Bank shall issue such L/C, provided that immediately prior to the issuance
of such L/C and after giving effect thereto no Default or Event of Default shall
have occurred and be continuing.
(b) Reimbursement. The Borrower agrees to pay directly to the
-------------
Bank on each date that any amount is drawn under an L/C, a sum equal to the
amount so drawn and the Bank may, without prior notice to the Borrower, charge
any of the Borrower's accounts with the Bank in order to effect such payment.
The Borrower agrees to pay on demand any and all reasonable expenses incurred by
the Bank in enforcing any rights under this Section 2.05. In the event any L/C
is payable in foreign currency, the Borrowers shall reimburse the Bank at the
Bank's selling rate of exchange on the date such reimbursement is made.
(c) Commission. The Borrower shall pay to the Bank a commission
----------
equal in amount to three percent (3%) per annum of the face amount of each
outstanding L/C, such commission to be calculated quarterly and to be due and
payable in advance on the date of issuance of each L/C, and thereafter on each
quarterly anniversary of the date of issuance of each L/C. The Borrower shall
also pay to the Bank all transactional fees at the Bank's customary rates.
10
<PAGE>
Section 2.06. Method of Payment.
------------ -----------------
All payments and prepayments of principal and interest due under the Notes
and of fees due hereunder shall be made by the Borrower to the Bank in lawful
money of the United States in immediately available funds. Payments received by
the Bank after 11:00 a.m. Boston time shall be deemed received on the next
succeeding Banking Day. All payments of principal, interest or fees to be made
to the Bank may be effected by the Bank debiting accounts of the Borrower with
the Bank. If a Default or Event of Default has occurred or is continuing, all
payments and prepayments made by the Borrower to the Bank hereunder shall apply
first to pay all principal and interest due under the SBLC Line of Credit Note,
the SBLC Line of Credit Term Note, and toward any obligation to reimburse the
Bank under the L/C's.
Section 2.07. Expenses.
------------ --------
The Borrower shall pay the Bank on demand all reasonable out-of-pocket fees
and expenses incurred by the Bank in connection with examinations of the books
and records of the Borrower, appraisals of the assets of the Borrower and visits
to the Borrower by officers, employees and agents of the Bank. The Borrower
shall cooperate fully with the Bank's officers, employees and agents in
connection with each audit or appraisal performed.
Section 2.08. Fees.
------------ ----
(a) Closing Fee. On the date of execution of this Agreement (the
-----------
"Closing Date"), the Borrower shall pay the Bank a non-refundable closing fee of
$85,000 (the "Closing Fee").
(b) The Revolving Credit Commitment Fee. The Borrower shall pay
-----------------------------------
the Bank a commitment fee with respect to the Revolving Credit quarterly in
advance on the first day of each fiscal quarter, commencing October 1, 1998 in
the amount of $3,750.
(c) The SBLC Commitment Fee. The Borrower shall pay the Bank a
-----------------------
commitment fee with respect to the SBLC Line of Credit computed at a rate of
one-half of one percent (.5%) per annum on the average daily amount of the
unborrowed portion of the SBLC Line of Credit during each quarter or portion
thereof, payable quarterly in arrears on the first day of the next succeeding
fiscal quarter, commencing October 1, 1998.
Section 2.09. Prepayment.
------------ ----------
The Revolving Credit may be prepaid in whole or in part at any time without
premium or penalty.
Section 2.10. Late Fee.
------------ --------
In addition to all other interest which accrues and is payable with respect
to the Credit (including interest after an Event of Default or maturity), if the
entire amount of any required interest or principal payment is not paid in full
within ten (10) days after the same is due, the Borrower shall pay to the Bank a
late fee equal to 5% of the required payment.
11
<PAGE>
Section 2.11. Use of Credit Proceeds.
------------ ----------------------
The proceeds of the Revolving Credit shall be used by the Borrower solely
for general working capital purposes, and to repay indebtedness owed to CRL by
the Borrower in the principal amount of $423,077.36, as evidenced by that
certain promissory note dated August 14, 1998 made by the Borrower in favor of
CRL (the "CRL August Note"). The proceeds of the Equipment Line of Credit and
the SBLC Line of Credit shall be used by the Borrower to purchase equipment and
finance the development of the Borrower's law library databases.
Section 2.12. Pledge to Federal Reserve Bank.
------------ ------------------------------
The Bank may at any time pledge all or any portion of its rights under the
Credit Documents, including the Notes, to any Federal Reserve Bank organized
under Section 4 of the Federal Reserve Act, 12 U.S.C. Section 341.
ARTICLE III REPRESENTATIONS AND WARRANTIES.
- ----------- ------------------------------
Borrower hereby represents and warrants that:
Section 3.01. Corporate Existence and Power; Organizational Structure.
------------ -------------------------------------------------------
(a) The Borrower is a corporation duly incorporated, validly
existing and in good standing under the laws of Arkansas, and has full corporate
and other power and authority to conduct its business and own its assets as now
conducted and owned and as proposed to be conducted and owned. The Borrower and
each of its Subsidiaries are licensed or qualified as a, foreign corporation in
each jurisdiction where the conduct of its business or the ownership of its
assets require such licensing or qualification, except where the failure to be
so licensed or qualified would not have a material adverse effect upon the
business, assets, operations, prospects or financial condition of the Borrower
or applicable Subsidiary.
(b) There are presently issued by the Borrower and its
Subsidiaries the shares of capital stock indicated on Schedule 3.01, which
-------------
shares are owned beneficially and of record as set forth on such Schedule 3.01.
-------------
The Borrower and its Subsidiaries have received the consideration for which such
stock was authorized to be issued and have otherwise complied with all legal
requirements relating to the authorization and issuance of shares of stock and
all such shares are validly issued, fully paid and non-assessable. The Borrower
and its Subsidiaries have no other capital stock of any class outstanding.
Except as disclosed on Schedule 3.01, there are no (i) outstanding options,
-------------
warrants or to acquire any shares of the capital stock or other securities of
the Borrower, (ii) outstanding securities or obligations which are convertible
into or exchangeable for any shares of the capital stock or other securities of
the Borrower, or (iii) preemptive or subscription rights, contracts or
arrangements under which the Borrower is or may become bound to sell or
otherwise issue any shares of capital stock or other securities, other than as
granted by law.
12
<PAGE>
Section 3.02. Subsidiaries.
------------ ------------
Except as set forth in Schedule 3.02, the Borrower currently has no
-------------
Subsidiaries or any other equity investments in any other entity.
Section 3.03. Power and Authority Relative to Borrowing; Legal and Binding
------------ ------------------------------------------------------------
Nature; Compliance with Other Instruments.
- -----------------------------------------
(a) The Borrower has full power and authority and has taken all
required corporate and other action necessary to permit it to execute and
deliver and perform all of its obligations contained in the Credit Documents to
which it is a party, and to borrow hereunder, and none of such actions will
violate any provision of law applicable to, or of the charter or by-laws of, the
Borrower, or result in the breach of or constitute a default under any agreement
or instrument to which the Borrower is a party or by which it is bound. Each of
the Credit Documents has been (or will be) duly authorized and validly executed
and are (or will be) the valid and binding obligations of the Borrower
enforceable in accordance with its respective terms. Neither the execution or
delivery by the Borrower of any of the Credit Documents to which it is a party
or the performance by the Borrower of its respective obligations thereunder,
require the consent, approval or authorization of any person or governmental
authority.
(b) The provisions of the Security Documents executed and
delivered by the Borrower in accordance with Section 4.01(d) hereof have created
in favor of the Bank legal, valid and enforceable security interests in the
collateral, described therein, and all financing statements and other filings
have been (or will be) filed or made as required by applicable law so as to
cause such security interests to constitute fully perfected first priority liens
on all right, title and interest of the Borrower in such collateral.
(c) Neither the Borrower nor any of its Subsidiaries is in
violation of any term of its charter or by-laws, or any agreement, instrument,
mortgage, indenture, contract, judgment, decree, order, statute, rule or
governmental regulation applicable to the Borrower or such Subsidiary. The
execution, delivery and performance of the Credit Documents will not result in
the creation of any security interest, lien, charge or encumbrance upon any of
the properties or assets of the Borrower or its Subsidiaries except in favor of
the Bank.
Section 3.04. Financial Condition.
------------ -------------------
(a) The audited consolidated financial statements of the
Borrower and its Subsidiaries dated as of December 31, 1997 and the unaudited
consolidated financial statements of the Borrower and its Subsidiaries dated as
of June 30, 1998 (the "Base Financial Statements") have been delivered to the
Bank. The Base Financial Statements are complete and correct and present fairly
and accurately the financial position of the Borrower and its Subsidiaries as of
the date of the Base Financial Statements and the results of operations of the
Borrower and its Subsidiaries in conformity with generally accepted accounting
principles consistently applied ("GAAP"). The Borrower has no material
contingent liability or material liability for taxes, or any unusual or
burdensome agreement or commitment which would have a materially adverse effect
on its business
13
<PAGE>
assets, operations or financial condition, except as disclosed in the Base
Financial Statements and in this Agreement.
(b) Presently, and as of the date of the Base Financial
Statements, neither the Borrower nor any Subsidiary has or had any liabilities
or obligations of any nature, whether accrued, absolute, contingent or
otherwise, asserted or unasserted, known or unknown and regardless of whether or
not of type or nature required by GAAP to be set forth therein (including
without limitation, liabilities as guarantor or otherwise with respect to
obligations of others, liabilities for taxes due or then accrued or to become
due, or contingent or potential liabilities relating to activities of the
Borrower or any subsidiary or the conduct of their business prior to the date of
the Base Financial Statements regardless of whether claims in respect thereof
had been asserted as of such date), except (i) liabilities stated or adequately
reserved against on the Base Financial Statements, or (ii) incurred after the
date of the Base Financial Statements in the ordinary course, of business of the
Borrower or its Subsidiaries consistent with the terms of this Agreement, and
which are not, individually or in the aggregate, material.
(c) After giving effect to the financing provided for in
this Agreement, the Borrower will not: (i) have liabilities (contingent or
otherwise) which exceed the fair and salable value of its assets; (ii) be left
with unreasonably small capital with which to engage in its business; (iii) have
incurred, or anticipate or reasonably should anticipate incurring, debts beyond
its ability to pay such debts as they mature.
Section 3.05. No Material Adverse Change.
------------ --------------------------
Except as set forth in Schedule 3.05 hereto, since the date of the Base
-------------
Financial Statements there has been no material adverse change in the business,
assets, operation, prospects or condition (financial or otherwise) of the
Borrower, and the Borrower has not paid any dividends or made any distributions
on or purchased or otherwise acquired any shares of its capital stock, or
purchased or redeemed or made any payment or prepayment of principal on the CRL
Subordinated Notes.
Section 3.06. Litigation.
------------ ----------
Except as set forth in Schedule 3.06 hereto, there are no suits or
-------------
proceedings pending or, to the best knowledge of the Borrower, threatened
against or affecting the Borrower or any of its Subsidiaries which would have a
material adverse effect on the business, assets, prospects, operations or
financial condition of the Borrower or any Subsidiary or the transactions
contemplated by this Agreement. No judgment, decree or order of any federal,
state, provincial or municipal court, board or other governmental or
administrative agency has been issued against either Borrower or any Subsidiary
which has or could have any material adverse effect upon the business,
properties, assets, prospects, operations or condition, financial or otherwise,
of either the Borrower or any Subsidiary.
Section 3.07. Title.
------------ -----
Except as set forth in Schedule 3.07, the Borrower has good and marketable
-------------
title to, or valid leasehold interests in, all of the properties and assets and
leasehold interests reflected in the Base Financial Statements, or acquired
since such date (except for materials used, inventory sold, accounts
14
<PAGE>
receivable collected and other items disposed of, all in the ordinary course of
business since the date of the Base Financial Statements), free and clear of all
liens and encumbrances except liens permitted by Section 5.15, and easements,
restrictions and minor defects in title which do not, either individually or in
the aggregate materially detract from the value or materially limit the use of
any real property.
Section 3.08. Tax Returns and Payments; IRS Settlement.
------------ ----------------------------------------
The Borrower and its Subsidiaries have filed all federal, state, local and
foreign income, excise and franchise tax returns, real estate and personal
property tax returns, sales and use tax returns and other tax returns required
to be filed by them and have paid all Taxes (as defined below) owing by them,
except Taxes which have not yet accrued or otherwise become due, for which
adequate provision has been made in the pertinent financial statements referred
to in Section 3.04 above. The provision for Taxes on the Base Financial
Statements is sufficient as of its date for the payment of all accrued and
unpaid federal, state, county and local taxes of any nature of the Borrower or
any of its Subsidiaries, and any applicable taxes owing to any foreign
jurisdiction, whether or not assessed or disputed (collectively, "Taxes"). All
taxes and other assessments and levies which the Borrower or any of its
Subsidiaries is required to withhold or collect have been withheld and collected
and have been paid over to the proper governmental authorities. With regard to
the federal income tax returns of the Borrower and its Subsidiaries, except as
described on Schedule 3.08, neither the Borrower nor any Subsidiary has ever
-------------
received notice of any audit or of any proposed deficiencies from the Internal
Revenue Service. There are in effect no waivers of applicable statutes of
limitations with respect to any Taxes owed by the Borrower or any Subsidiary for
any year. Except as described in Schedule 3.08, neither the Internal Revenue
-------------
Service nor any other taxing authority is now asserting or threatening to assert
against the Borrower or any subsidiary any deficiency or claim for additional
Taxes or interest thereon or penalties in connection therewith and no extension
of time with respect to any date on which a tax return was or is to be filed by
the Borrower or any Subsidiary is in force, and no waiver or agreement by the
Borrower or any Subsidiary is in force for the extension of time for the
assessment or payment of any Taxes.
Section 3.09. Compliance with Law, etc.
------------ ------------------------
The Borrower and its Subsidiaries have all necessary franchises, permits,
licenses and other rights to allow them to conduct their business as presently
conducted and as proposed to be conducted, and neither the Borrower nor any
Subsidiaries are in default with respect to any order or decree of any court, or
under any law, order or regulation of any governmental authority, or under the
provisions of any contract or agreement to which any of them is a party or by
which they may be bound, which default would have a material adverse effect on
the business, assets, prospects, operations or financial condition of any of
them. The Borrower and its Subsidiaries are currently and have heretofore been
in compliance in all material respects with all applicable statutes, ordinances,
orders, judgments, decrees, rules and regulations promulgated by any federal,
state, municipal or foreign entity, agency, court or other governmental
authority which apply to the Borrower or any of its Subsidiaries or to the
conduct of its business, and neither the Borrower nor any of its Subsidiaries
has received notice of any violation or alleged violation of any such statute,
ordinance, order, rule or regulation.
15
<PAGE>
Section 3.10. Pension Matters.
------------ ---------------
Neither the Borrower nor any Subsidiary has incurred (a) any accumulated
funding deficiency within the meaning of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), or (b) any liability to the Pension Benefit
Guaranty Corporation established under ERISA (or any successor thereto under
ERISA) in connection with any employee benefit plan established or maintained by
it; nor has Borrower had any tax assessed against it by the Internal Revenue
Service for any alleged violation under Section 4975 of the Internal Revenue
Code of 1986, as amended (the "Code"). Neither the Borrower or any Subsidiary
has any unfunded liability under a pension plan or a contingent liability for
withdrawal from a multi-employer pension plan except as disclosed in the
financial statements referred to in the Base Financial Statements.
Section 3.11. Compliance with Regulation U.
------------ ----------------------------
None of the proceeds of the Credit will be used to purchase, carry or
refinance any borrowing the proceeds of which were used to purchase or carry any
"margin securities" within the meaning of Regulation U of the Board of Governors
of the Federal Reserve System.
Section 3.12. Credit Agreements.
------------ -----------------
Set forth on Schedule 3.12 is a complete and correct list of all existing
-------------
loan agreements, indentures, note purchase agreements, guarantees or other
instruments relating to extensions of credit or money borrowed for an amount in
excess of $10,000 under which the Borrower or any Subsidiary is or may become
directly or indirectly obligated.
Section 3.13. Leases and Options to Purchase.
------------ ------------------------------
Set forth on Schedule 3.13 is a complete and correct list of all existing
-------------
leases with respect to, or options to purchase any, real estate or any equipment
involving a commitment, potential commitment, or series of commitments in any
twelve month period, in excess of $10,000 under which the Borrower is or may
become directly or indirectly obligated as lessee or purchaser.
Section 3.14. Insolvency.
------------ ----------
Neither the Borrower nor any Subsidiary has (a) made a general assignment
for the benefit of creditors, (b) filed any voluntary petition in bankruptcy or
suffered the filing of an involuntary petition by its creditors, (c) suffered
the appointment of a receiver to take possession of all or substantially all of
its assets, (c) suffered the attachment or other judicial seizure of all, or
substantially all of its assets, (d) admitted in writing its inability to pay
its debts as they come due, or (e) made an offer of settlement, extension or
composition to its creditors generally.
Section 3.15. Real Estate Owned.
------------ -----------------
Except as set forth on Schedule 3.15, neither the Borrower nor any
-------------
Subsidiary owns any real property.
16
<PAGE>
Section 3.16. Hazardous Waste.
------------ ---------------
Except as set forth in Schedule 3.16, neither of the Borrower nor any
-------------
Subsidiary has generated, stored or disposed of any oil, hazardous substance or
hazardous material as defined in the Comprehensive Environmental Response
Compensation and Liability Act, as amended, 42 U.S.C. (S)9601, et seq.,
applicable state or federal laws, or regulations adopted pursuant thereto, in
violation of applicable law; and, except as set forth on Schedule 3.16, there
-------------
has been no generation, storage, or disposal of any such materials by anyone
else on the property owned or leased by the Borrower or the Subsidiaries, nor
have any such materials been present on such property. The Borrower and its
Subsidiaries are in compliance in all material respects with all applicable
state, local and federal environmental laws.
Section 3.17. Permits.
------------ -------
All necessary licenses and permits for the use and occupancy of the real
property owned or leased by the Borrower have been issued and are in full force
and effect except as set forth on Schedule 3.17 hereto and except for any such
-------------
licenses or permits the absence of which would not have a material adverse
effect upon the business, assets, prospects, operations or financial condition
of the Borrower or applicable Subsidiary.
Section 3.18. Intellectual Property Rights. Except as set forth in
------------ ----------------------------
Schedule 3.18(a):
(a) The Borrower and its Subsidiaries have exclusive ownership of,
with the exclusive right to use, sell, license, dispose of, and bring actions
for infringement of, all Intellectual Property Rights (as hereinafter- defined)
material to the conduct of its business as presently conducted (the "Borrower
Rights"), provided that no representation is made with respect to "off the
shelf" software used by the Borrower and its Subsidiaries that is generally
commercially available.
(b) The business of the Borrower and its Subsidiaries as presently
conducted does not violate any agreements which the Borrower or any Subsidiary
has with any third party or infringe any patent, trademark, copyright or trade
secret or any other Intellectual Property Rights of any third party.
(c) No claim is pending or, to the best knowledge of the Borrower,
threatened against the Borrower or any of its Subsidiaries nor has the Borrower
or any of its subsidiaries received any notice or claim from any person
asserting that any of its present or contemplated activities infringe or may
infringe any Intellectual Property Rights of such person.
(d) The Borrower and its Subsidiaries have taken all commercially
reasonable steps required to establish and preserve its ownership of all of the
Borrower Rights; each current and former employee of the Borrower or any
Subsidiary, and each of the consultants and independent contractors of the
Borrower and its Subsidiaries involved in development of any of the Borrower
Rights, has executed an agreement regarding confidentiality, proprietary
information and assignment of inventions and copyrights to the Borrower, and
none of such employees, consultants or independent contractors is in violation
of any agreement or in breach of any agreement or
17
<PAGE>
arrangement with former or present employers relating to proprietary information
or assignment of inventions.
As used herein, the term "Intellectual Property Rights" shall mean all
intellectual property rights, including, without limitation, all of the
registered rights set forth on Schedule 3.18(b) and all patents, patent
----------------
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service mark applications, copyrights, copyright applications,
computer programs and other computer software, inventions, designs, samples,
specifications, schematics, know-how, trade secrets, proprietary processes and
formulae, including production technology and processes, all source and object
code, algorithms, promotional materials, customer lists, supplier and dealer
lists and marketing research, and all documentation and media constituting,
describing or relating to the foregoing, including without limitation, manuals,
memoranda and records.
Section 3.19. No Omissions.
------------ ------------
None of the representations or warranties in this Agreement nor any
document, agreement, statement, certificate, exhibit, schedule or other
information furnished or to be furnished by or on behalf of the Borrower to the
Bank pursuant to this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements of facts
contained therein not misleading.
ARTICLE IV. CONDITIONS.
- ---------- ----------
Section 4.01. Conditions to the Credit and the First Advances.
------------ -----------------------------------------------
The obligation of the Bank to extend the Credit and make the initial
advances under the Revolving Credit, the Equipment Line of Credit and the SBLC
Line of Credit is subject to the fulfillment of the following conditions:
(a) Legal Opinions from Counsel for the Borrower and CRL. The Bank
----------------------------------------------------
shall have received the written opinion of Messrs. Nolan, Caddell & Reynolds,
P.A., counsel to the Borrower, and the written opinion of Messrs. Testa, Hurwitz
& Thibeault LLP, counsel to CRL, each in form satisfactory to Messrs. Goodwin,
Procter & Hoar LLP, special counsel to the Bank (said special counsel and any
successor counsel shall be hereinafter referred to as "Special Counsel")
covering such matters as the Bank or its Special Counsel may request.
(b) The Credit Agreement. The Borrower shall have executed this
--------------------
Agreement.
(c) The Notes. The Borrower shall have executed and delivered to the
---------
Bank the Revolving Credit Note, the Equipment Line of Credit Note and the SBLC
Line of Credit Note.
(d) The Security Agreement. The Bank shall have received a general
----------------------
security agreement executed by the Borrower in form satisfactory to the Bank and
its Special Counsel (the "Security Agreement"), grazing to the Bank a first
priority security interest in and assignment of substantially all of the assets
of the Borrower whether now owned or hereafter acquired, including without
limitation, all accounts receivable, chattel paper, contracts, contract rights,
leases, lease
18
<PAGE>
receivables, patents, trademarks, copyrights and licenses of the Borrower. All
Uniform Commercial Code Financing Statements and other filings required in order
to perfect the liens granted under the Security Agreement shall have been
executed by the Borrower and shall have been duly filed or recorded.
(e) The Intellectual Property Security Agreements. The Bank shall
---------------------------------------------
have received (i) a Trademark Collateral Assignment and Security Agreement, and
(ii) a Copyright Assignment and Security Agreement each executed by the Borrower
in form satisfactory to the Bank and its Special Counsel (collectively, the
"Intellectual Property Security Agreements", together with the Security
Agreement, the "Security Documents"). All filings with the United States Patent
and Trademark Office, the United States Copyright Office and the other filings
required in order to perfect the liens granted under the Intellectual Property
Security Agreements shall have been executed by the Borrower and shall have been
duly filed or recorded.
(f) Guaranty Agreement. CRL shall have executed and delivered to the
------------------
Bank a limited guaranty agreement (the "CRL Guaranty") in substantially the form
attached hereto as Exhibit 4.01(f). The Bank shall have received the financial
statement of CRL.
(g) No Default. No Default or Event of Default specified in Article
----------
VI shall have occurred and be continuing.
(h) Insurance. The Borrower shall have delivered to the Bank a list
---------
in the form of Exhibit 4.01(h) hereto, certified by the president or chief
---------------
financial officer of the Borrower, of all insurance required by Section 5.08
showing the insurer, the face amount and the nature of the coverage and the Bank
as an additional insured and loss payee (or beneficiary, as the case may be)
under each policy then in force.
(i) Officer's Certificate re: Authorization, Representations and
------------------------------------------------------------
Warranties and Absence of Defaults. The Borrower shall have delivered to the
- ----------------------------------
Bank a certificate in substantially the form of Exhibit 4.01(i) hereto and dated
---------------
the date of the Closing.
(j) Perfection Certificate. The Borrower shall have delivered to the
----------------------
Bank a perfection certificate in substantially the form of Exhibit 4.01(j)
---------------
hereto and dated the date of the Closing.
(k) Termination of Prior Security Interests. The Borrower shall have
---------------------------------------
obtained and delivered to the Bank (i) an agreement executed by Merchants
National Bank of Fort Smith providing for release and termination of its
security interest in the Borrower's copyright interests, and (ii) UCC-3
termination statements executed by International Software Finance Corp.
providing for the release and termination of all liens filed by International
Software Finance Corp. against the Borrower.,
(l) CRL Subordination Agreement. CRL, CRP and Moriarty shall have
---------------------------
executed and delivered to the Bank a subordination and intercreditor agreement
(as amended from time to time, the "CRL Subordination Agreement") in form and
substance satisfactory to the Bank and its Special Counsel, pursuant to which
(i) promissory notes in the aggregate original principal amount of $7,000,000
made by the Borrower in favor of CRL, CRP and Moriarty, respectively, as more
fully
19
<PAGE>
described on Schedule 3.12 attached hereto, plus, when and if issued, the
-------------
additional promissory notes which the Borrower has the right to sell to the CRL
Subordinated Creditors pursuant to the Second Amendment to the CRL Purchase
Agreement (the "CRL Subordinated Notes"'), and (ii) all other obligations of the
Borrower to CRL, CRP and Moriarty under the CRL Subordinated Notes and that
certain Senior Subordinated Note and Securities Purchase Agreement dated as of
November 24, 1997, as amended by the First Amendment dated as of June 29, 1998
and that Second Amendment dated of even date herewith, as amended, by and
between the CRL Subordinated Creditors and the Company (the "CRL Purchase
Agreement") and the securities issued and sold thereunder, shall be subordinated
to the obligations of the Borrower to the Bank.
(m) Miscellaneous Requirements. The Borrower shall have delivered to
--------------------------
the Bank such other documents as the Bank or its Special Counsel shall
reasonably require.
(n) Payment of Closing Fees. The Borrower shall have paid the
-----------------------
Closing Fees payable under Section 2.08.
(o) Payment of Other Fees. The Borrower shall have paid all legal
---------------------
fees, disbursements and all other related expenses incurred by the Bank in
connection with the Credit, including, without limitation, the issuance of
Standby Letters of Credit listed on Schedule 2.04 attached hereto (the
"Outstanding Standby Letters of Credit").
(p) CRL. The CRL Subordinated Creditors shall have (i) loaned, in
---
the aggregate, $7,000,000 to the Borrower, as evidenced by the CRL Subordinated
Notes, (ii) purchased, in the aggregate, $3,000,000 of Convertible Preferred
Stock of the Borrower, (iii) entered into a binding commitment to purchase
additional Subordinated Notes on December 31, 1998 (the "December CRL
Subordinated Notes") in an aggregate amount up to $3,000,0000 less the Maximum
Cumulative Liability (as such term is defined in the CRL Guaranty), as provided
in the Second Amendment to the CRL Purchase Agreement, and (iv) entered into a
binding commitment to purchase additional Subordinated Notes on May 3 1, 1999
(together with the December CRL Subordinated Notes, the "Additional Subordinated
Notes") such that the aggregate amount of Additional CRL Subordinated Notes is
equal to a minimum of $3,000,0000 less the Maximum Cumulative Liability (as such
term is defined in the CRL Guaranty), as provided in the Second Amendment to the
CRL Purchase Agreement.
(q) Amendments to CRL Documents. The CRL Subordinated Debt
---------------------------
Agreements shall be amended to the extent that they are more restrictive than
the Credit Documents as determined by the Bank and its Special Counsel in their
sole discretion.
(r) Copyright Assignment. Kyle Parker and David Jamell shall have
--------------------
assigned to Borrower all of their rights in the copyright identified as Law
Office Information System: Master Menu System, Registration No. TX2097531.
Section 4.02. Conditions to Subsequent Advances.
------------ ---------------------------------
Each request for a subsequent Revolving Credit Advance, Equipment Line of
Credit Advance or SBLC/Line of Credit Advance shall be deemed to be a
representation by the Borrower to the Bank
20
<PAGE>
(a) that all representations and warranties contained in Article III hereof or
in any Exhibit, Schedule or Certificate attached hereto or delivered to the Bank
in connection herewith were true and correct when made and continue to be true
and correct as of the date of such advance, and (b) that no Default or Event of
Default specified in Article VI hereof exists. In addition, the Borrower shall
promptly pay as incurred from time to time all fees and expenses incurred by the
Bank (including, without limitation, all legal fees in connection with this
Agreement, the Credit Documents, the monitoring of the transactions contemplated
hereby and thereby, and in connection with any amendment, consent or waiver in
connection therewith.
ARTICLE V. COVENANTS OF THE BORROWER.
- --------- -------------------------
The Borrower hereby covenants as follows:
Section 5.01. Payment of Amounts Due, Etc.
------------ ---------------------------
The Borrower will make all payments of principal, interest and other
amounts in connection with the Notes and this Agreement in accordance with the
terms hereof and thereof, and will observe, perform and comply with each and
every one of the covenants, terms and conditions contained herein, in the Notes
or in any other Credit Document to be observed, performed or complied with by
it.
Section 5.02. Certain Contingencies.
------------ ---------------------
If, after the date of this Agreement, there shall be any increase in the
cost to the Bank due to either (a) the introduction of or any change in any law
or regulation (or the interpretation thereof by regulatory authorities)
including, without limitation, any changes regarding capital requirements for
banks or bank holding companies or (b) compliance with any written guideline,
request, interpretation or administrative position from any central bank or
other governmental authority having jurisdiction over the Bank (whether or not
such guideline or request has the force of law), of agreeing to make or making,
funding or maintaining the advances hereunder, then the Borrower shall, from
time to time, upon such notice by the Bank, pay to the Bank additional amounts
sufficient to reimburse the Bank for such increased cost. Upon the Bank
incurring such increased cost, the Bank shall certify the same to the Borrower,
and such certification shall be conclusive and binding in the absence of
manifest error.
Section 5.04. Corporate Existence.
------------ -------------------
The Borrower and each of its Subsidiaries will maintain and preserve in
full force and effect their respective corporate existence and will maintain and
preserve in full force and effect all material rights, licenses, patents,
permits, licenses, approvals and franchises, and comply with all applicable
regulations in all jurisdictions necessary for the conduct of their business.
Section 5.05. Maintenance of Properties and Leases.
------------ ------------------------------------
The Borrower and each of its Subsidiaries will maintain, preserve, protect
and keep all properties used or useful in the conduct of their respective
businesses in good repair, working order and condition, ordinary wear and tear
excepted, and from time to time shall make such repairs,
21
<PAGE>
renewals, replacements, betterments and improvements thereto as in the judgment
of the Borrower's management are necessary to permit such business to be
property and advantageously conducted at all times. The Borrower and each
Subsidiary shall comply in all material respects with all leases naming it as
lessee.
Section 5.05. Payment of Taxes, Compliance with Laws and ERISA, Etc.
------------ -----------------------------------------------------
(a) The Borrower and each of its Subsidiaries will pay and discharge
all taxes, assessments and governmental charges or levies imposed upon them or
upon their income or profits, or upon any property belonging to them before the
same shall become in default, as well as all lawful claims for labor, materials
and supplies, which, if not paid when due, might become a lien or charge upon
such property or any part thereof; provided, however, that neither the Borrower
nor any Subsidiary shall be required to pay and discharge any such tax,
assessment, charge, levy or claim so long as the validity thereof shall be
contested in good faith by appropriate proceedings, an adequate reserve for the
payment thereof is established on the books of the Borrower or applicable
Subsidiary in accordance with generally accepted accounting principles, and the
Borrower or applicable Subsidiary shall pay such tax, assessment, charge, levy
or claim before any taxing authority files any lien with respect thereto.
(b) The Borrower and each of its Subsidiaries will at all times and
in all material respects comply with all applicable provisions of laws, rules,
regulations, licenses, permits, approvals and orders and observe all
requirements of federal, state, local and other governmental authorities
(including, without limitation, all environmental and ERISA laws and
requirements).
(c) The Borrower and each of its Subsidiaries will satisfy, or cause
to be satisfied, the minimum annual funding standard, within the meaning of
ERISA, for any employee benefit plan established or maintained by them which is
subject to ERISA and neither of the Borrower nor any Subsidiary will permit any
tax or penalty to be incurred by it as a result of any failure to satisfy any
such minimum funding requirement or as a result of any violation of the
provisions of Section 4975 of the Code or any regulation issued thereunder.
Section 5.06. Records, Accounts and Places of Business.
------------ ----------------------------------------
The Borrower and each Subsidiary shall maintain comprehensive and accurate
records and accounts in accordance with generally accepted accounting principles
consistently applied. The Borrower and each Subsidiary shall maintain adequate
and proper reserves. The Borrower ,and each Subsidiary will promptly notify the
Bank of (a) any changes in the places of business of the Borrower and its
Subsidiaries and (b) any additional places of business which may arise
hereafter.
Section 5.07. Subsidiary Guarantees. The Borrower shall cause each
------------ ---------------------
Subsidiary of the Borrower (whether existing now or in the future) to enter into
a Guaranty Agreement in form and substance satisfactory to Bank guaranteeing all
obligations (whether existing now or in the future) of the Borrower to the Bank.
22
<PAGE>
Section 5.08. Insurance.
------------ ---------
The Borrower and each of its Subsidiaries will keep all of their insurable
properties insured with fire and broad form extended coverage insurance policies
written by financially sound and reputable insurers satisfactory to the Bank for
an amount not less than the full replacement value of all tangible property
owned by the Borrower from time to time. All insurance policies will name the
Bank as an additional insured and a loss payee or insured mortgagee, as
applicable. Each such insurance policy shall contain a provision requiring at
least 30 days' written notice to the Bank prior to the cancellation or
modification of each such policy. The Bank shall have the additional right,
exercisable at any point in time, in its reasonable judgment, to require
additional insurance coverage including but not limited to demolition, flood,
earthquake and contingent liability from the operation of any building laws as
they may pertain to non-conforming property. Certificates relating to such
insurance shall be furnished by the Borrower to the Bank at the Closing and
thereafter upon demand by the Bank.
Section 5.09. Accounts and Reports.
------------ --------------------
The Borrower will furnish or cause to be furnished to the Bank, the
following reports:
(a) Annual Reports. As soon as available and in any event within
--------------
ninety (90) days after the end of each fiscal year, (i) consolidated audited
financial statements of the Borrower and its Subsidiaries, together with all
notes thereto, prepared in reasonable detail and in accordance with generally
accepted accounting principles consistently applied, such statements to be duly
certified by a certified, independent public accounting firm selected by the
Borrower and acceptable to the Bank, which statements shall be accompanied by an
(A) unqualified opinion thereon by such accountants, and (B) a statement
executed by the Borrower's president or treasurer that to the best of his or her
knowledge, following diligent inquiry, he or she does not know of any condition
or event which constitutes a Default or an Event of Default under this Agreement
or a statement specifying the nature and period of existence of any such
condition or event.
(b) Monthly Reports. As soon as available, and in any event within
---------------
thirty (30) days after the end of each monthly accounting period in each fiscal
year during the term of this Agreement, consolidated unaudited financial
statements of the Borrower and its Subsidiaries prepared in reasonable detail
and in accordance with generally accepted accounting principles consistently
applied, certified by the President or Treasurer of the Borrower, which
statements shall contain balance sheets as of the end of such accounting period,
statements of profit and loss and cash flow for the period from the beginning of
such fiscal year to the end of such accounting period. Each such monthly report
shall be accompanied by a summary of all Revolving Credit Advances, Equipment
Line of Credit Advances, and SBLC Line of Credit Advances and unexpired L/C's
outstanding at the end of such period.
(c) Compliance Certificates. With the annual and monthly financial
-----------------------
statements furnished pursuant to subsections (a) and (b) hereof, an officers
certificate substantially in the form of Exhibit 5.09(c) hereto (the "Compliance
---------------
Certificate"), and (ii) such other reports as the Bank may reasonably request.
23
<PAGE>
(d) Auditor's Management Letter. Promptly after receipt by the
---------------------------
Borrower, copies of the management letter, if any, provided by its independent
certified public accountants who audit the annual financial statements.
(e) Information. Promptly, copies of all reports and financial
-----------
statements which the Borrower sends to either CRL, or the Borrower's
stockholders in their capacity as stockholders, as a class or which the Borrower
files with the Securities and Exchange Commission or any other public body.
(f) Accounting Principles. Reports furnished to the Bank under this
---------------------
Agreement shall be prepared in accordance with generally accepted accounting
principles consistently applied, except that unaudited statements need not
contain notes thereto and shall be subject to normal year end adjustments.
Compliance with the covenants set forth in this Agreement will be determined in
accordance with generally accepted accounting principles consistently applied.
(g) Financial Statements of Guarantor. Within ninety (90) days after
---------------------------------
the end of each calendar year, updated financial statements for the Guarantor.
(h) Borrowing Base Certificate. The Borrowing Base Certificate
--------------------------
pursuant to Section 2.02(a).
(i) Annual Projections. As soon as available, but in any event
within thirty (30) days prior o the end of each fiscal year, projections for the
following fiscal year together with a business plan.
Section 5.10. Information and Inspection.
------------ --------------------------
The Borrower will furnish to the Bank from time to time promptly upon the
Bank's request, full information pertinent to any covenant, provision or
condition hereof or to any matter in connection with its business and, at all
reasonable times during normal business hours and as often as the Bank shall
reasonably request, permit any authorized representative designated by the Bank
to visit and inspect any of their properties, including their books and records
(and to make extracts therefrom), and to discuss their affairs, finances and
accounts with its officers. The Borrower will, in addition, furnish to the Bank
with reasonable promptness such financial information as the Bank shall
reasonably request. Without limiting the generality of the foregoing, the Bank
shall be entitled to conduct as many examinations of the books and records of
the Borrower as the Bank in its sole discretion deems necessary and, the
Borrower shall pay on demand the Bank's out-of-pocket expenses and field audits
and appraisal fees.
Section 5.11. Additional Advice.
------------ -----------------
The Borrower will promptly advise the Bank of any change which constitutes
a Default or an Event of Default as defined in Article VI of this Agreement, or
a default in the performance by the Borrower under any covenant or agreement
contained in any other agreement to which it is a party or by which it is bound
which has not been cured within the applicable grace period, if any. The
24
<PAGE>
Borrower will also promptly give notice to the Bank of each waiver, consent or
amendment granted or made with respect to borrowed money in excess of $10,000.
Section 5.12. Payment of Expenses.
------------ -------------------
The Borrower will bear all reasonable out-of-pocket fees and expenses of
the Bank in connection with the negotiation, preparation, execution, amendment,
administration or enforcement of this Agreement, the other Credit Documents and
the transactions contemplated hereby (whether or not the Credit hereunder is
consummated) and the making and collection of the Credit hereunder, including
without limitation, the fees and disbursements of Special Counsel for the Bank,
costs of appraisals, recording fees, and filing fees.
Section 5.13. Limitation on Indebtedness.
------------ --------------------------
Neither the Borrower nor any Subsidiary will create, incur, assume, or
become, be or remain liable in any manner in respect of, or allow to exist, any
Indebtedness (which term shall include: all indebtedness, obligations and
liabilities which in accordance with generally accepted accounting principles
would be reflected on the balance sheet of the Borrower as liability; all
indebtedness, obligations and liabilities, whether or not assumed by Borrower or
any Subsidiary, secured by any mortgage, pledge or lien existing on property
owned by the Borrower or any Subsidiary; all indebtedness in respect of
operating leases; and all amounts representing rental payments which, in
accordance with generally accepted accounting principles, would be classified as
a liability on its balance sheet), except for:
(a) the Notes and any other obligations owed to the Bank under this
Agreement or otherwise;
(b) the CRL Subordinated Notes and the CRL August Note;
(c) Indebtedness of the Borrower existing as of the date of this
Agreement which is specifically disclosed in Schedule 5.13(c) attached hereto;
----------------
(d) Indebtedness representing trade debt, wages, employee benefits,
advance payments on sales contracts and other indebtedness incurred in the
ordinary course of business;
(e) Indebtedness existing as of the date of this Agreement secured by
liens permitted by subsection (a) of Section 5.15;
(f) liabilities for taxes, assessments, governmental charges, liens
or claims described in Section 5.05 hereof to the extent that payment thereof is
not required by such Section 5.05;
(g) Indebtedness in respect of final judgments for the payment of
money not in excess of $10,000 in the aggregate at any time outstanding
(excluding sums covered by insurance) remaining unsatisfied and in effect for
any period of less than sixty (60) days or in respect of which a stay of
execution shall have been obtained pending an appeal or proceeding for review;
and
25
<PAGE>
(h) Indebtedness of the Borrower which is subordinated in right of
payment to the obligations owed to the Bank under this Agreement on terms and
conditions satisfactory to the Bank in its sole discretion, and which does not
mature or require payment of principal or interest prior to the Maturity Date.
Section 5.14. Limitation on Liability for Obligations of Others.
------------ -------------------------------------------------
Neither the Borrower nor any Subsidiary will assume, guarantee, endorse or
otherwise be or become liable, contingently or otherwise (including without
limitation as a general partner), for the obligations of any other corporation,
firm or entity or other person, except for:
(a) the endorsement of negotiable instruments for deposit or
collection in the normal course of its business; and
(b) guarantees existing as of the date of this Agreement which are
specifically disclosed on Schedule 5.14 attached hereto.
-------------
Section 5.15. Limitation on Liens, Negative Pledges.
------------ -------------------------------------
Neither the Borrower nor any Subsidiary will (i) create, incur, assume or
allow to be created, incurred or assumed, or to exist, any pledge of, or any
lien, charge or encumbrance of any kind on, any of their property or assets,
(ii) subject any of such assets to prior payments of any other indebtedness
whether by subordination agreement, transfer of assets or otherwise, (iii) own
or acquire or agree to acquire any property of any character subject to or upon
any option, mortgage, conditional sale agreement or other title retention
agreement or (iv) or grant any person (other than the Bank) a negative pledge or
other similar restriction with respect to any of its property or assets,
provided, however, that the foregoing restrictions shall not prohibit the
- -------- -------
Borrower:
(a) from creating or allowing to exist any liens or encumbrances
which existed on the date hereof and which are specifically permitted by Section
3.07 hereof or set forth in Schedule 5.14 hereto;
-------------
(b) from creating or allowing to exist any liens in favor of the
Bank;
(c) from allowing to exist liens for taxes, assessments, governmental
charges and levies for claims described in Section 5.06 hereof to the extent
that payment thereof is not then required by such Section;
(d) from allowing to exist liens in respect of judgments or awards
which have been in force for less than the applicable appeal period or less than
sixty (60) days, whichever is sooner, so long as execution is not levied
thereunder, or in respect of which the Borrower at the time shall in good faith
be prosecuting an appeal, or proceedings for review are pending and in respect
of which a stay of execution shall have been obtained pending such appeal or
review; and
(e) from creating or allowing to exist deposits or pledges made in
connection with, or to secure payment of, workmen's compensation, unemployment
insurance or similar programs;
26
<PAGE>
liens, charges or encumbrances imposed by law, such as carriers', warehousemen's
and mechanics' liens and other liens arising in the ordinary course of business
which do not, individually or in the aggregate, materially detract from the
value or limit the use of any property subject thereto; landlords' liens in
respect of rent not in default or liens securing the performance of bids,
tenders, contracts (other than for the repayment of borrowed money), statutory
obligations and surety bonds.
Section 5.16. Sale of Assets.
------------ --------------
Neither the Borrower nor any Subsidiary will sell or transfer to each other
or to any third party any of their respective assets, including, without
limitation, accounts receivable or data bases, whether with or without recourse,
other than as permitted by Section 5.19 hereof. This Section 5.16 is not
intended to prohibit liens on the Borrower's accounts receivable in favor of the
Bank. Neither the Borrower nor any Subsidiary will sell or transfer any of its
properties with the intention of taking back a lease of the same property or
leasing other property for substantially the same use as the property being sold
or transferred.
Section 5.17. Loans and Investments.
------------ ---------------------
(a) Except as set forth in Schedule 3.02, the Borrower shall not
-------------
organize or permit to exist any new Subsidiaries without the prior written
consent of the Bank.
(b) Neither the Borrower nor any Subsidiary will, without the prior
written consent of the Bank, purchase or otherwise acquire or retain any stock,
assets or obligations of, or make any loans or advances to, or investments in,
or engage in joint ventures with, any corporation, partnership or other entity
or person, other than:
(i) obligations of the United States of America, or any agency
thereof, maturing not more than one (1) year from the date of issue thereof,
provided that the Bank shall acquire a perfected first security interest in any
such obligation simultaneously with its purchase or acquisition; and
(ii) certificates of deposit or other obligations maturing not more
than one (1) year from the date of issue thereof issued by the Bank, provided
that the Bank shall acquire a perfected first security interest in such
obligation simultaneously with its purchase or acquisition.
Section 5.18. Transactions With Affiliated Persons.
------------ ------------------------------------
Neither the Borrower nor any Subsidiary will enter into any transaction
with any Affiliate (including CRL, CRP and Moriarty), except on terms no less
favorable to Borrower than would be available in a bona fide arm's length
transaction with a non-affiliated person or entity, and provided that Borrower
shall have obtained the Bank's prior written consent to any such transaction or
series of related transactions involving an amount of $10,000 or more.
"Affiliate" means: any officer, director or shareholder who owns five percent
(5%) or more of any class of securities of the Borrower or any subsidiary; any
entity where the Borrower owns directly or indirectly five percent (5%) or more
of any class of securities or interest issued by such entity; or any entity that
controls, is controlled by or under common control with, the Borrower.
27
<PAGE>
Section 5.19. Consolidation, Merger or Disposition of Assets.
------------ ----------------------------------------------
Neither the Borrower nor any Subsidiary will, without the prior written
consent of the Bank, consolidate with or merge into or with another firm, person
or corporation, directly or indirectly, issue, sell, assign, pledge or otherwise
encumber or dispose of any shares of the capital stock or sell, lease or
otherwise dispose of (other than in the ordinary course of its business) all or
any material portion of their properties or assets to any firm, person or
corporation, or acquire any material portion of the properties or assets of any
other firm, person or corporation, whether in one or a series of related
transactions, except that:
(a) any Subsidiary may merge into or consolidate with the Borrower
(provided that the Borrower shall be the surviving corporation); and
(b) the Borrower or any of its Subsidiaries may sell or otherwise
dispose of any property which has become uneconomic, obsolete or worn out if
disposed of in the ordinary course of business.
Section 5.20. Changes in Corporate Business.
------------ -----------------------------
The Borrower will not materially alter the nature of its business, and will
engage only in the business which it is conducting on the date of this Agreement
and substantively related lines of business.
Section 5.21. Restricted Payment.
------------ ------------------
The Borrower shall not, directly or indirectly, declare, order, pay or make
any of the following restricted payments (hereinafter "Restricted Payments"):
(a) any payment or declaration of any dividend on any class of Stock
of the Borrower or any other distribution on account of any class of Stock;
(b) any payment in respect of director's fees, manager's fees or any
other distribution to any shareholder except to the extent permitted under
Section 5.18;
(c) any redemption, purchase or other acquisition by the Borrower,
directly or indirectly, of any shares of its Stock; or
(d) any payment in respect of the CRL Subordinated Notes, except that
so long as no Default or Event of Default under Article VI of this Agreement
shall have occurred and be continuing, the Borrower shall be authorized to make
regularly scheduled payments in respect of the CRL Subordinated Notes solely as
and to the extent permitted under the provisions of the CRL Subordination
Agreement, provided, however, that the Borrower shall be permitted, within five
(5) business days of the Closing Date, to pay off all principal and interest due
on the CRL August Note with the proceeds distributed hereunder.
"Stock" shall mean capital stock and warrants or options to purchase stock.
28
<PAGE>
Section 5.22. Compensation to Certain Officers. The aggregate
------------ --------------------------------
Compensation paid by the Borrower to Kyle D. Parker during any fiscal year shall
not exceed $200,000.
"Compensation" shall mean all sums paid by the Borrower to such individual
as salary, bonus, benefits, fees, draw, reimbursements, dividends, deferred
compensation or other remuneration.
Section 5.23. Restriction on Use of Proceeds.
------------ ------------------------------
None of the proceeds of the Credit shall be used by the Borrower to
purchase commodities except for use in the ordinary course of the Borrower's
business, or for the purpose of purchasing or carrying, or refinancing any
borrowing the proceeds of which were used to purchase or carry, any "margin
securities" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System.
Section 5.24. Bank Accounts.
------------ -------------
The Borrower and its Subsidiaries shall maintain at all times all of its
operating, concentration, collection and disbursement accounts with the Bank.
Section 5.25. Further Security.
------------ ----------------
The Borrower agrees to provide the Bank with such security interest or
liens as the Bank may hereafter reasonably request with respect to the assets of
the Borrower, and to such actions as the Bank may hereafter request in order to
maintain the Bank's first priority security interest in all of the Borrower's
assets, as the same shall exist from time to time.
Section 5.26. Material Agreements.
------------ -------------------
The Borrower will observe and perform all of its obligations under each
material agreement to which it is a party, except where the failure so to
observe would not have a material adverse affect upon the business, assets,
operations, financial or other condition, or prospects of the Borrower.
Section 5.27. Capital Expenditures.
------------ --------------------
The Borrower and its Subsidiaries shall not make or incur Capital
Expenditures in an aggregate amount in excess of $1,500,000 in fiscal year 1998,
and $1,000,000 in any fiscal year thereafter.
"Capital Expenditures" shall mean expenditures which are properly
chargeable to capital account under generally accepted accounting principals
(including leases which are capitalized).
Section 5.28. Minimum Annual Revenue.
------------ ----------------------
The consolidated revenues of the Borrower and its Subsidiaries shall not be
less than the amounts set forth below as of the end of each fiscal period set
forth below:
29
<PAGE>
<TABLE>
<CAPTION>
Period Minimum Annual Revenue
------ ----------------------
<S> <C>
January 1, 1998 to December 31, 1998 $ 6,500,000
January 1, 1999 to December 31, 1999 $15,000,000
January 1, 2000 to December 31, 2000 $30,000,000
</TABLE>
Section 5.29. Minimum Quick Ratio.
------------ -------------------
The Ratio of (a) consolidated Adjusted Current Assets to (b) consolidated
Adjusted Current Liabilities shall not be less than 1.75 to 1.0 as at the end of
each three (3) month period ending on each fiscal quarter commencing with the
fiscal quarter ending June 30, 1998.
"Adjusted Current Assets" shall mean, as of any date of determination, the
sum of (i) cash and cash equivalents, (ii) the Maximum Cumulative Liability (as
defined under the CRL Guaranty) plus the amount of the CRL Subordinated
Creditors' aggregate unfunded commitment obligations under Section 2.02(c) of
the CRL Purchase Agreement and (iii) Net Accounts Receivable.
"Adjusted Current Liabilities" shall mean, as of any date of determination,
(i) current liabilities (as determined in accordance with generally accepted
accounting principles consistently applied) less (ii) Deferred Revenue.
"Net Accounts Receivable" shall mean, as of any date of determination, the
consolidated accounts receivable of the Borrower less all applicable reserves
(in each case, as determined in accordance with generally accepted accounting
principles consistently applied).
"Deferred Revenue" shall mean all liabilities of the Borrower under
subscription contracts, which under generally accepted accounting principles
consistently applied are recorded as deferred revenues.
Section 5.30. Minimum Tangible Capital Base.
------------ -----------------------------
The Tangible Capital Base shall not be less than the amounts set forth
below at the end of each three (3) month fiscal period set forth below:
<TABLE>
<CAPTION>
Period Minimum Tangible Capital Base
------ -----------------------------
<S> <C>
July 1, 1998 to September 30, 1998 $5,300,000
October 1, 1998 to December 31, 1998 $4,600,000
January 1, 1999 to March 31, 1999 $2,800,000
April 1, 1999 to June 30, 1999 $1,500,000
July 1, 1999 to September 30, 1999 $ 650,000
</TABLE>
In addition, for the three (3) month quarterly fiscal period ending after
December 31, 1999, and for each three (3) month quarterly fiscal period ending
thereafter, the Borrower and its Subsidiaries shall have a Tangible Capital Base
of not less than $550,000.
30
<PAGE>
"Tangible Capital Base" shall mean, as of any date of determination, the
sum of (i) Stockholders' Equity (as determined in accordance with generally
accepted accounting principles consistently applied), (ii) Subordinated Debt and
(iii) the Maximum Cumulative Liability (as defined under the CRL Guaranty) plus
the amount of the CRL Subordinated Creditors' aggregate unfunded commitment
obligations under Section 2.02(c) of the CRL Purchase Agreement less Net
Intangible assets, provided, however, that the database assets, to the extent
under generally accepted accounting principles they are included as net
intangible assets, shall not be included as Net Intangible Assets.
"Subordinated Debt" shall mean all debt of the Borrower and its
Subsidiaries owed to any entity other than the Bank which is expressly
subordinated and made junior to the payment and performance of the obligations
of the Borrower and its Subsidiaries to the Bank, on terms and conditions
satisfactory to the Bank.
"Net Intangible Assets" shall mean the total book value of all assets of
the Borrower and its Subsidiaries which would be treated as intangible assets
under generally, accepted accounting principles, including without limitation,
such items as goodwill, trademarks, trade names, service marks, brand names,
copyrights, patents and licenses, and right with respect to the foregoing.
Section 5.31. Debt Service Coverage.
------------ ---------------------
The ratio of (a) consolidated Adjusted EBITDA to (b) consolidated Debt
Service of the Borrower and its Subsidiaries shall not be less than 1.25 to 1.0
at the end of each twelve (12) month period ending on each fiscal quarter
commencing with the fiscal quarter ending December 31, 1999, provided, however,
that Adjusted EBITDA for the twelve (12) month period ending December 31, 1999
shall be based upon the annualized nine (9) month period commencing April 1,
1999 and ending December 31, 1999.
"Adjusted EBITDA" shall mean, as of any date of determination, EBITDA for
the twelve (12) month period ending on such date minus the sum of (i) those
-----
amounts attributable to Capital Expenditures during such twelve (12) month
period, and (ii) all taxes due or payable with respect to such twelve (12) month
period.
"Debt Service" shall mean, as at any date of determination, the sum of (i)
consolidated interest expense of the Borrower and its Subsidiaries for the
twelve month period ending on such date, plus (ii) scheduled principal payments
----
on long term debt (including, without limitation, all indebtedness of the
Borrower to the Bank) for the twelve month period commencing on the date
following such date of determination, plus (iii) any amounts paid by the
----
Borrower in respect of the Deferred Facility Fee during the twelve month period
ending on such date, all as determined in accordance with generally accepted
accounting principles consistently applied.
"EBITDA" shall mean, as of any date of determination, the sum of the
consolidated pre-tax earnings of Borrower and its Subsidiaries, plus to the
----
extent deducted in calculating pre-tax earnings, consolidated depreciation,
amortization and interest expense of the Borrower and its Subsidiaries.
Section 5.32. Maximum Quarterly Net Losses; Minimum Income. The Borrower
------------ --------------------------------------------
and its Subsidiaries shall not, during each three (3) month quarterly fiscal
period set forth below, have a
31
<PAGE>
consolidated net loss (denoted in parentheses) (as determined in accordance with
generally accepted accounting principles consistently applied) in excess of the
amount set forth opposite such three (3) month fiscal period:
Period Maximum Consolidated Net Loss
July 1, 1998 to September 30, 1998 ($1,500,000)
October 1, 1998 to December 31, 1998 ($1,000,000)
January 1, 1999 to March 31, 1999 ($2,000,000)
April 1, 1999 to June 30, 1999 ($1,750,000)
July 1, 1999 to September 30, 1999 ($1,250,000)
October 1, 1999 to December 31, 1999 ($500,000)
In addition, for each three (3) month quarterly fiscal period ending after
December 31, 1999, the Borrower and its Subsidiaries shall have positive
consolidated net income (as determined in accordance with generally accepted
accounting principles consistently applied) of not less than $1.00.
Section 5.33. Renewal Rate.
------------ ------------
The consolidated Borrower's Renewal Rate shall not be less than eighty
percent (80%) as of the end of each twelve (12) month period ending on each
fiscal year of the Borrower, commencing with the fiscal year ending December 31,
1998.
"Renewal Rate" shall mean as of any date of determination, the percentage
of the Borrower's and its Subsidiaries' customers whose subscriptions come up
for renewal during the relevant fiscal year that renew their subscriptions with
the Borrower and/or its Subsidiaries, on terms no less favorable than those
terms generally being offered by the Borrower and its Subsidiaries at the time
of each such renewal.
Section 5.34. Subordinated Debt.
------------ -----------------
The Borrower will not, and will not permit any of its Subsidiaries to,
amend, supplement or otherwise modify any of the terms of any of the documents,
instruments or agreements relating to the Borrower's (and/or its Subsidiaries')
obligations to CRL, CRP or Moriarty including without limitation the CRL
Subordinated Notes and the CRL Purchase Agreement (collectively, the "CRL
Subordinated Debt Agreements").
Section 5.35. Fiscal Year and Accounting.
------------ --------------------------
The Borrower will not, and will not permit its Subsidiaries to, change the
date of the end of its fiscal year from December 31 or change its accounting
policies or reporting practices from those in effect prior to and as of the date
of this Agreement.
32
<PAGE>
Section 5.36. Additional Capital.
------------ ------------------
The Borrower shall exercise its rights under Section 2.02(c)(i) of the
Purchase Agreement to issue, and cause the CRL Subordinated Creditors to
purchase, the December CRL Subordinated Notes such that on December 31, 1998 the
aggregate amount of the December CRL Subordinated Notes issued on December 31,
1998 is equal to a minimum of $3,000,000 less the Maximum Cumulative Liability
(as defined in the CRL Guaranty) as of such date.
The Borrower shall exercise its rights under Section 2.02(c)(ii) of the
Purchase Agreement to issue, and cause the CRL Subordinated Creditors to
purchase, Additional CRL Subordinated Notes such that on May 31, 1999 the
aggregate amount of Additional CRL Subordinated Notes issued on December 31,
1998 and May 31, 1999 is equal to a minimum of $3,000,000 less the Maximum
Cumulative Liability (as defined in the CRL Guaranty) as of such date.
Section 5.37. Bank Accounts.
------------ -------------
The Borrower may maintain checking and related savings accounts with
institutions other than the Bank, provided, however, that the aggregate amounts
in such accounts shall not be material and in any event shall not at any point
in time exceed those amounts necessary to satisfy projected cash needs of the
Borrower for the immediately succeeding two week period after such point in
time.
ARTICLE VI. EVENTS OF DEFAULT.
- ---------- -----------------
If, while any part of the principal of or interest on the Notes remains
unpaid or while any part of the Credit shall be in effect, any one of the
following "Events of Default" shall occur:
(a) non-payment of principal of the Equipment Line of Credit Term
Notes or the SBLC Line of Credit Term Note where due or failure to reimburse
amounts drawn under any L/C when due pursuant to Section 2.05(b);
(b) non-payment of interest on the Credit or any other amounts due to
the Bank under any of the Credit Documents within five (5) days after the date
due;
(c) the Borrower or any Subsidiary shall (i) apply for or consent to
the appointment of a receiver, trustee or liquidator of it or of all or a
substantial part of its assets; (ii) admit in writing of its inability to pay
its debts as they mature; (iii) make a general assignment for the benefit of
creditors; (iv) be adjudicated a bankrupt or insolvent; (v) file a voluntary
petition in bankruptcy or a petition or an answer seeking reorganization or an
arrangement with creditors to take advantage of any insolvency law; (vi) file
any answer admitting the material allegations of a petition filed against it in
any bankruptcy, reorganization or insolvency proceeding or fail to dismiss such
petition within sixty (60) days after the filing thereof; or (vii) take any
corporate action for the purpose of effecting any of the foregoing;
(d) an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower by any court of competent
jurisdiction, approving a petition
33
<PAGE>
seeking reorganization or liquidation of the Borrower or appointing a receiver,
trustee or liquidator of the Borrower or of all or a substantial part of its
assets;
(e) any material representation or Warranty made by the Borrower
herein or hereunder or in any other Credit Document or in any certificate,
document or instrument furnished pursuant hereto or thereto shall prove to have
been false or incorrect in any material respect when made;
(f) default by any Borrower or any Subsidiary in the performance of
any covenant or agreement contained in Article II hereof (except as set forth in
paragraphs (a) or (b) of this Article VI), or Article V hereof;
(g) except as otherwise set forth in this Article VI, default by the
Borrower in the performance of any other covenant or agreement contained herein
or in any document or instrument required hereby or incidental or collateral
hereto which shall not have been remedied within thirty (30) days after the
earlier to occur of (i) written notice thereof shall have been given to the
Borrower by the Bank, or (ii) the Borrower first learns of such default;
(h) default by the Borrower in the performance of any covenant or
agreement contained in any other agreement (including the CRL Subordinated Debt
Agreements) to which it is a party or by which it is bound involving a liability
or obligation of the Borrower in excess of $10,000 which shall not be remedied
within the period of time (if any) within which such other agreement permits
such default to be remedied without the consent or waiver of the other party
thereto, unless such default is waived or excused as a matter of law;
(i) failure by the Borrower to make any payment of principal or
interest beyond the period of grace contained in any instrument or agreement to
which the Borrower is a party or by which it may be bound evidencing any
indebtedness for money borrowed in excess of $10,000 (unless such default is the
result of a good faith dispute arising under such agreement or instrument and
the other party or parties thereto have not accelerated the maturity of such
indebtedness), or default by the Borrower in the performance of any other
covenant or agreement contained in any such agreement or instrument referenced
in this subparagraph which results in the acceleration of the maturity of any
indebtedness of the Borrower to any other party;
(j) any guarantor of the Borrower's obligations hereunder shall take
any action to terminate its guarantee or there shall exist any payment default
thereunder;
(k) all or any substantial part of the assets of the Borrower shall
be condemned, seized or otherwise appropriated by any governmental authority or
any officer or instrumentally thereof;
(l) a judgment or Judgments for the payment of money in excess of the
sum of $10,000 in the aggregate (not covered by insurance) shall be rendered
against the Borrower and such judgment or judgments shall remain unsatisfied and
in effect for any period of sixty (60) days without a stay of execution; or
34
<PAGE>
(m) there shall occur any material adverse change in the financial
condition of the Borrower;
(n) either (i) any of Kyle D. Parker, individually and in his
capacity as trustee of the Parker Trust dated March 15, 1989, Melissa Parker, or
the CRL Subordinated Creditors cease to own 80% of those interests in the
Borrower they own as of the date hereof or shall own collectively less than
ninety percent (90%) of the capital stock of the Borrower, or (ii) Kyle D.
Parker shall cease to be actively engaged as the chief executive officer and
president of the Borrower;
(o) if any of the Credit Documents shall be cancelled, terminated,
revoked or rescinded or the Bank's security interests, mortgages or liens in a
substantial portion of the collateral shall cease to be perfected, or shall
cease to have the priority contemplated by the Credit Documents, in each case
otherwise than in accordance with the terms thereof or with the express prior
written agreement, consent or approval of the Bank, or any action at law, suit
or in equity or other legal proceeding to cancel, revoke or rescind any of the
Credit Documents shall be commenced by or on behalf of the Borrower or any of
its Subsidiaries party thereto or any of their respective stockholders, or any
court or any other governmental or regulatory authority or agency of competent
jurisdiction shall make a determination that, or issue a judgment, order, decree
or ruling to the effect that, any one or more of the Credit Document is illegal,
invalid or unenforceable in accordance with the terms thereof;
(p) the closing of a Qualifying Liquidity Event (as such term is
defined in the CRL Purchase Agreement);
then and in every such event, while such event shall be continuing, the Bank
may, by notice to the Borrower, (i) terminate the Revolving Credit, Equipment
Line of Credit and/or the SBLC Line of Credit with respect to further advances,
whereupon no advances may be made hereunder, (ii) declare the Notes to be
forthwith due and payable, whereupon the Notes shall forthwith become due and
payable without presentment, demand, protest or further notice of any kind, all
of which are expressly waived by the Borrower, and the right to borrow hereunder
shall terminate and/or (iii) require the Borrower to cash collateralize any
outstanding L/C's; provided, however, that upon the happening of any event under
Subsections (c) or (d) of this Article VI, then the Credit shall automatically
terminate and the Notes shall, without the taking of any action by the Bank,
immediately become due and payable and the right to borrow hereunder shall
immediately terminate.
ARTICLE VII. INDEMNIFICATION.
- ----------- ---------------
Without limitation of any other obligation or liability of the Borrower or
right or remedy of the Bank contained herein, the Borrower hereby covenants and
agrees to indemnify and hold the Bank, and the shareholders; directors, agents,
officers, partners, subsidiaries and affiliates of the Bank, harmless from and
against any and all damages, losses, settlement payments, obligations,
liabilities, claims, including, without limitation, claims for finder's or
broker's fees, actions or causes of action, and reasonable costs and expenses
incurred, suffered, sustained or required to be paid by an indemnified party in
each case by reason of or resulting from any claim relating to the transactions
contemplated hereby (including without limitation taxes, fees or fines in
connection with any filings contemplated under the Security Documents and this
Agreement) other than any such claims which
35
<PAGE>
are determined by a final, non-appealable order of a court to be the result of
the Bank's gross negligence or willful misconduct. Promptly upon receipt by any
indemnified party hereunder of notice of the commencement of any action against
such indemnified party for which a claim is to be made against the Borrower
hereunder, such indemnified party shall notify the Borrower in writing of the
commencement thereof, although the failure to provide such notice shall not
affect the indemnification rights of any such indemnified party hereunder. The
Borrower shall have the right, at its option upon notice to the indemnified
parties, to defend any such matter at its own expense and with its own counsel,
except as provided below, which counsel must be reasonably acceptable to the
indemnified parties. The indemnified party shall cooperate with the Borrower in
the defense of such matter. The indemnified party shall have the right to employ
separate counsel and to participate in the defense of such matter at its own
expense. In the event that (a) the employment of separate counsel by an
indemnified party has been authorized in writing by the Borrower, (b) the
Borrower has failed to assume the defense of such matter or (c) the named
parties to any), such action (including impleaded parties) include any
indemnified party who has been advised by counsel that there may be one or more
legal defenses available to it or prospective bases for liability against it,
which are different from those available to or against the Borrower, then the
Borrower shall not have the right to assume the defense of such matter with
respect to such indemnified party. The Borrower shall not be liable for any
compromise or settlement of any such matter effected without its written
consent, which consent may not be unreasonably delayed. The Borrower shall not
compromise or settle any such matter against an indemnified party without the
written consent of the indemnified party, which consent may not be unreasonably
withheld or delayed.
ARTICLE VIII. ASSIGNMENTS, PARTICIPATIONS, ETC.
- ------------ --------------------------------
Section 8.01. Successors and Assigns.
------------ ----------------------
(a) This Agreement shall bind and shall be enforceable by the
respective successors and assigns of the parties hereto. The representations
and warranties made by the Borrower in this Agreement shall bind the Borrower's
successors and assigns.
(b) The Bank and any subsequent holder of all or a portion of the
Bank's interests hereunder shall have the right from time to time and at any
time to sell, assign, transfer, negotiate and grant participation interests in
all or any part of its commitments hereunder and its rights under the Notes and
any other Credit Documents to one or more Persons. In the case of any such
sale, assignment, transfer, negotiation or participation of all or any portion
of such commitments, the assignee, transferee or recipient thereof shall have,
to the extent of such sale, assignment, transfer, negotiation or participation,
the same rights, benefits and obligations as the Bank hereunder. The Borrowers
hereby acknowledge and agree that any such transfer, assignment or other
disposition described in this Section 8.01(b) (other than participations) will
give rise to direct obligations of the Borrowers to the buyer, assignee or
transferee, as the case may be, and in such event the term "Bank" as used herein
shall include each such buyer, assignee or transferee, each of which, to the
extent of its interest therein, may rely on, and possess all rights of the Bank
hereunder and under the Notes and all other Credit Documents.
36
<PAGE>
ARTICLE IX. MISCELLANEOUS.
- ---------- -------------
Section 9.01. Term of Agreement.
------------ -----------------
This Agreement shall terminate whenever both of the following conditions
shall have been met: (a) all principal of and interest on the Notes and all
other amounts due and payable under this Agreement have been paid and discharged
in full, and (b) the Borrower shall have no further right to borrow under this
Agreement.
Section 9.02. Notices.
------------ -------
Except as otherwise specifically provided in this Agreement, all notices
and other communications hereunder shall be in writing and shall be delivered in
person, mailed by United States registered or certified first class mail,
postage prepaid, sent by overnight courier, or telexed, telegraphed, telecopied
or telefaxed to the parties hereto addressed as follows:
To the Bank: Fleet National Bank
One Federal Street
Mail Stop MA0FD07A
Boston, Massachusetts 02110
Attention: Scott D. Wheelock
Vice President, High Technology Division
Telefax Number: (617) 346-0151
With copies to: Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
Attention: H. David Henken, Esq.
Telefax Number: (617) 523-1231
To the Borrower: Law Office Information Systems, Inc.
105 N. 28th Street
Van Buren, Arkansas 72956
Attention: Kyle D. Parker, President
Telefax Number:
Any such notice or demand shall be deemed to have been duly given or made
and to have become effective (a) if delivered by hand or overnight courier, or
sent by telegraph, telecopy, facsimile or telex, at the time of the receipt
thereof or the sending of such telegraph, telecopy, facsimile or telex, if
during normal business hours on a Banking Day, and (b) if sent by registered or
certified first-class mail, postage prepaid, on the third Banking Day following
the mailing thereof.
Section 9.03. No Waiver.
------------ ---------
No failure to exercise, and no delay in exercising, on the part of the
Bank, any right, power or privilege hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any
37
<PAGE>
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
Section 9.04. Construction.
------------ ------------
The descriptive headings of the several Sections hereof are for convenience
only and shall not control or affect the meaning or construction of any of the
provisions hereof. This Agreement, together with the Exhibits hereto and all
documents, instruments and agreements executed pursuant hereto, constitutes the
entire agreement and understanding between the parties hereto with respect to
the subject matter hereof, supersedes all prior agreements, understandings or
representations pertaining to the subject matter hereof, whether oral or
written, and may not be contradicted by evidence of any alleged oral agreement.
Section 9.05. Amendments, Waivers and Consents.
------------ --------------------------------
Compliance by the Borrower with any term, covenant or condition of this
Agreement may be omitted or waived (either generally or in a particular instance
and either retroactively or prospectively) only by a consent or consents in
writing signed by the Bank.
Section 9.06. Closing.
------------ -------
The closing of the Credit ("Closing") shall take place at 10:00 a.m. on
August 20, 1998, at the offices of Goodwin, Procter & Hoar LLP, Exchange Place,
Boston, Massachusetts 02109, or such other time and place as the parties hereto
may agree.
Section 9.07. Governing Law; Jurisdictions; Venue. THIS AGREEMENT SHALL
------------ -----------------------------------
BE DEEMED TO BE A CONTRACT MADE UNDER, AND SHALL BE CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS. The Borrower hereby agrees
that the state and federal courts of The Commonwealth of Massachusetts shall
have jurisdiction to hear and determine any claims or disputes between the Bank
and the Borrower pertaining directly or indirectly to this Agreement and all
documents, instruments and agreements executed pursuant hereto, or to any matter
arising therefrom (unless otherwise expressly provided for therein). To the
extent permitted by law, the Borrower hereby expressly submit and consent in
advance to such jurisdiction in any action or proceeding commenced by the Bank
in any of such courts, and agrees that service of such summons and complaint or
other process or papers may be made by registered or certified mail addressed to
the Borrower at the address to which notices are to be sent pursuant to this
Agreement. The Company waives any claim that Boston, Massachusetts is an
inconvenient forum or an improper forum based on lack of venue. The choice of
forum set forth in this Section 9.07 shall not be deemed to preclude the
enforcement of any judgment obtained in such forum or the taking of any action
to enforce the same in any other appropriate jurisdiction.
Section 9.08. Waiver of Jury Trial. THE BANK AND THE BORROWER AGREE THAT
------------ --------------------
NEITHER OF THEM NOR ANY ASSIGNEE OR SUCCESSOR SHALL (A) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM OR ANY OTHER ACTION
38
<PAGE>
BASED UPON OR ARISING OUT OF, THIS AGREEMENT, ANY NOTE OR ANY CREDIT DOCUMENT,
ANY COLLATERAL OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG ANY OF THEM,
OR (B) SEEK TO CONSOLIDATE ANY SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY
TRIAL CANNOT BE OR HAS NOT BEEN WAIVED. THE PROVISIONS OF THIS PARAGRAPH HAVE
BEEN FULLY DISCUSSED BY THE BANK AND THE BORROWER, AND THESE PROVISIONS SHALL BE
SUBJECT TO NO EXCEPTIONS. NEITHER THE BANK NOR THE BORROWER HAS AGREED WITH OR
REPRESENTED TO THE OTHER THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT BE FULLY
ENFORCED IN ALL INSTANCES.
Section 9.09. Set-Off.
------------ -------
The Borrower and any Guarantor hereby grant to the Bank, a lien, security
interest and right of setoff as security for all liabilities and 'Obligations of
the Borrower or Guarantor to the Bank, whether now or existing or hereafter
arising, upon and against all deposits, credits, collateral and property, now or
hereafter in the possession, custody, safekeeping or control of the Bank or any
entity under the control of Fleet Financial Group, Inc., or in transit to any of
them. At any time, without demand or notice, the Bank may set off the same or
any part thereof and apply the same to any liability or obligation of the
Borrower and any Guarantor even though unmatured and regardless of the adequacy
of any other collateral securing the Credit. ANY AND ALL RIGHTS TO REQUIRE THE
BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO ANY OTHER, COLLATERAL
WHICH SECURES THE CREDIT, PRIOR TO EXERCISING ITS RIGHT OF SETOFF WITH RESPECT
TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF THE BORROWER OR ANY GUARANTOR,
ARE HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
Section 9.10. Usury Compliance.
------------ ----------------
All agreements between the Borrower and/or Guarantor and the Bank are
hereby expressly limited so that in no contingency or event whatsoever, whether
by reason of acceleration of maturity of the indebtedness evidenced hereby or
otherwise, shall the amount paid or agreed to be paid to the Bank for the use or
the forbearance of the indebtedness evidenced hereby exceed the maximum
permissible under applicable law. As used herein, the term "applicable law":
shall mean the law in effect as of the date hereof provided, however that in the
event there is a change in the law which results in a higher permissible rate of
interest, then this Agreement (and the Notes) shall be governed by such new law
as of its effective date. In this regard, it is expressly agreed that it is the
intent of the Borrower and Lender in the execution, delivery and acceptance of
this Agreement (and the Notes) to contract in strict compliance with the laws of
the Commonwealth of Massachusetts from time to time in effect. If, under or
from any circumstances whatsoever, fulfillment of any provision hereof or any of
the Credit Documents at the time of performance of such provision shall be due,
shall involve transcending the limit of such validity prescribed by applicable
law, then the obligation to be fulfilled shall automatically be reduced to the
limits of such validity, and if under or from circumstances whatsoever the Bank
should ever receive as interest an amount which would exceed the highest lawful
rate, such amount which would be excessive interest shall be applied to the
reduction of the principal balance evidenced hereby (or by the Notes) and not to
the payment of
39
<PAGE>
interest. This provision shall control every other provision of all agreements
between the Borrower and/or the Guarantor and the Bank.
Section 9.11. Further Assurances Replacement Notes.
------------ ------------------------------------
From time to time hereafter, the Borrower shall, and shall cause its
Subsidiaries to, execute and deliver or cause to be executed and delivered, such
additional instruments, certificates and documents, and take all such actions,
as the Bank shall reasonably request for the purpose of implementing or
effectuating the provisions of the Credit Documents, and upon the exercise by
the Bank of any power, right, privilege or remedy pursuant to the Credit
Documents which requires any consent, approval, registration, qualification or
authorization of any governmental authority or instrumentality, exercise and
deliver all applications, certifications, instruments and other documents and
papers that the Bank may be so required to obtain. Without limited the
generality of the foregoing, upon receipt of an affidavit of an officer of the
Bank as to the loss, theft, destruction or mutilation of any Note or any other
security document which is not of public record, and, in the case of any such
loss, theft, destruction or mutilation, upon surrender and cancellation of such
Note or other Credit Document, the Borrower will issue, in lieu thereof, a
replacement Note or other Credit Document in the same principal amount thereof
and otherwise of like tenor.
[END OF TEXT]
40
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LAW OFFICE INFORMATION SYSTEMS,
INC.
/s/ Kyle D. Parker
By:_________________________________________
Name: Kyle D. Parker
Title: President
FLEET NATIONAL BANK
/s/ Scott D. Wheelock
By:_________________________________________
Name: Scott D. Wheelock
Title: Vice President, High Technology
Division
<PAGE>
Attachments to Credit Agreement
not filed herewith
SCHEDULES:
Schedule 2.04 Outstanding Letters of Credit
Schedule 3.01 Outstanding Capital Stock
Schedule 3.02 Subsidiaries
Schedule 3.05 Material Adverse Change
Schedule 3.06 Litigation
Schedule 3.07 Title
Schedule 3.08 Tax Returns and Payments; IRS Settlements
Schedule 3.12 Credit Agreements
Schedule 3.13 Leases
Schedule 3.14 Real Estate Owned
Schedule 3.16 Hazardous Waste
Schedule 3.17 Permits
Schedule 3.18(a) Intellectual Property Rights Exceptions
Schedule 3.18(b) Intellectual Property Rights
Schedule 5.1(c) Indebtedness
Schedule 5.14 Guarantees, Liens, Negative Pledges
EXHIBITS:
Exhibit 2.02(a) Form of Borrowing Base Certificate
Exhibit 2.02(b) Form of Revolving Credit Note
Exhibit 2.03(b) Form of Equipment Line of Credit Note
Exhibit 2.03(d) Form of Equipment Line of Credit Term Note
Exhibit 2.03(f) Certificate Accompanying Notice of Equipment Line of Credit
Advance
Exhibit 2.04(b) Form of SBLC Line of Credit Note
Exhibit 2.04(d) Form of SBLC Line of Credit Term Note
Exhibit 4.01(f) Form of Limited Guaranty Agreement
Exhibit 4.01(h) Certificate of Insurance
Exhibit 4.01(i) Certification of President
Secretary's Certificate
Exhibit 4.01(j) Law Office Information Systems, Inc. Perfection Certificate
Exhibit 5.09(c) Form of Compliance Certificate
<PAGE>
Exhibit 10.8
FIRST AMENDMENT TO
CREDIT AGREEMENT
----------------
This First Amendment to Credit Agreement ("First Amendment to Credit
Agreement") is made as of this 31st day of December, 1998 by and between Law
Office Information Systems, Inc., an Arkansas corporation ("Borrower"), and
Fleet National Bank, a national banking association (hereinafter referred to as
the "Bank"), as lender.
WHEREAS, as of August 20, 1998, the Borrower and the Bank entered into a
Credit Agreement (the "Original Credit Agreement"); and
WHEREAS, the Borrower and the Bank now desire to amend the Original Credit
Agreement by (i) increasing the maximum permitted amount of SBLC line of Credit
Advances from $2,500,000 to $3,500,000 (the "Increase in Cash Advances") and
(ii) requiring the conversion of the Increase in Cash Advances into a term loan
with a maturity date of February 28, 1999, together with such other changes, all
as set forth in this First Amendment to Credit Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained in this
First Amendment to Credit Agreement, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. All references in the Original Credit Agreement to "Agreement" shall
from and after the date hereof mean the Credit Agreement as amended by this
First Amendment to Credit Agreement.
2. The defined term "Notes" as used in the Original Credit Agreement
shall be amended as follows:
"Notes" shall mean collectively, the Equipment Line of Credit Note and
each Equipment Line of Credit Term Note, the SBLC Line of Credit Note, the
SBLC Line of Credit Term Note, the SBLC Line of Credit Term Note II and the
Revolving, Credit note, all substitutions and replacements of any of the
foregoing, and any other notes issued by the Borrower to the Bank pursuant
to this Agreement.
3. Sections 2.04, 2.05(a) and 2.06 and Exhibits 2.04(b) and 2.04(d) of
the Original Credit Agreement are hereby amended by deleting said Sections and
Exhibits in their entirety and substituting therefore the following:
1
<PAGE>
Section 2.04. SBLC Line of Credit.
------------ -------------------
(a) General Terms. Subject to the terms and conditions hereof and
-------------
provided that no Default or Event of Default has occurred or is continuing,
the Borrower may, from time to time from the date hereof (1) up to December
31, 1998 directly borrow up to a maximum amount of $3,500,000 of the SBLC
Line of Credit from the Bank, and the Bank shall advance funds to the
Borrower as requested pursuant to Section 2.04(f) (each, an "SBLC Line of
Credit Advance" and collectively, the "SBLC Line of Credit Advances") to
finance the development of the Borrower's law library databases, and (ii)
up to June 30, 1999, request and the Bank shall arrange to issue for the
account of the Borrower, standby letters of credit pursuant to Section
2.05; provided, however, that the aggregate of (A) all outstanding SBLC
-------- -------
Line of Credit Advances (including SBLC Line of Credit Advances evidenced
by the SBLC Line of Credit Term Note and evidenced by the SBLC Line of
Credit Term Note II (each as defined below)), and (B) the maximum aggregate
liability of the Bank under all outstanding letters of credit issued by the
Bank under Section 2.05 and under all outstanding letters of credit listed
on Schedule 2.04 attached hereto (" L/C Obligations") shall at no time
-------------
exceed $7,000,000 (the "Maximum SBLC Line of Credit"). The Borrower may.
not reborrow SBLC Line of Credit Advances once repaid and to the extent
that some portion of the SBLC Line of Credit is not borrowed prior to June
30, 1999, the Borrower shall have no further right to borrow under this
Section 2.04 or request L/C's under Section 2.05.
SBLC Line of Credit Advances made by the Bank shall automatically be
converted into the SBLC Line of Credit Term Note and the SBLC Line of
Credit Term Note II, respectively, pursuant to Section 2.04(d).
(b) The SBLC Line of Credit Note. All amounts owed by the Borrower
----------------------------
with respect to SBLC Line of Credit Advances shall be evidenced by a
converting SBLC line of credit note in the original principal amount of
$3,500,000, dated the date hereof in the form attached hereto as Exhibit
-------
2.04(b) (the "SBLC Line of Credit Note ").
-------
(c) SBLC Line of Credit Payment. If at any time the aggregate amount
---------------------------
of outstanding SBLC Line of Credit Advances (including SBLC Line of Credit
Advances evidenced by the SBLC Line of Credit Term Note and the SBLC Line
of Credit Term Note II) and L/C Obligations exceeds the Maximum SBLC Line
of Credit, then the Borrower shall immediately pay such excess to the Bank,
and the Bank may, without prior notice to the Borrower, charge any of
Borrower's accounts with the Bank in order to effect such payment.
(d) (i) The SBLC Line Credit Term Note. On December 31, 1998 (the
------------------------------
"SBLC Line of Credit Conversion Date"), $2,500,000 of the aggregate
outstanding SBLC Line of Credit Advances as of such date shall
automatically be converted to a term note (hereinafter referred to as "SBLC
Line of Credit Term Note") dated as of such date, in the
2
<PAGE>
form attached hereto as Exhibit 2.04(d). The SBLC Line of Credit Term Note
---------------
shall be in the original principal amount of $2,500,000 of SBLC Line of
Credit Advances as of the SBLC Line of Credit Conversion Date. The
conversion of SBLC Line of Credit Advances into an SBLC Line of Credit Term
Note shall not constitute a prepayment of such SBLC Line of Credit
Advances. Unless sooner prepaid pursuant to Section 2.09 or accelerated
pursuant to Article VI hereof, the Borrower shall repay the principal of
the SBLC Line of Credit Term Note in thirty-five (35) equal monthly
installments of an amount equal to 2.778 % of the original principal amount
of the SBLC Line of Credit Term Note, payable on the first day of each
month commencing on February 1, 1999, with a final installment in the
amount of the entire unpaid balance of the SBLC Line of Credit Term Note
(including principal, all accrued but unpaid interest and any other amounts
then due) due and payable on February 1, 2002. Interest shall be payable on
the SBLC Line of Credit Term Note as provided in Section 2.04(e).
(ii) The SBLC Line Credit Term Note II. On the SBLC Line of
---------------------------------
Credit Conversion Date, up to $1,000,000 of the aggregate outstanding SBLC
Line of Credit Advances as of such date that have not converted as provided
in Section 2.04(d)(i) above shall automatically be converted to a term note
(hereinafter referred to as "SBLC Line of Credit Term Note II") dated as of
such date, in the form attached hereto as Exhibit 2.04(d)(i). The SBLC Line
of Credit Term Note II shall be in the original principal amount of up to
$1,000,000 of SBLC Line of Credit Advances as of the SBLC Line of Credit
Conversion Date. The conversion of SBLC Line of Credit Advances into an
SBLC Line of Credit Term Note II shall not constitute a prepayment of such
SBLC Line of Credit Advances. Unless sooner prepaid pursuant to Section
2.09 or accelerated pursuant to Article VI hereof, the Borrower shall repay
in full the principal of the SBLC Line of Credit Term Note II (including
principal, all accrued but unpaid interest and any other amounts then due)
due on February 28, 1999. Interest shall be payable on the SBLC Line of
Credit Term Note II as provided in Section 2.04(e).
(e) Interest. SBLC Line of Credit Advances made by the Bank and
--------
amounts outstanding under the SBLC Line of Credit Term Note and the SBLC
Line of Credit Term Note II shall bear interest prior to the occurrence of
an Event of Default or maturity (computed on the basis of actual number of
days elapsed over a 360-day year) on the unpaid principal balance
outstanding from time to time at a fluctuating rate per annum equal to the
aggregate of (i) the Prime Rate, plus (ii) one and one-half percent (1.5%).
From and after the occurrence and during the continuation of an Event of
Default or maturity (whether by demand, acceleration or otherwise), the
unpaid principal balance of the SBLC Line of Credit (including amounts
outstanding under SBLC Line of Credit Term Note and the SBLC Line of Credit
Term Note II) shall bear interest at a fluctuating rate per annum equal to
four percent (4%) above the rate of interest otherwise payable with respect
to the SBLC Line of Credit. Interest shall be payable monthly in arrears on
the first day of the next succeeding month commencing September 1, 1998.
The effective rate of interest shall change on each date on which the Prime
Rate shall change.
3
<PAGE>
(f) Requests for Advances. Subject to the conditions of Section
---------------------
2.04(a), each SBLC Line of Credit Advance to the Borrower shall be made on
a Banking Day on notice given by the Borrower to tie Bank prior to 11: 00
a.m. Boston time on the date of the proposed borrowing. Each request for an
SBLC Line of Credit Advance shall be made to the Bank in writing (including
by facsimile) or by telephone by a duly authorized representative of the
Borrower, and the Bank may rely upon any telephone request which it
reasonably believes is made by such a representative, and shall specify the
amount of such SBLC Line of Credit Advance (which must be a minimum of
$100,000). The Borrower agrees to indemnify and hold the Bank harmless for
any. action, including the making of SBLC Line of Credit Advances
hereunder, or loss or expense, taken or incurred by the Bank in good faith
reliance upon such telephone request. At the time of the initial request
for a SBLC Line of Credit Advance made under this Section 2.04(f), the
Borrower shall have provided the Bank with a Compliance Certificate in the
form required by Section 5.09(c) hereof. The Borrower hereby , agrees (i)
that the Bank shall be entitled to rely upon the most recent Compliance
Certificate in its possession until it is superseded by another Compliance
Certificate, and (ii) that each request for a SBLC Line of Credit Advance,
whether by telephone or in writing or otherwise, shall constitute a
confirmation of the representations and warranties contained in the most
recent Compliance Certificate then in the Bank's possession.
(g) Expiration of SBLC Line of Credit. The SBLC Line of Credit shall
---------------------------------
expire (i) with respect to direct borrowings of SBLC Line of Credit
Advances on December 31, 1998, and (ii) with respect to letters of credit
under Section 2.05, on June 30, 1999, whereupon no further advances may be
made thereunder.
Section 2.05. Letters of Credit.
------------ -----------------
(a) Issuance procedures. The Borrower may request, and the Bank will
-------------------
arrange to issue standby letters of credit (individually, an "L/C", and
collectively, with all outstanding letters of credit listed on Schedule
--------
2.04 attached hereto which shall be deemed to have been requested under
----
this Section 2.05, the "L/C's") for the account of the Borrower; provided
that after giving effect to all such L/C's the L/C Obligations at such time
shall not exceed $7,000,000 less (i) the aggregate principal amount of all
SBLC Line of Credit Advances outstanding at such time, and (ii) the
aggregate principal amount of the SBLC Line of Credit Term Note and the
SBLC Line of Credit Term Note II. All L/C's shall have an expiration date
not later than June 30, 2001. The Company shall deliver to the Bank an L/C
application and L/C agreement together with the proposed form of such L/C
(which, together with all schedules and exhibits thereto, shall be in form
and substance satisfactory to the Bank and its counsel) and such other
certificates, documents and other papers and information as the Bank may
reasonably request. Any foreign beneficiary must be satisfactory to the
Bank. Within five Banking Days following receipt of the above-described
documents in satisfactory form, the Bank shall issue such
4
<PAGE>
L/C, provided that immediately prior to the issuance of such L/C and after
giving effect thereto no Default or Event of Default shall have occurred
and be continuing.
Section 2.06. Method of Payment.
------------ -----------------
All payments and prepayments of principal and interest due under the
Notes and of fees due hereunder shall be made by the Borrower to the Bank
in lawful money of the United States in immediately available funds.
Payments received by the Bank after 11: 00 a.m. Boston time shall be deemed
received on the next succeeding Banking Day. All payments of principal,
interest or fees to be made to the Bank may be effected by the Bank
debiting accounts of the Borrower with the Bank. If a Default or Event of
Default has occurred or is continuing, all payments and prepayments made by
the Borrower to the Bank hereunder shall apply first to pay all principal
and interest due under the SBLC Line of Credit Note, the SBLC Line of
Credit Term Note, the SBLC Line of Credit Term Note II and toward any
obligation to reimburse the Bank under the L/C's.
4. After giving effect to this First Amendment to Agreement, all
representations and warranties made by the Borrower in the Original Credit
Agreement and the Security Documents are true and correct as of the date hereof
(except for those representations which relate to a specific date which are true
and correct on such date).
5. The Borrower represents that it has performed and complied with all
covenants and agreements required to be performed and complied with by it under
the Original Credit Agreement and the Security Documents.
6. Except as amended by this First Amendment to Credit Agreement, all
provisions of the Original Credit Agreement, the Security Documents and all
other documents referred to therein shall remain in full force and effect after
giving effect to this First Amendment to Credit Agreement.
7. The Obligations (as defined in the Security Documents executed and
delivered by the Borrower and the Guarantor) of Borrower and the Guarantor to
the Bank secured by its respective Security Documents shall be deemed to include
any additional obligations of the respective parties created by the terms of
this First Amendment to Credit Agreement.
8. The execution of this First Amendment to Credit Agreement does not (i)
waive any breaches or defaults or (ii) relieve the Borrower from any liability
caused by any breaches or defaults prior to the date hereof of any
representations, warranties and covenants (including any financial covenants)
contained in the Original Credit Agreement, and the Bank expressly reserves any
and all rights and remedies it may have in connection therewith or with respect
thereto.
9. The amendments set forth in this First Amendment to Credit Agreement
shall not be effective, and the Bank shall not be obligated to make a SBLC Line
of Credit Advance
5
<PAGE>
hereunder, or otherwise amend, modify or alter the Original Credit Agreement
unless and until all of the following conditions shall have been fulfilled or
waived by the Bank:
(a) Execution of Notes. The Borrower shall have executed and
------------------
delivered to the Bank the SBLC Line: of Credit Note, the SBLC Line of
Credit Term Note and the SBLC Line of Credit Term Note II, in each
case in the form attached to this First Amendment to Credit Agreement.
(b) Officer's Certificate for Borrower. The Borrower shall have
----------------------------------
delivered to the Bank a certificate substantially in the form of attached
to the Original Credit Agreement with attached corporate resolutions
authorizing the transactions contemplated by this First Amendment to Credit
Agreement.
(c) Acknowledgment by Guarantor. Capital Resource Lenders II, L.P.,
---------------------------
the Guarantor under that certain Limited Guaranty dated as of August 20,
1998, shall have acknowledged in writing that the Limited Guaranty shall
remain in full force and effect after giving effect to this First Amendment
to Credit Agreement and all references in the Limited Guaranty (i) to SBLC
Line of Credit Note shall be deemed to refer to both the SBLC Line of
Credit Note and the SBLC Line of Credit Note II and (ii) to Line of Credit
Advances shall be deemed to refer to SBLC Line of Credit Advances as
amended by this First Amendment to Credit Agreement.
(d) Acknowledgment of Purchasers under the Subordination and
--------------------------------------------------------
Intercreditor Agreement. Capital Resources Lenders III, L.P., CRP
-----------------------
Investment Partners III, L.L.C. and Rowland Moriarty, the Purchasers under
that certain Subordination and Intercreditor Agreement dated as of August
20, 1998, shall have acknowledged in writing that the Subordination and
Intercreditor Agreement shall remain in full force and effect after giving
effect to this First Amendment to Credit Agreement and all references in
the Subordination and Intercreditor Agreement to the Credit Agreement shall
be deemed to refer to the Original Credit Agreement as amended by this
First Amendment to Credit Agreement.
(e) Acknowledgment of Purchasers under Amendment No. 2. Capital
--------------------------------------------------
Resource Lenders III, L.P., CRP Investment Partners III, L.L.C. and Rowland
Moriarty, the Purchasers under that certain Amendment No. 2 dated as of
August 20, 1998, shall have acknowledged in writing that Amendment No. 2
shall remain in full force and effect after giving effect to this First
Amendment to Credit Agreement and all references in Amendment No. 2 to the
CRL III Guaranty shall be deemed to refer to the Limited Guaranty referred
to in Section 9(c) above after giving effect to this First Amendment to
Credit Agreement.
10. The Borrower represents that the Borrower has full power and authority
and has taken all required corporate and other action necessary to permit it to
execute and deliver and
6
<PAGE>
perform all of its obligations contained in this First Amendment to Credit
Agreement, and to borrow thereunder, and none of such actions will violate any
provision of law applicable to, or of the charter or by-laws of, the Borrower,
or result in the breach of or constitute a default under any agreement or
instrument to which the Borrower is a party or by which it is bound. This First
Amendment to Credit Agreement has been duly authorized and validly executed and
is the valid and binding obligation of the Borrower enforceable in accordance
with its respective terms. Neither the execution or delivery by the Borrower of
this First Amendment to Credit Agreement or the performance by the Borrower of
its respective obligations thereunder, require the consent, approval or
authorization of any person or governmental authority.
11. Promptly upon receipt of an invoice therefor, the Borrower will pay
all legal fees of the Bank's counsel in connection with the preparation,
negotiation, execution and delivery of this First Amendment to Credit Agreement.
12. This First Amendment to Credit Agreement represents the entire
agreement among the parties thereto relating to the amendment to the Original
Credit Agreement effected hereby, and supersedes all prior understandings and
agreements among the parties relating to the subject matter of this amendment to
the Original Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LAW OFFICE INFORMATION SYSTEMS, INC.
/s/ Kyle D. Parker
By: _____________________________________
Name: Kyle D. Parker
Title: President
FLEET NATIONAL BANK
/s/ Scott D. Wheelock
By: ______________________________________
Name: Scott D. Wheelock
Title: Vice President, High Technology
Division
7
<PAGE>
EXHIBIT 10.9
SECOND AMENDMENT AND WAIVER TO
CREDIT AGREEMENT
----------------
This Second Amendment and Waiver to Credit Agreement (this "Second
Amendment") is made as of April 30, 1999 by and between Law Office Information
Systems, Inc., an Arkansas corporation (the "Borrower"), and Fleet National
Bank, a national banking association (the "Bank").
WHEREAS, the Borrower and the Bank are parties to a Credit Agreement dated
as of August 20, 1998, as amended by a First Amendment To Credit Agreement dated
as of December 31, 1998 (as amended, the "Credit Agreement"); and
WHEREAS, the Borrower has requested that the Bank amend the Credit
Agreement to, among other things, (i) increase the maximum permitted amount of
SBLC line of Credit Advances and (ii) modify the dates on which the SBLC Line of
Credit Advances shall convert to term notes and begin to amortize; and
WHEREAS, the Borrower has also requested that the Bank waive the Borrower's
obligation to comply with certain financial covenants set forth in the Credit
Agreement for the fiscal period ended December 31, 1998; and
WHEREAS, the Bank is willing to amend and waive certain provisions of the
Credit Agreement, on the terms and conditions more fully set forth in this
Second Amendment;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. All references in the Credit Agreement to the "Agreement" shall from
and after the date hereof mean the Credit Agreement as amended by the First
Amendment to Credit Agreement and by this Second Amendment.
2. The term "Notes" as defined in Section 1.01 of the Credit Agreement is
hereby amended to read as follows:
"Notes" shall mean collectively, the Revolving Credit Note, the
Equipment Line of Credit Note and each Equipment Line of Credit Term
Note, the $500,000 SBLC Line of Credit Note, the $3,500,000 SBLC Line
of Credit Term Note and all other SBLC Line of Credit Notes, SBLC Line
of Credit Term Notes and other notes which may be issued by the
Borrower to the Bank pursuant to this Agreement, and all substitutions
and replacements of any of the foregoing.
<PAGE>
3. Sections 2.04, 2.05(a) and 2.06 and Exhibits 2.04(b) and 2.04(d) of
---------------- -------
the Original Credit Agreement are hereby amended by deleting said Sections and
Exhibits in their entirety and substituting therefore the following:
Section 2.04. SBLC Line of Credit.
------------ -------------------
(a) General Terms. Subject to the terms and conditions hereof, the
-------------
Bank has established a $7,000,000 SBLC Line of Credit in favor of the
Borrower, pursuant to which the Bank has (i) made advances (each an "SBLC
Line of Credit Advance" and collectively, the "SBLC Line of Credit
Advances") directly to the Borrower in the aggregate principal amount as of
April __, 1999 of $3,500,000 (the "$3,500,000 Outstanding SBLC Line of
Credit Advances") to finance the development of the Borrower's law library
databases; (ii) agreed to make up to $500,000 in aggregate principal amount
of additional SBLC Line of Credit Advances (the $500,000 Additional SBLC
Line of Credit Advances") to the Borrower during the period from April __,
1999 through the Additional SBLC Line of Credit Advance Expiration Date (as
hereinafter defined) to finance additional developments of the Borrower's
law library databases, and (iii) issued, and agreed to issue, from time to
time through and until June 30, 1999 for the account of the Borrower,
standby letters of credit pursuant to Section 2.05; provided, however, that
-------- -------
the aggregate of (A) all outstanding SBLC Line of Credit Advances
(including both the $3,500,000 Outstanding SBLC Line of Credit Advances and
the $500,000 Additional Line of Credit Advances), and (B) the maximum
aggregate liability of the Bank under all outstanding letters of credit
issued by the Bank under Section 2.05 and under all outstanding letters of
credit listed on Schedule 2.04 attached hereto ("L/C Obligations") shall at
-------------
no time exceed $7,000,000 (the "Maximum SBLC Line of Credit"). The Borrower
may not reborrow SBLC Line of Credit Advances once repaid and (i) to the
extent that the Borrower has not borrowed the entire $500,000 of Additional
SBLC Line of Credit Advances by the Additional SBLC Line of Credit Advance
Expiration Date, the Borrower shall have no further right to borrow SBLC
Line of Credit Advances under this Section 2.04. In addition, the Borrower
shall have no further right to request L/C's under Section 2.05 after June
30, 1999.
As used herein, the term "Additional SBLC Line of Credit Advance
Expiration Date" shall mean the earlier of (i) May 15, 1999 or (ii) the
date on which the Borrower receives proceeds from the issuance and/or sale
of any of its debt or equity securities or interests.
(b) The SBLC Line of Credit Note. All amounts owed by the Borrower
----------------------------
with respect to the $500,000 Additional SBLC Line of Credit Advances shall
be evidenced by a SBLC line of credit note in substantially the form
attached hereto as Exhibit 2.04(b) (the "SBLC Line of Credit Note"), in the
---------------
original principal amount of $500,000, dated the date hereof and due and
payable in full (together with all accrued and unpaid interest thereon) on
the Additional SBLC Line of Credit Advance Expiration Date. Interest shall
be payable on the SBLC Line of Credit Note as provided in Section 2.04(e).
2
<PAGE>
(c) SBLC Line of Credit Payments. If at any time the aggregate amount
----------------------------
of outstanding SBLC Line of Credit Advances (including both the $3,500,000
Outstanding SBLC Line of Credit Advances and the $500,000 Additional SBLC
Line of Credit Advances) and L/C Obligations exceeds the Maximum SBLC Line
of Credit, then the Borrower shall immediately pay such excess to the Bank,
and the Bank may, without prior notice to the Borrower, charge any of
Borrower's accounts with the Bank in order to effect such payment.
(d) The SBLC Line Credit Term Note. All amounts owed by the Borrower
------------------------------
with respect to the $3,500,000 Outstanding SBLC Line of Credit Advances
shall be evidenced by a SBLC line of credit term note in substantially the
form attached hereto as Exhibit 2.04(d) (the "SBLC Line of Credit Term
---------------
Note"), in the original principal amount of $3,500,000, dated the date
hereof and due and payable in thirty-two (32) equal monthly installments,
each in the amount of $109,375, payable on the first day of each month
commencing on May 1, 1999, with a final installment in the amount of the
entire unpaid principal balance of the $3,500,000 Outstanding SBLC Line of
Credit Advances (together with all accrued and unpaid interest thereon),
due and payable on February 1, 2002. Interest shall be payable on the SBLC
Line of Credit Term Note as provided in Section 2.04(e).
(e) Interest. All SBLC Line of Credit Advances made by the Bank
--------
(including all amounts outstanding under the SBLC Line of Credit Note and
under the SBLC Line of Credit Term Note) shall bear interest prior to the
occurrence of an Event of Default or maturity (computed on the basis of
actual number of days elapsed over a 360-day year) on the unpaid principal
balance outstanding from time to time at a fluctuating rate per annum equal
to the aggregate of (i) the Prime Rate, plus (ii) one and one-half percent
(1.5%). From and after the occurrence and during the continuation of an
Event of Default or maturity (whether by demand, acceleration or
otherwise), the unpaid principal balance of the SBLC Line of Credit
(including all amounts outstanding under the SBLC Line of Credit Note and
under the SBLC Line of Credit Term Note) shall bear interest at a
fluctuating rate per annum equal to four percent (4%) above the rate of
interest otherwise payable with respect to the SBLC Line of Credit.
Interest shall be payable monthly in arrears on the first day of the next
succeeding month commencing September 1, 1998. The effective rate of
interest shall change on each date on which the Prime Rate shall change.
(f) Requests for Advances. Subject to the conditions of Section
---------------------
2.04(a), each SBLC Line of Credit Advance to the Borrower shall be made on
a Banking Day on notice given by the Borrower to the Bank prior to 11:00
a.m. Boston time on the date of the proposed borrowing. Each request for
an SBLC Line of Credit Advance shall be made to the Bank in writing
(including by facsimile) or by telephone by a duly authorized
representative of the Borrower, and the Bank may rely upon any telephone
request which it reasonably believes is made by such a representative, and
shall specify the amount of such SBLC Line of Credit Advance (which must be
a minimum of $100,000). The Borrower agrees to indemnify and hold the Bank
harmless for any action, including the making of SBLC Line of Credit
Advances hereunder, or loss or expense, taken or incurred by the Bank in
good faith reliance upon such telephone request. At the time of
3
<PAGE>
the initial request for a SBLC Line of Credit Advance made under this
Section 2.04(f), the Borrower shall have provided the Bank with a
Compliance Certificate in the form required by Section 5.09(c) hereof. The
Borrower hereby agrees (i) that the Bank shall be entitled to rely upon the
most recent Compliance Certificate in its possession until it is superseded
by another Compliance Certificate, and (ii) that each request for a SBLC
Line of Credit Advance, whether by telephone or in writing or otherwise,
shall constitute a confirmation of the representations and warranties
contained in the most recent Compliance Certificate then in the Bank's
possession.
(g) Expiration of SBLC Line of Credit. The SBLC Line of Credit shall
---------------------------------
expire (i) with respect to direct borrowings of SBLC Line of Credit
Advances on the Additional SBLC Line of Credit Advance Expiration Date, and
(ii) with respect to letters of credit under Section 2.05, on June 30,
1999, whereupon no further advances may be made thereunder.
Section 2.05. Letters of Credit.
------------ -----------------
(a) Issuance procedures. The Borrower may request, and the Bank will
-------------------
arrange to issue standby letters of credit (individually, an "L/C", and
collectively, with all outstanding letters of credit listed on Schedule
--------
2.04 attached hereto which shall be deemed to have been requested under
----
this Section 2.05, the "L/C's") for the account of the Borrower; provided
--------
that after giving effect to all such L/C's the L/C Obligations at such time
shall not exceed $7,000,000 less (i) the aggregate principal amount of all
SBLC Line of Credit Advances outstanding at such time (including the
principal amount of the SBLC Line of Credit Note and the SBLC Line of
Credit Term Note). All L/C's shall have an expiration date not later than
June 30, 2001. The Company shall deliver to the Bank an L/C application
and L/C agreement together with the proposed form of such L/C (which,
together with all schedules and exhibits thereto, shall be in form and
substance satisfactory to the Bank and its counsel) and such other
certificates, documents and other papers and information as the Bank may
reasonably request. Any foreign beneficiary must be satisfactory to the
Bank. Within five Banking Days following receipt of the above-described
documents in satisfactory form, the Bank shall issue such L/C, provided
that immediately prior to the issuance of such L/C and after giving effect
thereto no Default or Event of Default shall have occurred and be
continuing.
Section 2.06. Method of Payment.
------------ -----------------
All payments and prepayments of principal and interest due under the
Notes and of fees due hereunder shall be made by the Borrower to the Bank
in lawful money of the United States in immediately available funds.
Payments received by the Bank after 11:00 a.m. Boston time shall be deemed
received on the next succeeding Banking Day. All payments of principal,
interest or fees to be made to the Bank may be effected by the Bank
debiting accounts of the Borrower with the Bank. If a Default or Event of
Default has occurred or is continuing, all payments and prepayments made by
the Borrower to the Bank hereunder shall apply first to all outstanding
fees and expenses of the Bank, second to pay all interest and fees due in
respect of the SBLC Line of Credit Note, the SBLC Line of Credit Term Note
and the L/C's, third to pay all principal due under the SBLC
4
<PAGE>
Line of Credit Note, fourth to pay all principal due under the SBLC Line of
Credit Term Note, and fifth toward any reimbursement obligations of the
Borrower to the Bank in respect of L/C's.
4. The Borrower has indicated to the Bank that as of December 31, 1998,
the Borrower was not in compliance with the minimum annual revenue, minimum
quick ratio, minimum tangible capital base and maximum quarterly net loss
covenants set forth in Sections 5.28, 5.29, 5.30 and 5.32 of the Credit
Agreement. Based upon the representations and warranties of the Borrower set
forth herein, and subject to the terms and conditions of this Second Amendment,
the Bank hereby waives the Events of Default resulting from the Borrower's
failure to comply with the financial covenants set forth in Sections 5.28, 5.29,
5.30 and 5.32 of the Credit Agreement as at December 31, 1998. The foregoing
waiver shall apply only to those specific Sections of the Credit Agreement
referenced above and only as of December 31, 1998, and nothing herein shall be
deemed to constitute an amendment, modification or waiver of any other covenant
set forth in the Credit Agreement.
5. The Borrower hereby represents and warrants that after giving effect
to this Second Amendment, (a) all representations and warranties made by the
Borrower in the Credit Agreement and the Security Documents are true and correct
as of the date hereof (except for those representations which relate to a
specific date which are true and correct on such date), and (b) the Borrower has
performed and complied with all covenants and agreements required to be
performed and complied with by it under the Credit Agreement and the Security
Documents.
6. Except as amended by this Second Amendment to Credit Agreement, all
provisions of the Credit Agreement, the Security Documents and all other
documents referred to therein shall remain in full force and effect after giving
effect to this Second Amendment.
7. The Obligations (as defined in the Security Documents executed and
delivered by the Borrower and the Guarantor) of Borrower and the Guarantor to
the Bank secured by its respective Security Documents shall be deemed to include
any and all additional obligations of the respective parties created by the
terms of this Second Amendment. The Borrower hereby grants in favor of the
Bank, and confirms its prior grant in favor of the Bank, pursuant to the
Security Documents, of security interests in substantially all of the Borrower's
property and assets as security for the prompt payment and performance of all of
the Obligations, including, without limitation, all obligations of the Borrower
under this Second Amendment.
8. Except as otherwise expressly set forth in paragraph 4 of this Second
Amendment, the execution of this Second Amendment does not constitute a waiver
by the Bank of, and does not in any way relieve the Borrower from any liability
caused by, any breaches or defaults by the Borrower prior to the date hereof of
any representations, warranties and covenants (including any financial
covenants) contained in, the Credit Agreement, and the Bank expressly reserves
any and all rights and remedies it may have in connection therewith or with
respect thereto.
9. The amendments and waiver set forth in this Second Amendment shall not
be effective, and the Bank shall not be obligated to make any additional SBLC
Line of Credit Advances or to issue any additional L/C's under the Credit
Agreement, or otherwise amend,
5
<PAGE>
modify or alter the Original Credit Agreement unless and until all of the
following conditions shall have been fulfilled or waived by the Bank:
(a) Execution of Notes. The Borrower shall have executed and
------------------
delivered to the Bank the SBLC Line of Credit Note and the SBLC Line of
Credit Term Note, in each case in the form attached to this Second
Amendment.
(b) Officer's Certificate for Borrower. The Borrower shall have
----------------------------------
delivered to the Bank a certificate substantially in the form of attached
to the Credit Agreement with attached corporate resolutions authorizing the
transactions contemplated by this Second Amendment.
(c) Acknowledgment by Guarantor. Capital Resource Lenders III, L.P.,
---------------------------
the Guarantor under that certain Limited Guaranty dated as of August 20,
1998, shall have acknowledged in writing that the Limited Guaranty shall
remain in full force and effect after giving effect to this Second
Amendment and all references in the Limited Guaranty (i) to the SBLC Line
of Credit Note shall be deemed to refer to both the SBLC Line of Credit
Note and the SBLC Line of Credit Term Note and (ii) to SBLC Line of Credit
Advances shall be deemed to refer to all SBLC Line of Credit Advances made
under the Credit Agreement, as amended by this Second Amendment.
(d) Acknowledgment of Purchasers under the Subordinated Note and
------------------------------------------------------------
Securities Purchase Agreement and under the Subordination and Intercreditor
---------------------------------------------------------------------------
Agreement. Capital Resources Lenders III, L.P., CRP Investment Partners
---------
III, L.L.C. and Rowland Moriarty, the Purchasers under that certain
Subordinated Note and Securities Purchase Agreement dated as of November
24, 1997, as amended (as so amended, the "Purchase Agreement") and under
that certain Subordination and Intercreditor Agreement dated as of August
20, 1998 (the "Subordination and Intercreditor Agreement"), shall have
acknowledged in writing that the Purchase Agreement and the Subordination
and Intercreditor Agreement shall remain in full force and effect after
giving effect to this Second Amendment, all references in the Purchase
Agreement and the Subordination and Intercreditor Agreement to the Credit
Agreement shall be deemed to refer to the Credit Agreement as amended by
this Second Amendment, and all references in the Purchase Agreement to the
CRL III Guaranty shall be deemed to refer to the Limited Guaranty referred
to in paragraph 9(c) of this Second Amendment, after giving effect to this
Second Amendment.
10. The Borrower represents and warrants to the Bank that the Borrower has
full power and authority and has taken all required corporate and other action
necessary to permit it to execute and deliver and perform all of its obligations
contained in this Second Amendment, and to borrow under the Credit Agreement,
and none of such actions will violate any provision of law applicable to, or of
the charter or by-laws of, the Borrower, or result in the breach of or
constitute a default under any agreement or instrument to which the Borrower is
a party or by which it is bound. This Second Amendment has been duly authorized
and validly executed and is the valid and binding obligation of the Borrower
enforceable in accordance with its respective terms. Neither the execution or
delivery by the Borrower of this Second Amendment nor the performance by the
Borrower of its respective obligations under this Second Amendment, the
6
<PAGE>
Credit Agreement or the Security Documents, requires the consent, approval or
authorization of any person or governmental authority.
11. Promptly upon receipt of an invoice therefor, the Borrower will pay
all legal fees of the Bank's counsel in connection with the preparation,
negotiation, execution and delivery of this Second Amendment.
12. This Second Amendment represents the entire agreement among the
parties thereto relating to the amendment to the Credit Agreement effected
hereby, and supersedes all prior understandings and agreements among the parties
relating to the subject matter of this amendment to the Credit Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LAW OFFICE INFORMATION SYSTEMS, INC.
/s/ Kyle D. Parker
By:______________________________________
Name: Kyle D. Parker
Title: President
FLEET NATIONAL BANK
/s/ Scott D. Wheelock
By:______________________________________
Name: Scott D. Wheelock
Title: Vice President, High Technology Division
7
<PAGE>
ACKNOWLEDGMENT OF GUARANTOR
---------------------------
The undersigned, Capital Resource Lenders III, L.P., the Guarantor under
that certain Limited Guaranty dated as of August 20, 1998, hereby acknowledges
that such Limited Guaranty remains in full force and effect after giving effect
to the foregoing Second Amendment and Waiver to Credit Agreement and all
references in such Limited Guaranty (i) to the SBLC Line of Credit Note shall be
deemed to refer to both the SBLC Line of Credit Note and the SBLC Line of Credit
Term Note and (ii) to SBLC Line of Credit Advances shall be deemed to refer to
all SBLC Line of Credit Advances made under the Credit Agreement, as amended by
the foregoing Second Amendment and Waiver to Credit Agreement.
Dated: April __, 1999 CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.,
its general partner
By:_________________________________
Name:
Title:
8
<PAGE>
ACKNOWLEDGMENT OF PURCHASERS
----------------------------
The undersigned, Capital Resources Lenders III, L.P., CRP Investment
Partners III, L.L.C. and Rowland Moriarty, the Purchasers under that certain
Subordinated Note and Securities Purchase Agreement dated as of November 24,
1997, as amended (as so amended, the "Purchase Agreement"), and under that
certain Subordination and Intercreditor Agreement dated as of August 20, 1998
(the "Subordination and Intercreditor Agreement"), hereby acknowledge that the
Purchase Agreement and the Subordination and Intercreditor Agreement remain in
full force and effect after giving effect to the foregoing Second Amendment and
Waiver to Credit Agreement, all references in the Purchase Agreement and the
Subordination and Intercreditor Agreement to the Credit Agreement shall be
deemed to refer to the Credit Agreement as amended by the foregoing Second
Amendment and Waiver to Credit Agreement, and all references in the Purchase
Agreement to the CRL III Guaranty shall be deemed to refer to the Limited
Guaranty dated as of August 20, 1998 from Capital Resource Lenders III, L.P. in
favor of the Bank, after giving effect to the foregoing Second Amendment and
Waiver to Credit Agreement.
Dated: April __, 1999 CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.,
its general partner
By:_________________________________
Name:
Title:
Dated: April __, 1999 CRP INVESTMENT PARTNERS III, L.L.C.
By:_________________________________
Name:
Title:
Dated: April __, 1999 ____________________________________
Rowland Moriarty
9
<PAGE>
EXHIBIT 10.10
THIRD AMENDMENT AND WAIVER TO
CREDIT AGREEMENT
----------------
This Third Amendment and Waiver to Credit Agreement (this "Third
Amendment") is made as of May 25, 1999 by and between Law Office Information
Systems, Inc., an Arkansas corporation (the "Borrower"), and Fleet National
Bank, a national banking association (the "Bank").
WHEREAS, the Borrower and the Bank are parties to a Credit Agreement dated
as of August 20, 1998, as amended by a First Amendment to Credit Agreement dated
as of December 31, 1998 and a Second Amendment and Waiver to Credit Agreement
dated as of April 30, 1999 (as amended, the "Credit Agreement"); and
WHEREAS, the Borrower has requested that the Bank amend the Credit
Agreement to, among other things, (i) increase the amount of and extend the
maturity date of a portion of the credit facilities, and (ii) modify certain
financial covenants; and
WHEREAS, the Bank is willing to amend the Credit Agreement, on the terms
and subject to the conditions set forth in this Third Amendment;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. All references in the Credit Agreement to the "Agreement" shall from
and after the date hereof mean the Credit Agreement as amended by the First
Amendment to Credit Agreement, the Second Amendment and Waiver to Credit
Agreement, and this Third Amendment.
2. The term "Notes" as defined in Section 1.01 of the Credit Agreement is
hereby amended to read as follows:
"Notes" shall mean collectively, the Revolving Credit Note, the
Equipment Line of Credit Note A, the Equipment Line of Credit Note B, the
$500,000 SBLC Line of Credit Note, the $3,500,000 SBLC Line of Credit Term
Note and all other notes which may be issued by the Borrower to the Bank
pursuant to this Agreement, and all substitutions and replacements of any
of the foregoing.
3. Sections 2.01, 2.02 and 2.03, and Exhibits 2.02(b), 2.03(b), and
---------------- -------
2.03(d) of the Credit Agreement are hereby amended by deleting said Sections and
- -------
Exhibits in their entirety and substituting therefore the following new Sections
2.01, 2.02 and 2.03 and new Exhibits 2.02(b), 2.03(a), 2.03(b):
---------------- ------- -------
<PAGE>
Section 2.01. The Credit.
------------ ----------
Subject to the terms and conditions hereof, and in reliance on the
representations and warranties contained herein, the Bank hereby establishes a
credit facility in favor of the Borrower in the maximum aggregate principal
amount of $12,000,000 as set forth below (the "Credit"). The Credit shall
consist of (i) a secured working capital revolving line of credit in the maximum
principal amount of $2,500,000 (the "Revolving Credit"), (ii) a secured
converting equipment line of credit in the maximum principal amount of
$1,000,000 (the "Equipment Line of Credit A"), (iii) a secured converting
equipment line of credit in the maximum principal amount of $1,500,000 (the
"Equipment Line of Credit B"), and (iv) a secured converting SBLC line of credit
in the maximum principal amount of $7,000,000 (the "SBLC Line of Credit").
Section 2.02. The Revolving Credit.
------------ --------------------
(a) General Terms. Subject to the terms and conditions hereof and provided
-------------
that no Default or Event of Default has occurred and is continuing, the Borrower
may, from time to time from the date hereof through June 1, 2000 (the "Revolving
Credit Maturity Date") borrow and reborrow from the Bank, and the Bank shall
advance funds to the Borrower as requested pursuant to Section 2.02(e) (a
"Revolving Credit Advance" and collectively, the "Revolving Credit Advances");
provided, however, that the aggregate of all Revolving Credit Advances
outstanding at any time shall not exceed the lesser of (i) $2,500,000 or (ii)
the "Borrowing Base" (the "Maximum Revolving Credit").
The Borrowing Base shall equal the sum of (i) 80% of Qualified Accounts (as
hereinafter defined), plus (ii) 80% of the Net Present Value of Electronic Funds
Transfer Receivables (as hereinafter defined).
"Qualified Accounts" (without any duplication of any accounts falling
within the definition of Net Present Value of Electronic Funds Transfer
Receivables) shall mean all accounts of the Borrower arising in the ordinary
course of business (i) in which the Bank has a perfected security interest; (ii)
which are not with respect to sales or services to a supplier, employee,
shareholder, Subsidiary or Affiliate of the Borrower, or to the United States of
America or any agency thereof, or to an account debtor located outside of the
United States of America; (iii) which are not on account of consigned goods;
(iv) which are not with respect to accounts of account debtors of the Borrower
who have any accounts or portions thereof evidenced by a promissory note; (v)
which are accounts billed in a manner consistent with past business practices of
the Borrower and not more than 90 days due from the date of issuance of the
invoice; (vi) which are not subject to any dispute, setoff, finance charge,
credit, allowance or adjustment by the account debtor; and (vii) which the Bank
has not otherwise determined to be unsatisfactory.
"Net Present Value of Electronic Funds Transfer Receivables" shall mean all
accounts receivable of the Borrower relating to electronic funds monthly
transfer arrangements between the Borrower and its customers and subscribers
that are due within
2
<PAGE>
one year of the date of determination of the relevant Borrowing Base, discounted
to net present value using a discount rate equal to the rate of interest
applicable to Revolving Credit Advances (as provided in Section 2.02(d)) as of
the date of determination of the relevant Borrowing Base.
The Borrower shall furnish to the Bank not later than fifteen (15) days
following the end of each monthly accounting period a Borrowing Base Certificate
in the form of Exhibit 2.02(a) attached hereto, completed and signed by the
---------------
Borrower's chief financial officer. The Borrowing Base shown on such certificate
shall be as of the last day of said monthly accounting period. If a Borrowing
Base Certificate is not delivered within the specified period the Bank shall not
be obligated to make further Revolving Credit Advances until a Borrowing Base
Certificate as of the most recent month ended is delivered.
(b) The Revolving Credit Note. All amounts owed by the Borrower with
-------------------------
respect to Revolving Credit Advances shall be evidenced by a revolving credit
note in the principal amount of $2,500,000, dated the date hereof in the form
attached hereto as Exhibit 2.02(b) (the "Revolving Credit Note").
---------------
(c) Revolving Credit Payment. Revolving Credit Advances may be repaid at
------------------------
any time. The aggregate of all Revolving Credit Advances shall not at any time
exceed the Maximum Revolving Credit. If at any time the aggregates outstanding
Revolving Credit Advances exceeds the Maximum Revolving Credit, then the
Borrower shall immediately pay such excess to the Bank, and the Bank may,
without prior notice to the Borrower, charge any of Borrower's accounts with the
Bank in order to effect such payment.
(d) Interest. Revolving Credit Advances made by the Bank shall bear
--------
interest prior to the occurrence of an Event of Default or maturity (computed on
the basis of actual number of days elapsed over a 360-day year) on the unpaid
principal balance outstanding from time to time at a fluctuating rate per annum
equal to the aggregate of (i) the Prime Rate, plus (ii) one-half of one percent
(0.50%). From and after the occurrence and during the continuation of an Event
of Default or maturity (whether by demand, acceleration or otherwise), the
unpaid principal balance of the Revolving Credit shall bear interest at a
fluctuating rate per annum equal to four percent (4%) above the rate of interest
otherwise payable with respect to the Revolving Credit. Interest shall be
payable monthly in arrears on the first day of the next succeeding month
commencing September 1, 1998. The effective rate of interest shall change on
each date on which the Prime Rate shall change.
(e) Requests for Advances. Each Revolving Credit Advance shall be made on
---------------------
the day on which the Bank receives notice from the Borrower or, if such day is
not a Banking Day, on the next succeeding Banking Day, provided the Bank
receives notice from the Borrower prior to 11:00 a.m. Boston time on such
Banking Day. Each request for a Revolving Credit Advance shall be made to the
Bank in writing (including by facsimile) or by telephone by a duly authorized
representative of the Borrower, and the Bank may rely upon any telephone request
which it reasonably believes is made by such
3
<PAGE>
a representative. The Borrower agrees to indemnify and hold the Bank harmless
for any action, including the making of Revolving Credit Advances hereunder, or
loss or expense, taken or incurred by the Bank in good faith reliance upon such
telephone request. At the time of the initial request for a Revolving Credit
Advance made under this Section 2.02(e), the Borrower shall have provided the
Bank with a Compliance Certificate in the form required by Section 5.09 hereof.
The Borrower hereby agrees (i) that the Bank shall be entitled to rely upon the
most recent Compliance Certificate in its possession until it is superseded by
another Compliance Certificate, and (ii) that each request for a Revolving
Credit Advance, whether by telephone or in writing or otherwise, shall
constitute a confirmation of the representations and warranties contained in the
most recent Compliance Certificate then in the Bank's possession.
(f) Payment Upon Revolving Credit Maturity Date. The Revolving Credit
-------------------------------------------
shall expire on the Revolving Credit Maturity Date and all Revolving Credit
Advances then outstanding shall be due and payable on the Revolving Credit
Maturity Date together with all accrued and unpaid interest thereon and any
other amounts then due.
Section 2.03. The Equipment Lines of Credit.
------------ -----------------------------
(a) Equipment Line of Credit A. Subject to the terms and conditions hereof
--------------------------
and provided that no Default or Event of Default has occurred and is continuing,
the Borrower may, from time to time from the date hereof up to June 30, 1999
(the "Equipment Line of Credit A Conversion Date") borrow from the Bank, and the
Bank shall advance funds to the Borrower as requested pursuant to Section
2.03(f) (each, an "Equipment Line of Credit A Advance" and collectively, the
"Equipment Line of Credit A Advances"); provided, however, that the aggregate of
all outstanding Equipment Line of Credit A Advances shall at no time exceed
$1,000,000 (the "Maximum Equipment Line of Credit A Amount"). The Borrower may
not reborrow Equipment Line of Credit A Advances once repaid and to the extent
that some portion of the Equipment Line of Credit A is not borrowed prior to the
Equipment Line of Credit A Conversion Date, the Borrower shall have no further
right to borrow Equipment Line of Credit A Advances under this Section 2.03(a).
Each Equipment Line of Credit A Advance shall be an amount up to 80% of the
Borrower's net invoice cost (purchase price less taxes, trade-ins, discounts
freight charges, insurance, software, installation or similar items) of
"Qualified Equipment" (as defined in Section 2.03(f)), to be purchased with
proceeds of such Equipment Line of Credit A Advance.
(b) Equipment Line of Credit B. Subject to the terms and conditions hereof
--------------------------
and provided that no Default or Event of Default has occurred and is continuing,
the Borrower may, from time to time from the date hereof up to June 1, 2000 (the
"Equipment Line of Credit B Conversion Date") borrow from the Bank, and the Bank
shall advance funds to the Borrower as requested pursuant to Section 2.03(f)
(each, an "Equipment Line of Credit B Advance" and collectively, the "Equipment
Line of Credit B Advances"); provided, however, that the aggregate of all
outstanding Equipment Line of Credit B Advances shall at no time exceed
$1,500,000 (the "Maximum Equipment Line of Credit B Amount"). The Borrower may
not reborrow Equipment Line of Credit
4
<PAGE>
B Advances once repaid and to the extent that some portion of the Equipment Line
of Credit B is not borrowed prior to the Equipment Line of Credit B Conversion
Date, the Borrower shall have no further right to borrow Equipment Line of
Credit B Advances under this Section 2.03(b). Each Equipment Line of Credit B
Advance shall be an amount up to 80% of the Borrower's net invoice cost
(purchase price less taxes, trade-ins, discounts freight charges, insurance,
software, installation or similar items) of "Qualified Equipment" (as defined in
Section 2.03(f)), to be purchased with proceeds of such Equipment Line of Credit
B Advance.
(c) The Equipment Lines of Credit Notes and Payments. All amounts owed by
------------------------------------------------
the Borrower with respect to the Equipment Line of Credit A Advances shall be
evidenced by a converting equipment line of credit note in the original
principal amount of $1,000,000 in the form attached hereto as Exhibit 2.03(a)
---------------
(the "Equipment Line of Credit A Note"). All amounts owed by the Borrower with
respect to the Equipment Line of Credit B Advances shall be evidenced by a
converting equipment line of credit note in the original principal amount of
$1,500,000 in the form attached hereto as Exhibit 2.03(b) (the "Equipment Line
---------------
of Credit B Note"). If at any time the aggregate outstanding amount of Equipment
Line of Credit A Advances exceeds the Maximum Equipment Line of Credit A Amount,
then the Borrower shall immediately pay such excess to the Bank, and the Bank
may, without prior notice to the Borrower, charge any of Borrower's accounts
with the Bank in order to effect such payment. If at any time the aggregate
outstanding amount of Equipment Line of Credit B Advances exceeds the Maximum
Equipment Line of Credit B Amount, then the Borrower shall immediately pay such
excess to the Bank, and the Bank may, without prior notice to the Borrower,
charge any of Borrower's accounts with the Bank in order to effect such payment.
(d) Conversion of Equipment Lines of Credit.
---------------------------------------
(i) On the Equipment Line of Credit A Conversion Date, the aggregate
outstanding Equipment Line of Credit A Advances as of such date shall
automatically be converted to a term loan (the "Equipment Line of Credit A
Term Loan") in the principal amount of the outstanding Equipment Line of
Credit A Advances as of the Equipment Line of Credit A Conversion Date. The
Equipment Line of Credit A Term Loan shall continue to be evidenced by the
Equipment Line of Credit A Note, and, unless the Bank shall otherwise
request, no further promissory note shall be required to evidence the
Equipment Line of Credit A Term Loan. The conversion of Equipment Line of
Credit A Advances into the Equipment Line of Credit A Term Loan shall not
constitute a prepayment of such Equipment Line of Credit A Advances. Unless
sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article
VI hereof, the Borrower shall repay the principal of Equipment Line of
Credit A Term Loan in thirty-five (35) equal monthly installments of an
amount equal to 2.778% of the original principal amount of Equipment Line
of Credit Term Note A, payable on the first day of each month commencing on
July 1, 1999, with a final installment in the amount of the entire unpaid
balance of Equipment Line of Credit Term Note A (including principal, all
accrued but unpaid interest and any other amounts then due) due and payable
on June 1, 2002.
5
<PAGE>
(ii) On the Equipment Line of Credit B Conversion Date, the aggregate
outstanding Equipment Line of Credit B Advances as of such date shall
automatically be converted to a term loan (the "Equipment Line of Credit B
Term Loan") in the principal amount of the outstanding Equipment Line of
Credit B Advances as of the Equipment Line of Credit B Conversion Date. The
Equipment Line of Credit B Term Loan shall continue to be evidenced by the
Equipment Line of Credit B Note, and, unless the Bank shall otherwise
request, no further promissory note shall be required to evidence the
Equipment Line of Credit B Term Loan. The conversion of Equipment Line of
Credit B Advances into the Equipment Line of Credit B Term Loan shall not
constitute a prepayment of such Equipment Line of Credit B Advances. Unless
sooner prepaid pursuant to Section 2.09 or accelerated pursuant to Article
VI hereof, the Borrower shall repay the principal of Equipment Line of
Credit B Term Loan in thirty-five (35) equal monthly installments of an
amount equal to 2.778% of the original principal amount of Equipment Line
of Credit Term Note B, payable on the first day of each month commencing on
July 1, 2000, with a final installment in the amount of the entire unpaid
balance of Equipment Line of Credit Term Note B (including principal, all
accrued but unpaid interest and any other amounts then due) due and payable
on June 1, 2003.
(e) Interest. All Equipment Line of Credit A Advances and Equipment Line
--------
of Credit B Advances (collectively, "Equipment Line of Credit Advances) made by
the Bank, and the unpaid principal balance of the Equipment Line of Credit A
Term Loan and of the Equipment Line of Credit B Term Loan (including, without
duplication, all amounts from time to time outstanding under the Equipment Line
of Credit A Note and under the Equipment Line of Credit B Note (collectively,
the "Equipment Line of Credit Notes")) shall bear interest prior to the
occurrence of an Event of Default or maturity (computed on the basis of actual
number of days elapsed over a 360-day year) on the unpaid principal balance
outstanding from time to time (without duplication) at a fluctuating rate per
annum equal to the aggregate of (i) the Prime Rate, plus (ii) one and one-half
percent (1.5%). From and after the occurrence and during the continuation of an
Event of Default or maturity (whether by demand, acceleration or otherwise), the
unpaid principal balance of the Equipment Line of Credit Advances and the unpaid
principal balance of the Equipment Line of Credit Term Loans(including, without
duplication, amounts outstanding under Equipment Line of Credit Notes) shall
bear interest at a fluctuating rate per annum equal to four percent (4%) above
the rate of interest otherwise payable with respect to the Equipment Line of
Credit Advances and Equipment Line of Credit Term Loans. Interest shall be
payable monthly in arrears on the first day of the next succeeding month
commencing September 1, 1998. The effective rate of interest shall change on
each date on which the Prime Rate shall change.
(f) Requests for Advances. Subject to the conditions of Section 2.03(a),
---------------------
each Equipment Line of Credit Advance shall be made on a Banking Day on notice
given by the Borrower to the Bank prior to 11:00 a.m. Boston time on the date
three (3) days prior to the date of the proposed borrowing. Each request for an
Equipment Line of Credit Advance shall be made to the Bank in writing (including
by facsimile) or by telephone by a duly authorized representative of the
Borrower, and the Bank may rely upon any
6
<PAGE>
telephone request which it reasonably believes is made by such a
representative, and shall specify (i) the requested date of such Equipment
Line of Credit Advance, and (ii) the amount of such Equipment Line of
Credit Advance (which must be a minimum of $100,000). The Borrower agrees
to indemnify and hold the Bank harmless for any action, including the
making of Equipment Line of Credit Advances hereunder, or loss or expense,
taken or incurred by the Bank in good faith reliance upon such telephone
request. At the time of the initial request for a Equipment Line of Credit
Advance made under this Section 2.03(f), the Borrower shall have provided
the Bank with a Compliance Certificate in the form required by Section
5.09(c) hereof. The Borrower hereby agrees (i) that the Bank shall be
entitled to rely upon the most recent Compliance Certificate in its
possession until it is superseded by another Compliance Certificate, and
(ii) that each request for a Equipment Line of Credit Advance, whether by
telephone or in writing or otherwise, shall constitute a confirmation of
the representations and warranties contained in the most recent Compliance
Certificate then in the Bank's possession. Notwithstanding the foregoing,
each Equipment Line of Credit Advance shall be subject to the prior
satisfactory review by the Bank, in its sole discretion, of the equipment
to be purchased by such Equipment Line of Credit Advance. Each notice of
Equipment Line of Credit Advance shall be accompanied by all invoices for
the purchase of such equipment (which invoices shall be dated not more than
ninety (90) days prior to the date of delivery of such invoices to the
Bank) and a certificate signed by the Borrower in the form of Exhibit
-------
2.03(f) attached hereto, certifying that (a) the equipment has been
-------
delivered to the Borrower, (b) the Borrower has paid, or will pay with the
requested Equipment Line of Credit Advance, the full purchase price, and
(c) the equipment meets the definition of "Qualified Equipment."
"Qualified Equipment" means equipment utilized in the conduct of the
Borrower's business which is: (i) in good working order and condition;
(ii) located at place of business of the Borrower which has been identified
to the Bank; (iii) subject to first priority security interest in favor of
the Bank; (iv) upon payment in full thereof, owned by the Borrower free and
clear of any lien, security interest, claim or other encumbrance except
those in favor of the Bank; and (v) has not otherwise been designated by
the Bank in its discretion as unacceptable for any reason.
4. Section 2.04(a) of the Credit Agreement is hereby amended by changing
all references in Section 2.04(a) to the date "June 30, 1999" to "June 1, 2000".
5. Section 2.06 of the Credit Agreement is hereby amended by deleting
said Section in its entirety and substituting therefore the following new
Section 2.06:
7
<PAGE>
Section 2.06. Method of Payment.
------------ -----------------
All payments and prepayments of principal and interest due under the
Notes and of fees due hereunder shall be made by the Borrower to the Bank
in lawful money of the United States in immediately available funds.
Payments received by the Bank after 11:00 a.m. Boston time shall be deemed
received on the next succeeding Banking Day. All payments of principal,
interest or fees to be made to the Bank may be effected by the Bank
debiting accounts of the Borrower with the Bank. If a Default or Event of
Default has occurred and is continuing, all payments and prepayments made
by the Borrower to the Bank hereunder shall apply first to all outstanding
fees and expenses of the Bank, second to pay all interest and fees due in
respect of the Notes and the L/C's, third to pay all principal due under
the SBLC Line of Credit Note, fourth to pay all principal due under the
SBLC Line of Credit Term Note, fifth to pay all principal due under the
Revolving Credit Note, sixth to pay all principal due under the Equipment
Line of Credit Notes, and seventh toward any reimbursement obligations of
the Borrower to the Bank in respect of L/C's.
6. Sections 2.08(b) of the Credit Agreement is hereby amended by
deleting said Section in its entirety and substituting therefore the following
new Section 2.08(b):
(b) The Revolving Credit Commitment Fee. The Borrower shall pay the
-----------------------------------
Bank a commitment fee with respect to the Revolving Credit quarterly in
advance on the first day of each fiscal quarter, commencing July 1, 1999 in
the amount of $6,250.
7. Section 2.09 of the Credit Agreement is hereby amended by deleting
said Section in its entirety and substituting therefore the following new
Section 2.09:
Section 2.09. Prepayment.
------------ ----------
The Notes may be prepaid in whole or in part at any time without
premium or penalty.
8. Sections 5.22 of the Credit Agreement is hereby amended by
deleting said Section 5.22 in its entirety and substituting therefore the
following new Section 5.22:
Section 5.22. Compensation of Certain Officers.
------------ --------------------------------
The aggregate Compensation paid by the Borrower to Kyle D. Parker
during any fiscal year shall not exceed $300,000.
8
<PAGE>
"Compensation" shall mean all sums paid by the Borrower to such
individual as salary, bonus, benefits, fees, draw, reimbursements,
dividends, deferred compensation or other renumeration.
9. Sections 5.27, 5.28, 5.29, 5.30, 5.31 and 5.32 of the Credit
Agreement are hereby amended by deleting said Sections in their entirety and
substituting therefore the following new Sections 5.27, 5.28, 5.29, 5.30, 5.31
and 5.32:
Section 5.27. Capital Expenditures.
------------ --------------------
The Borrower and its Subsidiaries shall not make or incur Capital
Expenditures in an aggregate amount in excess of $3,000,000 in fiscal year
1999, and $1,500,000 in any fiscal year thereafter.
"Capital Expenditures" shall mean expenditures which are properly
chargeable to capital account under generally accepted accounting
principals (including leases which are capitalized).
Section 5.28. Minimum Annual Revenue.
------------ ----------------------
The consolidated revenues of the Borrower and its Subsidiaries shall
not be less than the amounts set forth below as of the end of each fiscal
period set forth below:
<TABLE>
<CAPTION>
Fiscal Period Minimum Annual Revenue
------------- ----------------------
<S> <C>
January 1, 1999 to December 31, 1999 $ 8,500,000
January 1, 2000 to December 31, 2000 $25,000,000
January 1, 2001 to December 31, 2001 $50,000,000
</TABLE>
Section 5.29. Minimum Quick Ratio.
------------ -------------------
At the end of each fiscal quarter set forth below, the Ratio of (a)
consolidated Adjusted Current Assets to (b) consolidated Adjusted Current
Liabilities shall not be less than the Minimum Ratios set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Minimum Ratio
--------------------- -------------
<S> <C>
June 30, 1999 1.75:1.00
September 30, 1999 1.50:1.00
December 31, 1999 1.75:1.00
Each Fiscal Quarter Thereafter 1.75:1.00
</TABLE>
9
<PAGE>
"Adjusted Current Assets" shall mean, as of any date of determination,
the sum of (i) cash and cash equivalents, (ii) the Maximum Cumulative
Liability (as defined under the CRL Guaranty) plus the amount of the CRL
Subordinated Creditors' aggregate unfunded commitment obligations under
Section 2.02(c) of the CRL Purchase Agreement and (iii) Net Accounts
Receivable.
"Adjusted Current Liabilities" shall mean, as of any date of
determination, (i) current liabilities (as determined in accordance with
generally accepted accounting principles consistently applied) less (ii)
Deferred Revenue.
"Net Accounts Receivable" shall mean, as of any date of determination,
the consolidated accounts receivable of the Borrower less all applicable
reserves (in each case, as determined in accordance with generally accepted
accounting principles consistently applied).
"Deferred Revenue" shall mean all liabilities of the Borrower under
subscription contracts, which under generally accepted accounting
principles consistently applied are recorded as deferred revenues.
Section 5.30. Minimum Tangible Capital Base.
------------ -----------------------------
At the end of each fiscal quarter set forth below, the Tangible
Capital Base of the Borrower shall not be less than the amounts set forth
below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Minimum Tangible Capital Base
--------------------- -----------------------------
<S> <C>
June 30, 1999 $11,000,000
September 30, 1999 $ 8,000,000
December 31, 1999 $ 6,000,000
Each Fiscal Quarter Thereafter $ 4,000,000
</TABLE>
"Tangible Capital Base" shall mean, as of any date of determination,
the sum of (i) Stockholders' Equity (as determined in accordance with
generally accepted accounting principles consistently applied), (ii)
Subordinated Debt and (iii) the Maximum Cumulative Liability (as defined
under the CRL Guaranty) plus the amount of the CRL Subordinated Creditors'
aggregate unfunded commitment obligations under Section 2.02(c) of the CRL
Purchase Agreement less Net Intangible Assets, provided, however, that the
database assets, to the extent under generally accepted accounting
principles they are included as net intangible assets, shall not be
included as Net Intangible Assets.
"Subordinated Debt" shall mean all debt of the Borrower and its
Subsidiaries owed to any entity other than the Bank which is expressly
subordinated and made junior to the payment and performance of the
obligations of the Borrower and its Subsidiaries to the Bank, on terms and
conditions satisfactory to the Bank.
10
<PAGE>
"Net Intangible Assets" shall mean the total book value of all assets
of the Borrower and its Subsidiaries which would be treated as intangible
assets under generally accepted accounting principles, including without
limitation, such items as goodwill, trademarks, trade names, service marks,
brand names, copyrights, patents and licenses, and right with respect to
the foregoing.
Section 5.31. Cash Flow Coverage and Leverage Ratios
------------ --------------------------------------
(a) Cash Flow Coverage Ratio. At the end of each fiscal quarter
------------------------
commencing with the fiscal quarter ending December 31, 2000, the ratio of
(a) consolidated EBITDA of the Borrower and its Subsidiaries for the period
of twelve (12) consecutive months ending at the end of such fiscal quarter,
to (b) consolidated Debt Service of the Borrower and its Subsidiaries as of
the end of such fiscal quarter, shall not be less than 1.00:1.00.
"Debt Service" shall mean, as of any date of determination, the sum of
(i) consolidated interest expense of the Borrower and its Subsidiaries for
the period of twelve (12) consecutive months ending on such date, plus (ii)
scheduled principal payments on long term debt (including, without
limitation, all indebtedness of the Borrower to the Bank) to be made during
the period of twelve (12) consecutive months following such date of
determination.
"EBITDA" shall mean, as of any date of determination, the sum of the
consolidated pre-tax earnings of Borrower and its Subsidiaries, plus to the
extent deducted in calculating pre-tax earnings, consolidated depreciation,
amortization and interest expense of the Borrower and its Subsidiaries for
the period of twelve (12) consecutive months ending on such date.
(b) Leverage Ratio. At the end of each fiscal quarter commencing with
--------------
the fiscal quarter ending December 31, 2000, the ratio of (a) the
outstanding principal amount of indebtedness for borrowed money (including
capital leases) of the Borrower and its Subsidiaries as of the end of each
fiscal quarter, to (b) consolidated EBITDA of the Borrower and its
Subsidiaries for the period of twelve (12) consecutive months ending at the
end of such fiscal quarter, shall not be greater than 3.00:1.00.
Section 5.32. Maximum Quarterly Net Losses.
------------ ----------------------------
The consolidated net loss of the Borrower and its Subsidiaries for
each fiscal quarter set forth below shall not exceed the maximum loss
amounts (designated in parentheses) set forth below:
<TABLE>
<CAPTION>
Fiscal Quarter Ending Maximum Loss Amount
--------------------- -------------------
<S> <C>
June 30, 1999 ($4,100,000)
September 30, 1999 ($4,600,000)
December 31, 1999 ($3,900,000)
Each Fiscal Quarter Thereafter ($3,000,000)
</TABLE>
11
<PAGE>
10. Section (a) of Article VI of the Credit Agreement is hereby amended by
deleting said Section (a) in its entirety and substituting therefore the
following new Section (a):
(a) non-payment of principal of any of the Notes when due or failure
to reimburse the Bank for any amounts drawn under any L/C when due;
11. The Borrower has indicated to the Bank that as of March 31, 1999, the
Borrower was not in compliance with the financial covenants set forth in
Sections 5.28 through 5.32 of the Credit Agreement (as in effect prior to the
amendments to said sections set forth in this Third Amendment). Based upon the
representations and warranties of the Borrower set forth herein, and subject to
the terms and conditions of this Third Amendment, the Bank hereby waives the
Events of Default resulting from the Borrower's failure to comply with the
financial covenants set forth in Sections 5.28 through 5.32 of the Credit
Agreement (as in effect prior to the amendments to said sections set forth in
this Third Amendment) as at March 31, 1999. The foregoing waiver shall apply
only to those specific Sections of the Credit Agreement referenced above (as in
effect prior to the amendments to said sections set forth in this Third
Amendment) and only as of March 31, 1999, and nothing herein shall be deemed to
constitute an amendment, modification or waiver of any other covenant set forth
in the Credit Agreement (including, without limitation, the Borrower's
obligations under Section 5.27 through 5.32 of the Credit Agreement (as amended
by this Third Amendment).
12. The Borrower hereby represents and warrants that attached hereto are
new Schedules 3.01, 3.08, 3.12 and 3.13 to the Credit Agreement, which Schedules
have been revised and updated and are true and accurate as of the date hereof
after giving effect to the transactions contemplated by this Third Amendment.
The Borrower further represents and warrants that after giving effect to this
Third Amendment, (a) all representations and warranties made by the Borrower in
the Credit Agreement and the Security Documents are true and correct as of the
date hereof (except for those representations which relate to a specific date
which are true and correct on such date), and (b) the Borrower has performed and
complied with all covenants and agreements required to be performed and complied
with by it under the Credit Agreement and the Security Documents.
13. Except as amended by this Third Amendment, all provisions of the
Credit Agreement, the Security Documents and all other documents referred to
therein shall remain in full force and effect after giving effect to this Third
Amendment.
14. The Obligations (as defined in the Security Documents executed and
delivered by the Borrower and the Guarantor) of Borrower and the Guarantor to
the Bank secured by its respective Security Documents shall be deemed to include
any and all additional obligations of the respective parties created by the
terms of this Third Amendment. The Borrower hereby grants in favor of the Bank,
and confirms its prior grant in favor of the Bank, pursuant to the Security
Documents, of security interests in substantially all of the Borrower's property
and assets as security for the prompt payment and performance of all of the
Obligations, including, without limitation, all obligations of the Borrower
under this Third Amendment.
12
<PAGE>
15. Except as otherwise expressly set forth in paragraph 8 of this Third
Amendment, the execution of this Third Amendment does not constitute a waiver by
the Bank of, and does not in any way relieve the Borrower from any liability
caused by, any breaches or defaults by the Borrower prior to the date hereof of
any representations, warranties and covenants (including any financial
covenants) contained in, the Credit Agreement, and the Bank expressly reserves
any and all rights and remedies it may have in connection therewith or with
respect thereto.
16. The amendments and waiver set forth in this Third Amendment shall not
be effective, and the Bank shall not be obligated to make any additional loans
or advances or to issue any additional L/C's under the Credit Agreement, or
otherwise amend, modify or alter the Credit Agreement unless and until all of
the following conditions shall have been fulfilled or waived by the Bank:
(a) Execution of Notes. The Borrower shall have executed and
------------------
delivered to the Bank the new Revolving Credit Note, Equipment Line of
Credit A Note, and the Equipment Line of Credit B Note, in each case in the
form attached to this Third Amendment.
(b) Equity Financing. The Borrower shall have received net cash
----------------
proceeds of approximately $10,000,000 from the issuance and sale by the
Borrower of additional equity securities to Capital Resource Lenders III,
L.P., Sandler Capital Partners IV, L.P., Sandler Capital Partners IV, FTE,
L.P., Mark Beyland and Exeter Capital Partners IV, L.P., on terms and
conditions reasonably satisfactory to the Bank.
(c) Officer's Certificate for Borrower. The Borrower shall have
----------------------------------
delivered to the Bank a certificate with attached corporate resolutions
authorizing the transactions contemplated by this Third Amendment.
(d) Legal Opinion of Borrower's Counsel. The Bank shall have received
-----------------------------------
the written opinion of counsel for the Borrower, in form and substance
satisfactory to the Bank and its special counsel, with respect to the
transactions contemplated by this Third Amendment.
(e) Acknowledgment by Guarantor. Capital Resource Lenders III, L.P.,
---------------------------
the Guarantor under that certain Limited Guaranty dated as of August 20,
1998, shall have acknowledged in writing that the Limited Guaranty shall
remain in full force and effect after giving effect to this Third
Amendment.
(f) Acknowledgment of Purchasers under the Subordinated Note and
------------------------------------------------------------
Securities Purchase Agreement and under the Subordination and Intercreditor
---------------------------------------------------------------------------
Agreement. Capital Resources Lenders III, L.P., CRP Investment Partners
---------
III, L.L.C. and Rowland Moriarty, the Purchasers under that certain
Subordinated Note and Securities Purchase Agreement dated as of November
24, 1997, as amended (as so amended, the "Purchase Agreement") and under
that certain Subordination and Intercreditor Agreement dated as of August
20, 1998 (the "Subordination and Intercreditor Agreement"), shall have
acknowledged in writing that the Purchase Agreement and the Subordination
and Intercreditor Agreement shall remain in full force and effect after
giving effect to this
13
<PAGE>
Third Amendment, all references in the Purchase Agreement and the
Subordination and Intercreditor Agreement to the Credit Agreement shall be
deemed to refer to the Credit Agreement as amended by this Third Amendment,
and all references in the Purchase Agreement to the CRL III Guaranty shall
be deemed to refer to the Limited Guaranty referred to in paragraph 13(e)
of this Third Amendment, after giving effect to this Third Amendment.
(g) Bank Fees. The Borrower shall have paid to the Bank (i) a $15,000
---------
closing fee in consideration of the establishment by the Bank of the new
$1,500,000 Equipment Line of Credit B, and (ii) a $1,667 adjustment fee in
consideration of the $1,000,000 increase by the Bank in the amount of the
Revolving Credit.
17. The Borrower represents and warrants to the Bank that the Borrower has
full power and authority and has taken all required corporate and other action
necessary to permit it to execute and deliver and perform all of its obligations
contained in this Third Amendment, and to borrow under the Credit Agreement, and
none of such actions will violate any provision of law applicable to, or of the
charter or by-laws of, the Borrower, or result in the breach of or constitute a
default under any agreement or instrument to which the Borrower is a party or by
which it is bound. This Third Amendment has been duly authorized and validly
executed and is the valid and binding obligation of the Borrower enforceable in
accordance with its respective terms. Neither the execution or delivery by the
Borrower of this Third Amendment nor the performance by the Borrower of its
obligations under this Third Amendment, the Credit Agreement or the Security
Documents, requires the consent, approval or authorization of any person or
governmental authority.
18. Promptly upon receipt of an invoice therefor, the Borrower will pay
all legal fees of the Bank's counsel in connection with the preparation,
negotiation, execution and delivery of this Third Amendment.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under
seal as of the date first above written.
LAW OFFICE INFORMATION SYSTEMS, INC.
/s/ Kyle D. Parker
By:_________________________________
Name: Kyle D. Parker
Title: President
FLEET NATIONAL BANK
/s/ Scott D. Weetlock
By:_________________________________
Name: Scott D. Weetlock
Title: Vice President, High
Technology Division
15
<PAGE>
ACKNOWLEDGMENT OF GUARANTOR
---------------------------
The undersigned, Capital Resource Lenders III, L.P., the Guarantor under
that certain Limited Guaranty dated as of August 20, 1998, hereby acknowledges
that such Limited Guaranty remains in full force and effect after giving effect
to the foregoing Third Amendment and Waiver to Credit Agreement.
Dated: May __, 1999 CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.,
its general partner
By:________________________________________
Name:
Title:
16
<PAGE>
ACKNOWLEDGMENT OF PURCHASERS
----------------------------
The undersigned, Capital Resources Lenders III, L.P., CRP Investment
Partners III, L.L.C. and Rowland Moriarty, the Purchasers under that certain
Subordinated Note and Securities Purchase Agreement dated as of November 24,
1997, as amended (as so amended, the "Purchase Agreement"), and under that
certain Subordination and Intercreditor Agreement dated as of August 20, 1998
(the "Subordination and Intercreditor Agreement"), hereby acknowledge that the
Purchase Agreement and the Subordination and Intercreditor Agreement remain in
full force and effect after giving effect to the foregoing Third Amendment and
Waiver to Credit Agreement, all references in the Purchase Agreement and the
Subordination and Intercreditor Agreement to the Credit Agreement shall be
deemed to refer to the Credit Agreement as amended by the foregoing Third
Amendment and Waiver to Credit Agreement, and all references in the Purchase
Agreement to the CRL III Guaranty shall be deemed to refer to the Limited
Guaranty dated as of August 20, 1998 from Capital Resource Lenders III, L.P. in
favor of the Bank, after giving effect to the foregoing Third Amendment and
Waiver to Credit Agreement.
Dated: May __, 1999 CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.,
its general partner
By:_______________________________________
Name:
Title:
Dated: May __, 1999 CRP INVESTMENT PARTNERS III, L.L.C.
By:_______________________________________
Name:
Title:
Dated: May __, 1999 __________________________________________
Rowland Moriarty
17
<PAGE>
Exhibit 10.11
The following people will execute Indemnity Agreements in substantially the
same form as the Form of Indemnity Agreement filed herewith:
1. Kyle D. Parker;
2. Mark O. Beyland;
3. W. Clark Wigley;
4. Reves W. Dillon, Jr.;
5. Jay Scott Thompson;
6. Pamela G. Rogers;
7. Douglas W. Parker, Sr.;
8. Robert C. Ammerman;
9. D. Randy Laney; and
10. Hannah C. Stone.
<PAGE>
FORM OF INDEMNITY AGREEMENT
---------------------------
This Agreement made and entered into as of this _____ day of June, by and
between Loislaw.com, Inc., a Delaware corporation (the "Company"), and
__________________ ("Indemnitee"), who is currently serving the Company in the
capacity of a director and/or officer thereof;
W I T N E S S E T H:
WHEREAS, the Company and Indemnitee recognize that the interpretation of
ambiguous statutes, regulations and court opinions and of the Certificate of
Incorporation and Bylaws of the Company, and the vagaries of public policy, are
too uncertain to provide the directors and officers of the Company with adequate
or reliable advance knowledge or guidance with respect to the legal risks and
potential liabilities to which they become personally exposed as a result of
performing their duties in good faith for the Company; and
WHEREAS, the Company and the Indemnitee are aware that highly experienced
and capable persons are often reluctant to serve as directors or officers of a
corporation unless they are protected to the fullest extent permitted by law by
comprehensive insurance or indemnification, especially since the legal risks and
potential liabilities, and the very threat thereof, associated with lawsuits
filed against the officers and directors of a corporation, and the resultant
substantial time, expense, harassment, ridicule, abuse and anxiety spent and
endured in defending against such lawsuits, whether or not meritorious, bear no
reasonable or logical relationship to the amount of compensation received by the
directors or officers from the corporation; and
WHEREAS, Section 145 of the General Corporation Law of the State of
Delaware, which sets forth certain provisions relating to the mandatory and
permissive indemnification of, and advancement of expenses to, officers and
directors (among others) of a Delaware corporation by such corporation, is
specifically not exclusive of other rights to which those indemnified thereunder
may be entitled under any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, and, thus, does not by itself limit the
extent to which the Company may indemnify persons serving as its officers and
directors (among others); and
WHEREAS, after due consideration and investigation of the terms and
provisions of this Agreement and the various other options available to the
Company and the Indemnitee in lieu thereof, the board of directors of the
Company has determined that the following Agreement is not only reasonable and
prudent but necessary to promote and ensure the best interests of the Company
and its stockholders; and
WHEREAS, the Company desires to have Indemnitee serve or continue to serve
as an officer and/or director of the Company, free from undue concern for
unpredictable, inappropriate or unreasonable legal risks and personal
liabilities by reason of his acting in good faith in the performance of his duty
to the Company; and Indemnitee desires to serve, or to continue to serve
2
<PAGE>
(provided that he is furnished the indemnity provided for hereinafter), in
either or both of such capacities;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Indemnitee,
intending to be legally bound, do hereby agree as follows:
1. Agreement to Serve. Indemnitee agrees to serve or continue to serve
as director and/or officer of the Company, at the will of the Company or under
separate contract, if such exists, for so long as he is duly elected or
appointed and qualified in accordance with the provisions of the Bylaws of the
Company or until such time as he tenders his resignation in writing.
2. Definitions. As used in this Agreement:
(a) The term "Proceeding" shall mean any action, suit or proceeding,
whether civil, criminal, administrative, arbitrative or investigative, any
appeal in such an action, suit or proceeding, and any inquiry or
investigation that could lead to such an action, suit or proceeding, except
one initiated by Indemnitee to enforce his rights under this Agreement.
(b) The term "Expenses" includes, without limitation, all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees and all other
disbursements or expenses of the types customarily incurred in connection
with prosecuting, defending, preparing to prosecute or defend,
investigating, or being or preparing to be a witness in a Proceeding.
(c) References to "other enterprise" shall include employee benefit
plans; references to "fines" shall include any (i) excise taxes assessed
with respect to any employee benefit plan and (ii) penalties; references to
"serving at the request of the Company" shall include any service as a
director, officer, employee or agent of the Company which imposes duties
on, or involves services by, such director, officer, employee or agent with
respect to an employee benefit plan, its participants or beneficiaries; and
a person who acts in good faith and in a manner he reasonably believes to
be in the interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not opposed to the
best interests of the Company" as referred to in this Agreement.
3. Indemnity in Third Party Proceedings. The Company shall indemnify
Indemnitee in accordance with the provisions of this Section 3 if Indemnitee is
a party to or is threatened to be made a party to or otherwise involved in any
threatened, pending or completed Proceeding (other than a Proceeding by or in
the right of the Company to procure a judgment in its favor) by reason of the
fact that Indemnitee is or was a director and/or officer of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against all Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by Indemnitee in connection with
such
3
<PAGE>
Proceeding, provided it is determined pursuant to Section 7 of this Agreement or
by the court having jurisdiction in the matter, that Indemnitee acted in good
faith and in a manner that he reasonably believed to be in or not opposed to the
best interests of the Company, and, with respect to any criminal Proceeding, had
no reasonable cause to believe his conduct was unlawful. The termination of any
Proceeding by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner that he reasonably believed
to be in or not opposed to the best interests of the Company, and, with respect
to any criminal Proceeding, had reasonable cause to believe that his conduct was
unlawful.
4. Indemnity in Proceedings By or In the Right of the Company. The
Company shall indemnify Indemnitee in accordance with the provisions of this
Section 4 if Indemnitee is a party to or is threatened to be made a party to or
otherwise involved in any threatened, pending or completed Proceeding by or in
the right of the Company to procure a judgment in its favor by reason of the
fact that Indemnitee is or was a director and/or officer of the Company, or is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against all Expenses actually and reasonably incurred by Indemnitee
in connection with the defense, settlement or other disposition of such
Proceeding, but only if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Company, except that no indemnification shall be made under this Section 4 in
respect of any claim, issue or matter as to which Indemnitee shall have been
adjudged to be liable to the Company unless and only to the extent that the
Delaware Court of Chancery or the court in which such Proceeding was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such Expenses as the Delaware Court of
Chancery or such other court shall deem proper.
5. Indemnification for Expenses of Successful Party. Notwithstanding any
other provision of this Agreement to the contrary, to the extent that Indemnitee
has been successful on the merits or otherwise in defense of any Proceeding
referred to in Sections 3 and/or 4 of this Agreement, or in defense of any
claim, issue or matter therein, including dismissal without prejudice,
Indemnitee shall be indemnified against all Expenses actually and reasonably
incurred by Indemnitee in connection therewith.
6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to
Sections 3 and/or 4 of this Agreement in connection with any Proceeding shall,
at the written request of the Indemnitee, be paid by the Company in advance of
the final disposition of such Proceeding upon receipt by the Company of an
undertaking by or on behalf of Indemnitee ("Indemnitee's Undertaking") to repay
such amount to the extent that it is ultimately determined that Indemnitee is
not entitled to be indemnified by the Company. The request for advancement of
Expenses by Indemnitee and the undertaking to repay of Indemnitee, which need
not be secured, shall be substantially in the form of Exhibit A to this
---------
Agreement.
4
<PAGE>
7. Right of Indemnitee to Indemnification or Advancement of Expenses Upon
Application; Procedure Upon Application.
(a) If required by the terms of this Agreement, indemnification under
Sections 3 and/or 4 of this Agreement shall be made no later than 45 days
after receipt by the Company of the written request of Indemnitee. A
determination shall be made within said 45-day period by (i) a majority
vote of the directors of the Company who are not parties to the involved
Proceeding, even though less than a quorum, or (ii) independent legal
counsel in a written opinion (which counsel shall be appointed if there are
no such directors or if such directors so direct), as to whether the
Indemnitee has met the applicable standards for indemnification set forth
in Section 3 or 4, as the case may be.
(b) Any advancement of Expenses under Section 6 of this Agreement
shall be made no later than 10 days after receipt by the Company of
Indemnitee's Undertaking.
(c) In any action to establish or enforce the right of indemnification
or to receive advancement of Expenses as provided in this Agreement, the
burden of proving that indemnification or advancement of Expenses is not
appropriate shall be on the Company. Neither the failure of the Company
(including its board of directors or independent legal counsel) to have
made a determination prior to the commencement of such action that
indemnification or advancement of Expenses is proper in the circumstances
because Indemnitee has met the applicable standard of conduct, nor an
actual determination by the Company (including its board of directors or
independent legal counsel) that Indemnitee has not met such applicable
standard of conduct, shall be a defense to the action or create a
presumption that Indemnitee has not met the applicable standard of conduct.
The Company shall also indemnify Indemnitee against all Expenses incurred
by Indemnitee in connection with successfully establishing or enforcing his
right of indemnification or to receive advancement of Expenses, in whole or
in part, under this Agreement.
8. Indemnification and Advancement of Expenses Under this Agreement Not
Exclusive. The rights of indemnification and to receive advancement of Expenses
as provided by this Agreement shall not be deemed exclusive of any other rights
to which Indemnitee may be entitled under the Certificate of Incorporation or
Bylaws of the Company, any other agreement, any vote of stockholders or
disinterested directors, the General Corporation Law of the State of Delaware,
or otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office.
9. Partial Indemnification. If Indemnitee is entitled under any
provision of this Agreement to indemnification or to receive advancement by the
Company for a portion of the Expenses, judgments, fines or amounts paid in
settlement actually and reasonably incurred by Indemnitee in the investigation,
defense, appeal, settlement or other disposition of any Proceeding but not,
however, for the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion thereof to which Indemnitee is entitled.
5
<PAGE>
10. Rights Continued. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall continue as to
Indemnitee even though Indemnitee may have ceased to be a director or officer of
the Company and shall inure to the benefit of Indemnitee's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees and legatees.
11. No Construction as an Employment Agreement or Any Other Commitment.
Nothing contained in this Agreement shall be construed as giving Indemnitee any
right to be retained in the employ of the Company or any of its subsidiaries, if
Indemnitee currently serves as an officer of the Company, or to be renominated
as a director of the Company, if Indemnitee currently serves as a director of
the Company.
12. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies in accordance with its or
their terms, to the maximum extent of the coverage available for any director or
officer of the Company under such policy or policies.
13. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable under this
Agreement if, and to the extent that, Indemnitee has otherwise actually received
such payment under any contract, agreement or insurance policy, the Certificate
of Incorporation or Bylaws of the Company, or otherwise.
14. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all the rights of
recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including without
limitation the execution of such documents as may be necessary to enable the
Company effectively to bring suit to enforce such rights.
15. Exceptions. Notwithstanding any other provision in this Agreement,
the Company shall not be obligated pursuant to the terms of this Agreement, to
indemnify or advance Expenses to Indemnitee with respect to any Proceeding, or
any claim therein, (i) brought or made by Indemnitee against the Company, or
(ii) in which final judgment is rendered against Indemnitee for an accounting of
profits made from the purchase and sale or the sale and purchase by Indemnitee
of securities of the Company pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or similar provisions of any
federal, state or local statute.
16. Notices. Any notice or other communication required or permitted to
be given or made to the Company or Indemnitee pursuant to this Agreement shall
be given or made in writing by depositing the same in the United States mail,
with postage thereon prepaid, addressed to the person to whom such notice or
communication is directed at the address of such person on the records of the
Company, and such notice or communication shall be deemed given or made at the
time when the same shall be so deposited in the United States mail. Any such
notice or communication to the Company shall be addressed to the Secretary of
the Company.
6
<PAGE>
17. Contractual Rights. The right to be indemnified or to receive
advancement of Expenses under this Agreement (i) is a contract right based upon
good and valuable consideration, pursuant to which Indemnitee may sue, (ii) is
and is intended to be retroactive and shall be available as to events occurring
prior to the date of this Agreement and (iii) shall continue after any
rescission or restrictive modification of this Agreement as to events occurring
prior thereto.
18. Severability. If any provision or provisions of this Agreement shall
be held to be invalid, illegal or unenforceable for any reason whatsoever, the
validity, legality and enforceability of the remaining provisions shall not in
any way be affected or impaired thereby; and, to the fullest extent possible,
the provisions of this Agreement shall be construed so as to give effect to the
intent manifested by the provisions held invalid, illegal or unenforceable.
19. Successors; Binding Agreement. The Company shall require any
successor to all or substantially all of the business and/or assets of the
Company (whether direct or indirect, by purchase, merger, consolidation or
otherwise), by agreement in form and substance reasonably satisfactory to
Indemnitee, 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 if
no such succession had taken place. As used in this Agreement, "Company" shall
mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid that executes and delivers the agreement provided for
in this Section 19 or that otherwise becomes bound by the terms and provisions
of this Agreement by operation of law.
20. Counterparts, Modification, Headings, Gender.
(a) This Agreement may be executed in counterparts, each of which
shall constitute one and the same instrument, and either party hereto may
execute this Agreement by signing any such counterpart.
(b) No provisions of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is agreed to in
writing and signed by Indemnitee and an appropriate officer of the Company.
No waiver by any party at any time of any breach by any other party of, or
compliance with, any condition or provision of this Agreement to be
performed by any other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same time or at any prior or
subsequent time.
(c) Section headings are not to be considered part of this Agreement,
are solely for convenience of reference, and shall not affect the meaning
or interpretation of this Agreement or any provision set forth herein.
(d) Pronouns in masculine, feminine and neuter genders shall be
construed to include any other gender, and words in the singular form shall
be construed to include the plural and vice versa, unless the context
otherwise requires.
21. Assignability. This Agreement shall not be assignable by either party
without the consent of the other.
7
<PAGE>
22. Exclusive Jurisdiction; Governing Law. The Company and Indemnitee
agree that all disputes in any way relating to or arising under this Agreement,
including, without limitation, any action for advancement of Expenses or
indemnification, shall be litigated, if at all, exclusively in the Delaware
Court of Chancery, and, if necessary, the corresponding appellate courts. This
Agreement shall be governed by and construed and enforced in accordance with the
laws of the State of Delaware applicable to contracts made and to be performed
in such state without giving effect to the principles of conflicts of laws. The
Company and Indemnitee expressly submit themselves to the personal jurisdiction
of the State of Delaware.
23. Termination.
(a) This Agreement shall terminate upon the mutual agreement of the
parties that this Agreement shall terminate or upon the death of
Indemnitee or the resignation, retirement, removal or replacement of
Indemnitee from all of his positions as a director and/or officer of the
Company.
(b) The termination of this Agreement shall not terminate:
(i) the Company's liability for claims or actions against
Indemnitee arising out of or related to acts, omissions, occurrences,
facts or circumstances occurring or alleged to have occurred prior to
such termination; or
(ii) the applicability of the terms and conditions of this
Agreement to such claims or actions.
IN WITNESS WHEREOF, the Company and Indemnitee have executed this Agreement
as of the date and year first above written.
LOISLAW.COM, INC.
By:
-----------------------------------
Name:
-----------------------------
Title:
-----------------------------
INDEMNITEE
---------------------------------------
Name:
---------------------------------
8
<PAGE>
EXHIBIT 10.12
LEASE
This agreement, executed in duplicate, between PARKER LAW FIRM, of Van
Buren, Arkansas, hereinafter called PARKER, and LAW OFFICE INFORMATION SYSTEMS,
INC., an Arkansas Corporation, of Van Buren, Arkansas, hereinafter called LOIS,
witnesseth:
PARKER agrees to grant, and LOIS to take, a lease of those premises,
situated in Van Buren, in the county of Crawford, Arkansas, more particularly
described as follows:
Part of the Southeast Quarter of the Southeast Quarter of Section 19, Township 9
North, Range 31 West, Crawford County, Arkansas, being more particularly
described as follows:
COMMENCING at the Southeast corner of the Southeast Quarter of the Southeast
Quarter of said Section 19; thence North 00 degrees 09 minutes West, 220.0 feet,
to the POINT OF BEGINNING: Thence West 200.0 feet; Thence North 00 degrees 09
minutes West, 368.2 feet to a point 75 feet South of The South line of Valley
View Addition to the City of Van Buren; Thence South 89 degrees 56 minutes East
parallel to said South line, 200.0 feet; Thence South 00 degrees 09 minutes
East, 367.9 feet to the POINT OF BEGINNING, according to Survey by Hoffman-
Prieur & Associates, Inc. dated August 10, 1988.
The East half of Lots 7 and 8, Block 1, Valley View Addition to the City of Van
Buren, Arkansas. Also, all that part of the West half of Allan Avenue closed by
City Ordinance recorded in Miscellaneous Book 43 at page 71 lying between the
extended North line of Lot 8 and the extended South line of Lot 7, Block 1,
Valley View Addition to the City of Van Buren, Arkansas.
ALSO: All that part of the East half of Allan Avenue closed by City Ordinance
recorded in Miscellaneous Book 43 at Page 71 lying between the extended North
line of Lot 3 and the extended South line of Lot 4, Block 3, Valley View
Addition to the City of Van Buren, Arkansas.
ALSO: Lots 3 and 4, Block 3, of Valley View Addition to the City of Van Buren,
Arkansas, the same being part of the North half of the Southeast Quarter of the
Southeast Quarter of Section 19, Township 9 North, Range 31 West. Crawford
County, Arkansas.
ALSO: The East 60 feet of Lot 7 and all of Lots 8 and A, Block 2, Valley View
Addition to the City of Van Buren, Arkansas, the same being part of the
Southeast Quarter of the Southeast Quarter of Section 19, Township 9 North,
Range 31 West, according to plat filed for record August 18, 1948.
Lots Five (5), Six (6), and Seven (7), and Eight (8) of Holmes Addition to the
City of Van Buren, Arkansas, the same being part of the S/2 SE SE, 19-9-31, as
reflected by plat filed November 2, 1962, of said addition.
Said property being more specifically identified as 105 North 28th Street, 2701
Kibler Road, and the Northwest corner of Russel Road and North 28th Streets, Van
Buren, Arkansas 72956.
Subject to existing oil, gas and mineral lease, if any.
Subject to existing right of ways, easements, restrictions and previous
reservations, if any.
<PAGE>
For a term of five years, from the 5th day of May 1999, at a monthly rental
of $14,144.00. In addition to the monthly base rental, LOIS shall be responsible
for all taxes, insurance, maintenance, re-modelling and improvements to the
premises, together with any increase in interest rates charged by City National
Bank of Fort Smith, AR for the financing of the property for a term of five
years.
The said premises shall be used for the purpose of LOIS'S business
activities and all activities in relation thereto. And it is agreed that LOIS
will well and truly pay said rent on a monthly basis; that LOIS will keep the
premises in good repair, and at the end of the term hereof surrender the same in
good order, condition and repair as the same are not or may hereafter be put in,
subject to ordinary wear and tear.
This lease shall be renewable for two (2) additional successive periods of
five (5) years each for a total term of fifteen (15) years at the option of
LOIS.
Witness our hands on this 5th day of May, 1999.
LESSOR; PARKER LAW FIRM
/s/ Douglas W. Parker
---------------------
By Douglas W. Parker
Partner
LESSEE; LAW OFFICE INFORMATION SYSTEMS
/s/ Kyle D. Parker
------------------
By Kyle D. Parker
President
<PAGE>
Exhibit 10.18
===================================================================
SENIOR SUBORDINATED NOTE AND
SECURITIES PURCHASE AGREEMENT
between
LAW OFFICE INFORMATION SYSTEMS, INC.
and
CAPITAL RESOURCE LENDERS III, L.P.
Dated as of November 24, 1997
===================================================================
<PAGE>
LAW OFFICE INFORMATION SYSTEMS, INC.
Senior Subordinated Note and
Securities Purchase Agreement
Dated as of November 24, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
DEFINITIONS
1.01. Definitions.................................................................................. 1
1.02. Accounting Terms............................................................................. 8
ARTICLE II
PURCHASE, SALE AND TERMS OF NOTES; PAYMENTS
2.01. The Notes.................................................................................... 8
2.02. Purchase and Sale of Notes................................................................... 8
2.03. Issue Price; Original Issue Discount......................................................... 9
2.04. Use of Proceeds.............................................................................. 9
2.05. Payments and Endorsements.................................................................... 9
2.06. Redemptions.................................................................................. 10
(a) Required Periodic Redemptions................................................................ 10
(b) Required Liquidity Redemptions............................................................... 10
(c) Optional Redemptions......................................................................... 10
(d) Notice of Redemptions; Pro Rata Redemptions.................................................. 10
2.07. Default Rate of Interest..................................................................... 10
2.08. Maximum Legal Rate of Interest............................................................... 10
2.09. Payment on Non-Business Days................................................................. 11
2.10. Transfer and Exchange of Notes............................................................... 11
2.11. Replacement of Notes......................................................................... 11
2.12. Subordination................................................................................ 11
ARTICLE III
PURCHASE AND SALE OF EQUITY SECURITIES
3.01. The Equity Securities........................................................................ 11
3.02. Purchase and Sale of Preferred Shares and Warrants........................................... 12
3.03. Right to Purchase New Mezzanine Securities................................................... 12
3.04 Right to Purchase New Equity Securities...................................................... 12
3.05. Termination Upon Qualified IPO............................................................... 13
ARTICLE IV
</TABLE>
<PAGE>
<TABLE>
CONDITIONS TO PURCHASER'S OBLIGATION
<S> <C>
4.01. Representations and Warranties............................................................... 13
4.02A. Documentation at the Initial Closing......................................................... 14
4.02B. Documentation at Takedown Closings........................................................... 15
4.03. Board Matters................................................................................ 15
4.04. No Default................................................................................... 15
4.05. Key Person Life Insurance.................................................................... 16
4.06. Parker Family Debt........................................................................... 16
4.08. Payment of Certain Indebtedness.............................................................. 16
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
5.01. Representations and Warranties of the Purchaser.............................................. 16
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
6.01. Organization and Standing of the Company and Subsidiaries; Ownership......................... 17
6.02. Corporate Action............................................................................. 18
6.03. Governmental Approvals....................................................................... 18
6.04. Litigation................................................................................... 18
6.05. Compliance with Law.......................................................................... 18
6.06. Federal Reserve Regulations.................................................................. 19
6.07. Title to Assets, Patents..................................................................... 19
6.08. Financial Information........................................................................ 19
6.09. Taxes........................................................................................ 20
6.10. ERISA........................................................................................ 20
6.11. Transactions with Affiliates................................................................. 20
6.12. Assumptions or Guaranties of Indebtedness of Other Persons................................... 20
6.13. Investments in Other Persons................................................................. 20
6.14. Securities Act............................................................................... 20
6.15. Disclosure................................................................................... 21
6.16. No Brokers or Finders........................................................................ 21
6.17. Other Agreements of Officers................................................................. 21
6.18. Capitalization of the Company; Status of Capital Stock....................................... 21
6.19. Capital Stock of Subsidiaries................................................................ 22
6.20. Insurance.................................................................................... 22
6.21. Books and Records............................................................................ 22
6.22. Registration Rights.......................................................................... 22
6.23. Other Agreements............................................................................. 22
6.24. Hazardous and Toxic Materials................................................................ 24
6.25. Customers, Vendors and Suppliers............................................................. 24
6.26. No Violations................................................................................ 24
ARTICLE VII
COVENANTS OF THE COMPANY
7.01. Affirmative Covenants of the Company Other Than Reporting Requirements........................ 25
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(a) Punctual Payment............................................................................. 25
(b) Payment of Taxes and Trade Debt.............................................................. 25
(c) Maintenance of Insurance..................................................................... 25
(d) Preservation of Corporate Existence.......................................................... 25
(e) Compliance with Laws......................................................................... 25
(f) Inspection Rights............................................................................ 26
(g) Keeping of Records and Books of Account...................................................... 26
(h) Maintenance of Properties, Etc............................................................... 26
(i) Compliance with ERISA........................................................................ 26
(j) Attendance at Board Meetings................................................................. 26
(k) Payment of Senior Debt by the Purchaser...................................................... 26
(l) Board of Directors and Committees............................................................ 27
(m) Interest Coverage Ratio...................................................................... 27
(n) Fixed Charge Coverage Ratio.................................................................. 27
(o) Maximum Total Funded Debt to EBITDA Ratio.................................................... 27
(p) Minimum Tangible Capital Base................................................................ 28
(q) Database Expenditures........................................................................ 28
(r) Minimum EBITDA............................................................................... 28
7.02. Negative Covenants of the Company............................................................ 29
(a) Liens........................................................................................ 29
(b) Indebtedness................................................................................. 30
(c) Lease Obligations............................................................................ 30
(d) Assumptions or Guaranties of Indebtedness of Other Persons................................... 30
(e) Mergers, Sale of Assets, Etc................................................................. 30
(f) Investments in Other Persons................................................................. 30
(g) Distributions................................................................................ 31
(h) Dealings with Affiliates..................................................................... 32
(i) Maintenance of Ownership of Subsidiaries..................................................... 32
(j) Change in Nature of Business................................................................. 32
(k) No Amendment or Waiver of Charter Documents.................................................. 32
(l) Capital Expenditures......................................................................... 32
(m) Compensation................................................................................. 32
(n) Preferred Stock.............................................................................. 32
7.03. Reporting Requirements........................................................................ 32
ARTICLE VIII
EVENTS OF DEFAULT
8.01. Events of Default............................................................................. 34
8.02. Annulment of Defaults......................................................................... 36
ARTICLE IX
MISCELLANEOUS
9.01. No Waiver; Cumulative Remedies................................................................ 36
9.02. Amendments, Waivers and Consents.............................................................. 36
9.03. Addresses for Notices, Etc.................................................................... 37
9.04. Costs, Expenses and Taxes..................................................................... 38
9.05. Binding Effect; Assignment.................................................................... 38
9.06. Payments in Respect of Notes.................................................................. 39
</TABLE>
<PAGE>
<TABLE>
<S> <C>
9.07. Payments in Respect of the Preferred Shares and Warrants...................................... 39
9.08. Indemnification............................................................................... 39
9.09. Survival of Representations and Warranties.................................................... 39
9.10. Prior Agreements.............................................................................. 39
9.11. Severability.................................................................................. 39
9.12. Governing Law................................................................................. 39
9.13. Waiver of Right to Jury Trial................................................................. 40
9.14. Headings...................................................................................... 40
9.15. Sealed Instrument............................................................................. 40
9.16. Counterparts.................................................................................. 40
9.17. Further Assurances............................................................................ 40
9.18. Consent to Jurisdiction....................................................................... 40
9.19. Effect of Judgment............................................................................ 40
9.20. Service of Process............................................................................ 40
9.21. No Limitation................................................................................. 40
9.22. Specific Performance.......................................................................... 41
9.23. Actions by Purchaser.......................................................................... 41
9.24. Confidentiality............................................................................... 41
</TABLE>
<PAGE>
EXHIBITS
- --------
2.01 Form of Senior Subordinated Notes
2.04 Schedule of Use of Proceeds
2.12 Form of Subordination and Intercreditor Agreement
3.01A Rights, Designations and Preferences of Series A Preferred
Stock
3.01B Form of Common Stock Purchase Warrants
4.02A(e) Form of Stockholders' Agreement
4.02A(g) Form of Registration Rights Agreement
4.02A(i) Form of Non-Competition Agreement
4.02A(j) Form of Certificate to The Rockefeller Foundation
4.02A(k) Form of Preferred Stock Subordination Agreement
6.01 Schedule of Subsidiaries
6.04 Schedule of Litigation
6.07 Schedule of Title Exceptions
6.08A Financial Statements
6.08B Schedule of Indebtedness
6.11 Schedule of Affiliate Transactions
6.18 Schedule of Capital Stock, Options and Other Rights
6.23 Schedule of Other Agreements
<PAGE>
-7-
law office information systems, inc.
105 North 28th Street
Van Buren, Arkansas 72956
Dated as of November 24, 1997
Capital Resource Lenders III, L.P.
85 Merrimac Street
Suite 200
Boston, Massachusetts 02114
Re: Senior Subordinated Notes due 2004, Preferred Stock and
Common Stock Purchase Warrants
-------------------------------------------------------
Ladies and Gentlemen:
Law Office Information Systems, Inc., an Arkansas corporation, hereby
agrees with Capital Resource Lenders III, L.P., a Delaware limited partnership,
as follows:
ARTICLE I
DEFINITIONS
1.01. Definitions. As used herein, the following terms shall have the
-----------
following meanings (such meanings to be equally applicable to both the singular
and plural forms of the terms defined):
"Affiliate" means, as to any specified Person, any other Person
---------
controlling, controlled by or under common control with such specified Person.
"Agreement" means this Senior Subordinated Note and Securities Purchase
---------
Agreement as from time to time amended and in effect between the parties.
"Applicable Laws" shall have the meaning assigned to that term in Section
---------------
6.05.
"Audited Financial Statements" shall have the meaning assigned to that term
----------------------------
in Section 6.08.
"Board" shall have the meaning assigned to that term in Section 4.03.
-----
"Budget" shall have the meaning assigned to that term in Section 7.03(d).
------
"Business Day" means any day other than a Saturday, Sunday or public
------------
holiday or the equivalent for banks under the laws of The Commonwealth of
Massachusetts.
<PAGE>
-8-
"Business Partner" shall have the meaning assigned to that term in Section
----------------
6.25.
"Capital Expenditure" means, for any period, any payment made directly or
-------------------
indirectly for the purpose of acquiring or constructing fixed assets, real
property or equipment which in accordance with GAAP would be added as a debit to
the fixed asset account of the Person making such expenditure, including without
limitation, amounts paid or payable under any conditional sale or other title
retention agreement or under any lease or other periodic payment arrangement
which is of such a nature that payment obligations of the lessee or obligor
thereunder would be required by GAAP to be capitalized and shown as liabilities
on the balance sheet of such lessee or obligor.
"Capital Lease" means any lease of property (real, personal or mixed)
-------------
which, in accordance with GAAP, should be capitalized on the lessee's balance
sheet or for which the amount of the asset and liability thereunder as if so
capitalized should be disclosed in a note to such balance sheet.
"Change in Control" means any transaction or any event as a result of which
-----------------
(i) any one or more Persons (other than (a) the Purchaser and its Affiliates and
its direct or indirect assigns or (b) Kyle D. Parker, individually, or through
The Parker Trust dated March 15, 1989, together with members of his immediate
family or trusts for their benefit, provided Kyle D. Parker continues to have
all voting rights with respect to all shares of Common Stock beneficially owned
or held by such family members and such trusts) acquires or for the first time
controls or is able to vote (directly or through nominees or beneficial
ownership) after the Initial Closing Date (other than as the direct result of a
transfer by descent or distribution of a decedent's estate) fifty percent (50%)
or more of the outstanding Common Stock; or (ii) Kyle D. Parker is no longer
chief executive officer or president of the Company, unless his position as
chief executive officer and president is terminated by the Board without Cause
(as such term is defined in the Non-Competition Agreement) and the Purchaser's
representatives on the Board vote for such termination.
"Code" shall have the meaning assigned to that term in Section 2.03.
----
"Commission" means the United States Securities and Exchange Commission (or
----------
any other federal agency at that time administering the Securities Act).
"Common Stock" includes (a) the Company's common stock, par value $0.001
------------
per share, as authorized on the date of this Agreement, (b) any other capital
stock of any class or classes (however designated) of the Company, authorized on
or after the date hereof, the holders of which shall have the right, without
limitation as to amount per share, either to all or to a share of the balance of
current dividends and liquidating distributions after the payment of dividends
and distributions on any shares entitled to preference in the payment thereof,
and the holders of which shall ordinarily, in the absence of contingencies, be
entitled to vote for the election of a majority of directors of the Company
(even though the right so to vote may have been suspended by the happening of
such a contingency), and (c) any other securities into which or for which any of
the securities described in (a) or (b) above may be converted or exchanged
pursuant to a plan of recapitalization, reorganization, merger, sale of assets
or otherwise.
"Company" means and shall include Law Office Information Systems, Inc., an
-------
Arkansas corporation, and its successors and assigns.
"CRL III" means Capital Resource Lenders III, L.P., a Delaware limited
-------
partnership, and its successors and assigns.
<PAGE>
-9-
"Database Assets" means the book value of the Company's databases for
---------------
electronic legal libraries determined in accordance with GAAP.
"Database Expenditure" means, for any period, any payment made directly or
--------------------
indirectly for the purpose of acquiring or developing databases for electronic
legal libraries.
"Distribution" shall have the meaning assigned to that term in Section
------------
7.02(g).
"Dublind Warrants" shall have the meaning assigned to that term in Section
----------------
6.16.
"EBITDA" means, for any period, the Net Income (or Net Loss) of the Company
------
and its Subsidiaries on a consolidated basis for such period, plus each of the
following items, without duplication: (i) all interest on any Indebtedness paid
or accrued during such period and actually deducted on the books of the Company
and its Subsidiaries on a consolidated basis for the purposes of the computation
of such Net Income (or Net Loss) for the period involved, (ii) all federal,
state and foreign income taxes (but not ad valorem property taxes, sales taxes
-- -------
or taxes in the nature of an excise tax) paid or accrued by the Company and its
Subsidiaries on a consolidated basis with respect to such period and deducted on
the books of the Company and its Subsidiaries on a consolidated basis for the
purposes of the computation of such Net Income (or Net Loss) for the period
involved and (iii) the amount of the provision for depreciation and/or
amortization actually deducted on the books of the Company and its Subsidiaries
on a consolidated basis for the purposes of the computation of Net Income (or
Net Loss) for the period involved.
"EFT Financing" means a financing of the Company by an institutional lender
-------------
where such financing is secured solely by the accounts receivable of the Company
relating to electronic funds transfer arrangements between the Company and its
customers and/or subscribers.
"Equity Securities" shall have the meaning assigned to that term in Section
-----------------
3.04.
"ERISA" shall have the meaning assigned to that term in Section 6.10.
-----
"Events of Default" shall have the meaning assigned to that term in Section
-----------------
8.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
------------
any similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Financial Statements" shall have the meaning assigned to that term in
--------------------
Section 6.08.
"First Takedown Closing" shall have the meaning assigned to that term in
----------------------
Section 2.02(b).
"First Takedown Closing Date" shall have the meaning assigned to that term
---------------------------
in Section 202(b).
"First Takedown Notice" shall have the meaning assigned to that term in
---------------------
Section 2.02(b).
"First Takedown Principal" shall have the meaning assigned to that term in
------------------------
Section 2.02(b).
"Fixed Charges" means, for any period, the aggregate of (i) Total Funded
-------------
Debt, plus (ii) Interest Expense, plus (iii) Capital Expenditures, plus (iv)
---- ---- ----
state and federal income taxes for the period being tested
<PAGE>
-10-
determined in accordance with GAAP during such period.
"GAAP" means generally accepted accounting principles recognized as such by
----
the American Institute of Certified Public Accountants. Unless otherwise
specifically stated herein, use of the term "GAAP" means that such principles
are applied and maintained on a consistent basis for the Company and its
Subsidiaries throughout the period indicated and consistent with the prior
financial practices of the Company and its Subsidiaries as reflected on the
Financial Statements so as to properly reflect the financial condition, and the
results of operations and cash flows of the Company and its Subsidiaries.
"Hazardous Discharge" shall have the meaning assigned to that term in
-------------------
Section 6.24.
"Hazardous Substances" shall have the meaning assigned to that term in
--------------------
Section 6.24.
"Indebtedness" means all obligations, contingent and otherwise, which
------------
should, in accordance with GAAP, be classified upon the obligor's balance sheet
as liabilities, but in any event including, without limitation, liabilities
secured by any mortgage on property owned or acquired subject to such mortgage,
whether or not the liability secured thereby shall have been assumed, and also
including, without limitation, (i) all guaranties, endorsements and other
contingent obligations in respect of Indebtedness of others, whether or not the
same are or should be so reflected in said balance sheet, except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (ii) the present value of
any Capital Leases.
"Indebtedness for Money Borrowed" of a Person means at any time the sum at
-------------------------------
such time of (a) Indebtedness of such Person for borrowed money or for the
deferred purchase price of property or services, (b) any obligations of such
Person in respect of letters of credit, banker's or other acceptances or similar
obligations issued or created for the account of such Person, (c) obligations of
such Person with respect to Capital Leases, (d) all liabilities secured by any
Lien on any property owned by such Person, to the extent attached to such
Person's interest in such property, even though such Person has not assumed or
become personally liable for the payment thereof, (e) obligations of third
parties which are being guaranteed or indemnified against by such Person or
which are secured by the property of such Person, and (f) any obligation of such
Person under an employee stock ownership plan or other similar employee benefit
plan; but excluding trade and other accounts payable in the ordinary course of
business in accordance with customary trade terms and which are not overdue (as
determined in accordance with past practices) or which are being disputed in
good faith by such Person and for which adequate reserves are being provided on
the books of such Person in accordance with GAAP.
"Initial Closing" shall have the meaning assigned to that term in Section
---------------
2.02(a).
"Initial Closing Date" shall have the meaning assigned to that term in
--------------------
Section 2.02(a).
"Interest Expense" means the aggregate interest expense of the Company and
----------------
its Subsidiaries on a consolidated basis (including, without limitation,
interest expense attributable to Capital Leases) determined in accordance with
GAAP for the relevant period.
"Liquidity Disposition" means (i) any merger or consolidation with any
---------------------
Person, (ii) any sale, assignment, lease or other disposition of or voluntary
parting with the control of (whether in one transaction or in a series of
transactions) all or substantially all of the consolidated assets (whether now
owned or hereafter acquired) of the Company and its Subsidiaries and (iii) any
issuance of equity securities of the Company which, when aggregated with all
issuances of equity securities of the Company subsequent to the
<PAGE>
-11-
Initial Closing, exceeds fifty percent (50%) of the aggregate of all outstanding
equity securities of the Company immediately after the Initial Closing on a
fully diluted basis, except for (1) mergers, consolidations or asset transfers
with or between two or more Subsidiaries, (2) mergers or asset transfers by any
Subsidiary with or to the Company and (3) the merger of any Person into the
Company or other issuance of securities by the Company in connection with the
acquisition of a Person as long as the Company is the surviving entity, such
merger or acquisition does not result in the violation of any of the provisions
of this Agreement and no such violation exists at the time of such merger or
acquisition, and the consideration paid by the Company in connection with such
merger or acquisition has a fair market value of less than one million dollars
($1,000,000) at the date of the closing of such transaction.
"Liquidity IPO" means a firm commitment underwritten public offering of
-------------
shares of the Company's Common Stock in which (i) the aggregate proceeds to the
Company and/or any shareholders participating in the offering, if any, are at
least $20 million and (ii) the aggregate market valuation of the Company's
Common Stock is then not less than $40 million.
"Material Adverse Effect" shall have the meaning assigned to that term in
-----------------------
Section 6.01.
"Mezzanine Securities" shall have the meaning assigned to that term in
--------------------
Section 3.03.
"Net Income" (or "Net Loss") means the consolidated net income (or
---------------------------
consolidated net loss, expressed as a negative number) of the Company for any
period, after deductions for all taxes actually paid or accrued and all expenses
and other charges (not including (i) any extraordinary or non-recurring non-cash
expenses and other non-cash charges, or (ii) extraordinary or non-recurring cash
or non-cash gains), determined in accordance with GAAP consistently applied.
"Net Worth" shall mean the total of all assets appearing on the
---------
consolidated balance sheet of the Company, after deducting therefrom all
liabilities appearing on such balance sheet, determined in accordance with GAAP.
"Notes" shall have the meaning assigned to that term in Section 2.01.
-----
"Non-Competition Agreement" shall have the meaning assigned to that term in
-------------------------
Section 4.02A(i).
"Offer" shall have the meaning assigned to that term in Section 3.03.
-----
"Operative Documents" shall mean each of the Notes, the Warrants, the
-------------------
Stockholders' Agreement, the Registration Rights Agreement, the Non-Competition
Agreement and the Preferred Stock Subordination Agreement.
"Outstanding Common Stock" shall mean the aggregate of all outstanding
------------------------
Common Stock, including the Preferred Conversion Shares, the Warrant Shares and
all shares of Common Stock which could be acquired from the Company upon
exercise or conversion of any outstanding options or other securities then
exercisable or convertible into Common Stock.
"Permitted Liens" shall have the meaning assigned to that term in Section
---------------
7.02(a).
"Person" means and includes an individual, a corporation, a partnership, a
------
joint venture, a trust, an unincorporated organization, a limited liability
company or partnership, or a government or any agency or political subdivision
thereof.
<PAGE>
-12-
"Preferred Conversion Shares" shall have the meaning assigned to that term
---------------------------
in Section 3.01.
"Preferred Shares" shall have the meaning assigned to that term in Section
----------------
3.01.
"Preferred Stock" means the Preferred Stock, $0.001 par value per share, of
---------------
the Company as authorized on the date of this Agreement.
"Preferred Stock Subordination Agreement" shall have the meaning assigned
---------------------------------------
to that term in Section 4.02A(k).
"Proposal" shall have the meaning assigned to that term in Section 3.03.
--------
"Purchaser" means and shall include CRL III and any other holder or holders
---------
from time to time of any of the Securities.
"Qualified IPO" means a firm commitment underwritten public offering of
-------------
shares of the Company's Common Stock in which (i) the aggregate proceeds to the
Company and/or any shareholders participating in the offering, if any, are at
least $20 million and (ii) the aggregate market valuation of the Company's
Common Stock is then not less than $40 million.
"Qualifying Liquidity Event" means each of (i) a Change in Control, (ii) a
--------------------------
Liquidity Disposition and (iii) a Liquidity IPO.
"Registration Rights Agreement" shall have the meaning assigned to that
-----------------------------
term in Section 4.02A(g).
"Revised Proposal" shall have the meaning assigned to that term in Section
----------------
3.03.
"Second Takedown Closing" shall have the meaning assigned to that term in
-----------------------
Section 2.02(c).
"Second Takedown Closing Date" shall have the meaning assigned to that term
----------------------------
in Section 2.02(c).
"Second Takedown Notice" shall have the meaning assigned to that term in
----------------------
Section 2.02(c).
"Second Takedown Principal" shall have the meaning assigned to that term in
-------------------------
Section 2.02(c).
"Securities" means collectively the Notes, the Preferred Shares, the
----------
Preferred Conversion Shares, the Warrants and the Warrant Shares.
"Securities Act" means the Securities Act of 1933, as amended, or any
--------------
similar successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Senior Debt" means (i) all Indebtedness for Money Borrowed of the Company
-----------
and any of its Subsidiaries from banks or institutional lenders, including any
extensions or renewals thereof, whether outstanding on the date hereof or
hereafter created or incurred, which is not by its terms subordinate and junior
to the Notes and which is disclosed on the Financial Statements or is permitted
by this Agreement at the time it is created or incurred, (ii) all Indebtedness
for Money Borrowed of the Company and any of its Subsidiaries incurred to
refinance any of the Indebtedness for Money Borrowed referred to in item (i)
<PAGE>
-13-
above, where the security securing such Indebtedness is substantially the same
security as that securing the Indebtedness for Money Borrowed being refinanced,
(iii) all obligations of the Company and any of its Subsidiaries under Capital
Leases which are permitted by this Agreement at the time they are incurred and
(iv) all guarantees by the Company and any of its Subsidiaries which are not by
their terms subordinate and junior to the Notes and which are permitted hereby
at the time they are made of Indebtedness of any Subsidiary if such Indebtedness
would have been Senior Debt pursuant to the provisions of clause (i), (ii) or
(iii) of this sentence had it been Indebtedness of the Company.
"Series A Preferred Stock" means the Company's Preferred Stock designated
------------------------
as Series A Convertible Preferred Stock, $0.001 par value per share, as
authorized on the date of this Agreement.
"Series B Preferred Stock" means the Company's Preferred Stock designated
------------------------
as Series B Redeemable Preferred Stock, $0.001 par value per share, as
authorized on the date of this Agreement.
"Stockholders' Agreement" shall have the meaning assigned to that term in
-----------------------
Section 4.02A(e).
"Subordinated Debt" means all Indebtedness for Money Borrowed of the
-----------------
Company and any of its Subsidiaries from any Person, including any extensions or
renewals thereof, whether outstanding on the date hereof or hereafter created or
incurred, which is by its terms subordinate and junior to Senior Debt on terms
acceptable to the holders of Senior Debt and which is permitted by this
Agreement at the time it is created or incurred, including, without limitation,
the Notes.
"Subordination Agreement" shall have the meaning assigned to that term in
-----------------------
Section 2.12.
"Subsidiary" or "Subsidiaries" means (i) any corporation more than fifty
---------- ------------
percent (50%) of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned directly or indirectly by the
Company and/or any one or more of its Subsidiaries, and (ii) any partnership,
association, joint venture or other entity in which the Company and/or one or
more of its Subsidiaries has more than a fifty percent (50%) equity interest at
the time.
"Takedown Closing" shall have the meaning assigned to that term in Section
----------------
2.02(c).
"Tangible Capital Base" means (i) the Company's Net Worth less (ii) the
--------------------- ----
Company's intangible assets (which include, but are not limited to, the Database
Assets), determined in accordance with GAAP.
"Total Funded Debt" means all Indebtedness for Money Borrowed of the
-----------------
Company (other than in connection with Capital Leases) which bear interest,
including, without limitation, the Senior Debt and the Subordinated Debt;
provided, however, that the amount of Subordinated Debt to be included in the
- -------- -------
calculation of Total Funded Debt shall include the face amount of all
Subordinated Debt without any deduction for any original issue discount required
by GAAP.
"Unaudited Financial Statements" shall have the meaning assigned to that
------------------------------
term in Section 6.08.
"Warrant Shares" shall have the meaning assigned to that term in Section
--------------
3.01.
"Warrants" shall have the meaning assigned to that term in Section 3.01.
--------
<PAGE>
-14-
1.02. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with GAAP, and all financial data
submitted pursuant to this Agreement and all financial tests to be calculated in
accordance with this Agreement shall be prepared and calculated in accordance
with GAAP.
ARTICLE II
PURCHASE, SALE AND TERMS OF NOTES; PAYMENTS
2.01. The Notes. The Company has authorized the issuance and sale to
---------
the Purchaser of the Company's 12.5% Senior Subordinated Notes, due 2004, in the
original aggregate principal amount of $10,000,000. The 12.5% Senior
Subordinated Notes shall be substantially in the form set forth as Exhibit 2.01
------------
attached hereto and are herein referred to individually as a "Note" and
collectively as the "Notes", which terms shall also include any notes delivered
in exchange or replacement therefor. The Notes shall (a) be payable on
September 30, 2004 and (b) bear interest (based on a 360-day year counting
actual days elapsed) on the unpaid principal amount thereof until due and
payable at the rate of twelve and one-half percent (12.5%) per annum, which
interest shall be payable quarterly in arrears on the last Business Day of
March, June, September and December in each year, commencing December 31, 1997,
and at maturity or prior prepayment of the Notes in full.
2.02. Purchase and Sale of Notes. The Company agrees to issue and sell to
--------------------------
the Purchaser, and, subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Purchaser agrees to
purchase the Notes.
(a) At the initial closing (the "Initial Closing") to be held at
the offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High
Street, Boston, Massachusetts, at 10:00 a.m. local time on the date on which
this Agreement is executed and delivered (the "Initial Closing Date"), the
Company will issue and sell to the Purchaser a single Note, dated the Initial
Closing Date, in the principal amount of $4,000,000, the Preferred Shares and
the Warrants (as provided in Section 3.02), against receipt of funds by wire
transfer to an account or accounts designated by the Company prior to the
Initial Closing in the amount of $7,000,000, in payment of the purchase price
for the Note, the Preferred Shares and the Warrants.
(b) The purchase and sale of up to an additional $3,000,000
aggregate principal amount of Notes shall take place at a closing (the "First
Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP,
High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local
time on March 31, 1998 (the "First Takedown Closing Date"), upon written notice
(the "First Takedown Notice") given by the Company to the Purchaser at least
twenty (20) days prior to the First Takedown Closing Date. Such First Takedown
Notice shall specify the aggregate principal amount (the "First Takedown
Principal") of the Notes to be issued and sold at such First Takedown Closing,
which First Takedown Principal shall not exceed $3,000,000. At the First
Takedown Closing, the Company will issue and sell to the Purchaser a single
Note, dated the First Takedown Closing Date and in the principal amount equal to
the First Takedown Principal, against receipt of funds by wire transfer to an
account or accounts designated by the Company prior to such First Takedown
Closing in the amount of the First Takedown Principal, in payment of the
purchase price for such Note.
(c) The purchase and sale of up to an additional $3,000,000
aggregate principal amount of Notes shall take place at a closing (the "Second
Takedown Closing") to be held at the offices of
<PAGE>
-15-
Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts, at 10:00 a.m. local time on June 30, 1998 (the "Second Takedown
Closing Date"), upon written notice (the "Second Takedown Notice") given by the
Company to the Purchaser at least twenty (20) days prior to the Second Takedown
Closing Date. Such Second Takedown Notice shall specify the aggregate principal
amount (the "Second Takedown Principal") of the Notes to be issued and sold at
such Second Takedown Closing, which Second Takedown Principal shall not exceed
$3,000,000. At the Second Takedown Closing, the Company will issue and sell to
the Purchaser a single Note, dated the Second Takedown Closing Date and in the
principal amount equal to the Second Takedown Principal, against receipt of
funds by wire transfer to an account or accounts designated by the Company prior
to such Second Takedown Closing in the amount of the Second Takedown Principal,
in payment of the purchase price for such Note. The First Takedown Closing and
the Second Takedown Closing are sometimes herein referred to individually as a
"Takedown Closing" and collectively as the "Takedown Closings").
(d) Except as otherwise set forth herein, no amendment of this
Agreement shall be required for any Takedown Closing. Notwithstanding the
foregoing, the Purchaser's obligation to purchase any Notes from the Company at
the Initial Closing and any Takedown Closing shall be in each case subject to
the satisfaction of all of the conditions specified in Article IV of this
Agreement.
2.03. Issue Price; Original Issue Discount. Having considered all facts
------------------------------------
relevant to a determination of the value of the Notes, the Warrants and the
Preferred Shares being acquired by the Purchaser, including among other things
the leveraged nature of the Company's capitalization and the nature of its
business and prospects, the Company and the Purchaser have concluded and do
hereby agree that, within the meaning of Section 1273 of the Internal Revenue
Code of 1986, as amended (the "Code"), the issue price for the Note issued at
the Initial Closing is $3,425,000; and the issue price for the remaining portion
of the Notes shall equal the principal amount of the Note issued at each
Takedown Closing. The Company and the Purchaser recognize that this Agreement
creates original issue discount of $575,000 as the amount to be taken into
account by the Company and the Purchaser for federal income tax purposes on the
Note issued at the Initial Closing, and they agree to adhere to this Agreement
for such purposes and not to take any action inconsistent herewith.
2.04. Use of Proceeds. The Company agrees to use the full proceeds from the
---------------
sale of the Notes for the purposes set forth on Exhibit 2.04 attached hereto.
------------
2.05. Payments and Endorsements. Payments of principal, interest and
-------------------------
premium, if any, on the Notes shall be made without setoff or counterclaim
directly by check duly mailed or delivered to the Purchaser at its address
referred to in Section 9.03 hereof, without any presentment or notation of
payment, except that prior to any transfer of any Note, the holder thereof shall
endorse on such Note a record of the date to which interest has been paid and
all payments made on account of principal of such Note. All payments and
prepayments of principal of and interest on the Notes shall be applied (to the
extent thereof) to all of the Notes pro rata based on the principal amount
--- ----
outstanding and held by each holder thereof.
2.06. Redemptions.
-----------
(a) Required Periodic Redemptions. Beginning on and with the last
-----------------------------
Business Day of December 2000, on the last Business Day of March, June,
September and December of each year through and including the last Business Day
of September 2004, the Company will redeem, without penalty or premium,
principal amount of the Notes equal to 6.25% of the aggregate principal amount
of the Notes outstanding on the last Business Day of December 2000, together
with all accrued and unpaid interest then due on the amount so redeemed. (By
way of example and without limiting the foregoing, if $10,000,000 in
<PAGE>
-16-
aggregate principal amount of the Notes is outstanding as of the last Business
Day of December 2000, $625,000 in aggregate principal amount of Notes shall be
redeemed on such date and on the last Business Day of each subsequent quarter).
On the stated or accelerated maturity of the Notes, the Company will pay the
principal amount of the Notes then outstanding together with all accrued and
unpaid interest then due thereon. Except as set forth in subsection 2.06(c), no
optional redemption of less than all of the Notes shall affect the obligation of
the Company to make the redemptions required by this subsection.
(b) Required Liquidity Redemptions. In the event and upon the
------------------------------
closing of a Qualifying Liquidity Event, the Company shall redeem, without
premium, all of the outstanding Notes, together with all accrued and unpaid
interest then due thereon.
(c) Optional Redemptions. In addition to the redemptions of the
--------------------
Notes required under subsection 2.06(a) and (b), the Company may, at any time
and from time to time, redeem, without premium, the Notes, in whole or in part
(in integral multiples of $1,000), together with interest due on the amount so
redeemed through the date of redemption. Partial redemptions made as provided in
this subsection 2.06(c) shall, to the extent thereof, be applied first to reduce
the principal due at maturity of the Notes and next to reduce the payments
required by subsection 2.06(a) in inverse order of maturity thereof.
(d) Notice of Redemptions; Pro Rata Redemptions. Notice of any
-------------------------------------------
optional redemption pursuant to subsection 2.06(c) shall be given to all holders
of the Notes at least ten (10) Business Days prior to the date of such
redemption and notice of any required redemption pursuant to Section 2.06(b)
shall be given to all holders of the Notes at least ten (10) Business Days prior
to the closing of a Qualifying Liquidity Event. Each redemption of Notes
pursuant to subsections 2.06(a) or (c) shall be made so that the Notes then held
by each holder shall be redeemed in a principal amount which shall bear the same
ratio to the total unpaid principal amount being redeemed on all Notes as the
unpaid principal amount of Notes then held by such holder bears to the aggregate
unpaid principal amount of the Notes then outstanding.
2.07. Default Rate of Interest. If an Event of Default has occurred and is
------------------------
continuing, from and after the date such Event of Default occurred the entire
outstanding unpaid principal balance of the Notes and any unpaid interest from
time to time due thereon shall bear interest, payable on demand, at the rate of
fifteen and one-half percent (15.5%) per annum, or such lower rate as then may
be the maximum rate permitted by applicable law; provided, however, that upon
-------- -------
the cessation or cure of such Event of Default, if no other Event of Default is
then continuing, the Notes shall again bear interest at the rate of 12.5% per
annum as set forth in Section 2.01.
2.08. Maximum Legal Rate of Interest. Nothing in this Agreement or in the
------------------------------
Notes shall require the Company to pay interest at a rate in excess of the
maximum rate permitted by applicable law.
2.09. Payment on Non-Business Days. Whenever any payment to be made shall
----------------------------
be due on a day which is not a Business Day, such payment may be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest due.
2.10. Transfer and Exchange of Notes. The holder of any Note or Notes may,
------------------------------
prior to maturity or prepayment thereof, surrender such Note or Notes at the
principal office of the Company for transfer or exchange. Any holder desiring to
transfer or exchange any Note shall first notify the Company in writing at least
five (5) days in advance of such transfer or exchange. Within a reasonable time
after such notice to the Company from a holder of its intention to make such
exchange and without expense (other than transfer taxes, if any) to such holder,
the Company shall issue in exchange therefor another Note or Notes, in such
<PAGE>
-17-
denominations as requested by the holder, for the same aggregate principal
amount, as of the date of such issuance, as the unpaid principal amount of the
Note or Notes so surrendered and having the same maturity and rate of interest,
containing the same provisions and subject to the same terms and conditions as
the Note or Notes so surrendered. Each new Note shall be made payable to such
Person or Persons, or assigns, as the holder of such surrendered Note or Notes
may designate, and such transfer or exchange shall be made in such a manner that
no gain or loss of principal or interest shall result therefrom. Notwithstanding
anything to the contrary in this Section 2.10, the transfer or exchange of any
Note, other than to the registered holder of such Note, is subject to the prior
consent of the Company and such consent shall not be unreasonably withheld.
2.11. Replacement of Notes. Upon receipt of evidence satisfactory to the
--------------------
Company of the loss, theft, destruction or mutilation of any Note and, if
requested in the case of any such loss, theft or destruction, upon delivery of
an indemnity bond or other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender and cancellation
of such Note, the Company will issue a new Note, of like tenor and amount and
dated the date to which interest has been paid, in lieu of such lost, stolen,
destroyed or mutilated Note; provided, however, if any Note of which a
Purchaser, its nominee, or any of its partners is the holder is lost, stolen or
destroyed, the affidavit of an authorized partner or officer of the holder
setting forth the circumstances with respect to such loss, theft or destruction
shall be accepted as satisfactory evidence thereof, and no indemnification bond
or other security shall be required as a condition to the execution and delivery
by the Company of a new Note in replacement of such lost, stolen or destroyed
Note other than the holder's written agreement to indemnify the Company.
2.12. Subordination. In the event the Company consummates the EFT Financing
-------------
on terms reasonably satisfactory to the Purchaser, the Purchaser agrees to enter
into a Subordination and Intercreditor Agreement with the lender and the Company
in substantially the form attached hereto as Exhibit 2.12 (the "Subordination
------------
Agreement").
ARTICLE III
PURCHASE AND SALE OF EQUITY SECURITIES
3.01. The Equity Securities. The Company has authorized the issuance and
---------------------
sale to the Purchaser of (i) an aggregate of 931,044 shares (the "Preferred
Shares") of the Company's Series A Preferred Stock where the rights,
designations and preferences and other terms and conditions relating to the
Series A Preferred Stock shall be as set forth on Exhibit 3.01A attached hereto
-------------
and (ii) the Company's Common Stock Purchase Warrants for the purchase (subject
to adjustment as provided therein) of an aggregate of 972,293 shares of the
Company's Common Stock. The Common Stock Purchase Warrants shall be
substantially in the form set forth as Exhibit 3.01B attached hereto and are
-------------
herein referred to individually as a "Warrant" and collectively as the
"Warrants", which terms shall also include any warrants delivered in exchange or
replacement therefor. The Warrants shall be exercisable at a purchase price,
subject to adjustment, of $0.01 per Warrant Share. The shares of Common Stock
issuable upon conversion of the Preferred Shares are referred to herein as the
"Preferred Conversion Shares." The shares of Common Stock issuable upon
exercise of the Warrants are referred to herein as the "Warrant Shares."
3.02. Purchase and Sale of Preferred Shares and Warrants. The Company
--------------------------------------------------
agrees to issue and sell to the Purchaser and, subject to and in reliance upon
the representations, warranties, terms and conditions of this Agreement, the
Purchaser agrees to purchase the Preferred Shares and the Warrants. Such
purchase and sale shall take place at the Initial Closing and at the Initial
Closing the Company will
<PAGE>
-18-
issue to the Purchaser the Preferred Shares and the Warrants.
3.03. Right to Purchase New Mezzanine Securities. Prior to issuing any
------------------------------------------
Subordinated Debt, whether or not in combination with warrants or other equity
securities (such Subordinated Debt and/or warrants or other equity securities
herein referred to collectively as "Mezzanine Securities") of the Company or any
of its Subsidiaries to any Person, the Company will first offer, or cause such
Subsidiary to offer (the "Offer"), to the Purchaser an opportunity to submit a
proposal providing for the Purchaser or any Affiliate of the Purchaser to
purchase such Mezzanine Securities (the "Proposal"). The Proposal shall be made
by the Purchaser within thirty (30) days of their receipt of the Offer and shall
include the material terms upon which the Purchaser (or its Affiliate) will
purchase the Mezzanine Securities. The Purchaser and the Company may negotiate
the material terms of the Proposal, in which case the material revised terms of
the Proposal shall be set forth by the Purchaser in a revised proposal as soon
as reasonably practicable thereafter (the "Revised Proposal").
If the Company accepts the Proposal or a Revised Proposal, as applicable,
within fifteen (15) days of its receipt of the Proposal or a Revised Proposal,
as applicable, the Purchaser (or its Affiliate) shall be entitled to purchase
such Mezzanine Securities and the Company and the Purchaser shall each negotiate
in good faith to finalize the terms of the Mezzanine Securities and the
Purchaser's (or its Affiliate's) purchase thereof. The obligation to negotiate
in good faith shall not impose an obligation to remove or materially alter any
material term or provision in, or to add any material term or provision to,
those set forth in the Proposal or Revised Proposal, as applicable.
If the Company fails to accept (within the fifteen (15) day consideration
period) or rejects the Proposal or Revised Proposal, as applicable, neither the
Company nor any Subsidiary shall issue such Mezzanine Securities unless (i) the
material financial terms and conditions of such Mezzanine Securities to be
issued are materially more favorable in the aggregate to the Company or such
Subsidiary than those set forth in the Proposal or Revised Proposal, as
applicable, (ii) promptly upon its decision to reject the Proposal or the
Revised Proposal or upon the expiration of the fifteen (15) day consideration
period, as applicable, the Company has provided the Purchaser with a written
notice of rejection providing an explanation of its conclusion that the material
financial terms and conditions of such Mezzanine Securities are materially more
favorable than those set forth in the Proposal or the Revised Proposal and (iii)
such issuance of Mezzanine Securities occurs within six (6) months of the date
of the Proposal or the date of the Revised Proposal, whichever is later.
3.04 Right to Purchase New Equity Securities. Prior to issuing any
---------------------------------------
equity securities or any options or convertible securities exercisable for or
convertible into such equity securities (collectively, "Equity Securities") of
the Company or any Subsidiary to any Person, the Company will first give or
cause such Subsidiary to give to each of the holders of the Preferred Shares,
the Preferred Conversion Shares, the Warrants and the Warrant Shares the right
to purchase, on the same terms, the same proportion of the securities proposed
to be sold by the Company or such Subsidiary as the number of Preferred Shares,
Preferred Conversion Shares, Warrants and Warrant Shares owned by such holder
bears to the total number of shares of Outstanding Common Stock at that time.
Persons electing to purchase Equity Securities pursuant to this Section shall
also be entitled to purchase (pro rata according to their holdings of Preferred
Shares, Preferred Conversion Shares, Warrants and Warrant Shares) offered Equity
Securities that other holders decline to purchase. Any such right of purchase
shall be exercisable for a period of thirty (30) days after the holders receive
written notice of a proposed issuance of Equity Securities (and any such notice
by the Company or a Subsidiary shall be given not less than thirty (30) nor more
than ninety (90) days prior to any such issuance). The Company shall be
entitled to sell any Equity Securities not purchased by the holders of Preferred
Shares, Preferred Conversion Shares, Warrants and Warrant Shares
<PAGE>
-19-
pursuant to this Section 3.04 (i) during the period ending six (6) months after
the date of the Company's notice to such holders and (ii) at not less than the
same price and upon terms not materially less favorable to the Company than
those offered to the holders of Preferred Shares, Preferred Conversion Shares,
Warrants and Warrant Shares, but may not otherwise sell such Equity Securities
without renewed compliance with this Section 3.04. Notwithstanding anything to
the contrary contained in this Agreement, for purposes of this Agreement the
definition of "Equity Securities" shall not include: (a) up to 500,000 shares of
Common Stock (and/or options, warrants or other Common Stock purchase rights
issued pursuant to such options, warrants or other rights) issued or to be
issued to employees, officers or directors of, or consultants or advisors to the
Company or any Subsidiary, pursuant to stock option plans or other arrangements
that are approved by the Board; (b) stock issued pursuant to any rights or
agreements outstanding as of the date of this Agreement or pursuant to options,
warrants or convertible securities (including without limitation the Preferred
Shares, Warrants and the Dublind Warrants) outstanding as of the date of this
Agreement; (c) any equity securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination; or (d) shares of Common Stock issued in connection with any split,
stock dividend or recapitalization by the Company.
3.05. Termination Upon Qualified IPO. The Purchaser's right to purchase
------------------------------
new Mezzanine Securities set forth in Section 3.03 and the Purchaser's right to
purchase new Equity Securities set forth in Section 3.04, shall terminate
immediately prior to the closing of a Qualified IPO.
ARTICLE IV
CONDITIONS TO PURCHASER'S OBLIGATION'
The obligation of the Purchaser (i) to purchase and pay for the Notes, the
Preferred Shares and the Warrants at the Initial Closing and to purchase and pay
for the Notes at the Takedown Closings, if any, is subject to the following
conditions, all or any of which may be waived in writing by the Purchaser:
4.01. Representations and Warranties. At the Initial Closing and each
------------------------------
Takedown Closing, each of the representations and warranties of the Company set
forth in Article VI hereof shall be true and correct in all respects at the time
of, and immediately after giving effect to, the sale of the Notes, the Preferred
Shares and the Warrants.
4.02A. Documentation at the Initial Closing. The Purchaser shall have
------------------------------------
received prior to or at the Initial Closing all of the following, each in form
and substance satisfactory to the Purchaser and its special counsel:
(a) A certified copy of all charter documents of the Company and
each of its Subsidiaries; a certified copy of the resolutions of the board of
directors and, to the extent required, the stockholders of the Company
evidencing approval, as applicable, of this Agreement, the Operative Documents
and all other matters contemplated hereby and thereby; a certified copy of the
By-laws of the Company and each of its Subsidiaries; and certified copies of all
documents evidencing other necessary corporate or other action and governmental
approvals, if any, with respect to this Agreement, the Operative Documents and
all other matters contemplated hereby or thereby.
(b) A favorable opinion of Sullivan & Worcester LLP, counsel for
the Company, in form and substance reasonably satisfactory to the Purchaser and
its special counsel.
<PAGE>
-20-
(c) A certificate of the Secretary or an Assistant Secretary of the
Company which shall certify the names of the officers of the Company authorized
to sign this Agreement, the Operative Documents and any other documents or
certificates to be delivered pursuant hereto or thereto by the Company or any of
its officers, together with the true signatures of such officers. The Purchaser
may conclusively rely on such certificate until they shall receive a further
certificate of the Secretary or an Assistant Secretary of the Company cancelling
or amending the prior certificate and submitting the signatures of the officers
named in such further certificate.
(d) A certificate from a duly authorized officer of the Company
stating that the representations and warranties contained in Article VI hereof
and otherwise made by the Company in writing in connection with the transactions
contemplated hereby are true and correct and that no condition or event has
occurred or is continuing or will result from the execution and delivery of this
Agreement or the Operative Documents which constitutes an Event of Default or
would constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
(e) A Stockholders' Agreement (the "Stockholders' Agreement")
executed by the Company and its stockholders substantially in the form of
Exhibit 4.02A(e).
- ----------------
(f) Payment for the costs, expenses, taxes and filing fees
identified in Section 9.04 as to which the Purchaser gives the Company notice
prior to the Initial Closing.
(g) A Registration Rights Agreement (the "Registration Rights
Agreement") executed by the Company substantially in the form of Exhibit
-------
4.02A(g).
- --------
(h) A certificate from a duly authorized officer of the Company
stating that all the conditions set forth in this Article IV have been
satisfied, other than those, if any, waived by the Purchasers in writing.
(i) A Non-Competition Agreement (the "Non-Competition Agreement")
executed by the Company and Kyle D. Parker substantially in form of Exhibit
4.02A(i).
(j) A representation letter executed by the president and chief
executive officer of the Company and issued to The Rockefeller Foundation in the
form attached hereto as Exhibit 4.02A(j).
----------------
(k) A Preferred Stock Subordination Agreement (the "Preferred Stock
Subordination Agreement") executed by the Purchaser, all holders of the
Company's Series B Preferred Stock and the Company, substantially in the form of
Exhibit 4.02A(k).
- ----------------
(l) Such other documents referenced in any Exhibit hereto or
relating to the transactions contemplated by this Agreement as the Purchaser or
its special counsel may reasonably request.
4.02B. Documentation at Takedown Closings. The Purchaser shall have
----------------------------------
received prior to each Takedown Closing all of the following, each in form and
substance satisfactory to the Purchaser and its special counsel:
(a) A certificate from a duly authorized officer of the Company
stating on behalf of the Company that (i) the representations and warranties
contained in Article VI hereof and otherwise made by the Company in writing in
connection with the transactions contemplated hereby are true and correct in
<PAGE>
-21-
all material respects as of such Takedown Closing; (ii) no condition or event
has occurred or is continuing or will result from the execution and delivery of
this Agreement or the Operative Documents which constitutes an Event of Default
or would constitute an Event of Default but for the requirement that notice be
given or time elapse or both; (iii) all of the conditions set forth in this
Article IV have been satisfied, other than those, if any, waived by the
Purchaser in writing; (iv) there have been no changes in the names of the
officers of the Company authorized to sign this Agreement, the Operative
Documents and any other documents or certificates to be delivered pursuant
hereto or thereto; (v) there have been no amendments, restatements or other
changes to the charter documents or By-laws of the Company or any of its
Subsidiaries, except for any amendments, restatements or changes provided to the
Purchaser prior to such Takedown Closing; and (vi) the approval of the board of
directors and, to the extent required, the stockholders of the Company, of this
Agreement, the Operative Documents and all other matters contemplated hereby and
thereby remains in full force and effect.
(b) Certified copies of all amendments, restatements or other
changes to the charter documents or By-laws of the Company or any of its
Subsidiaries.
(c) All documents evidencing necessary corporate or other action
and governmental approvals, if any, with respect to this Agreement, the
Operative Documents and all other matters contemplated hereby or thereby with
respect to such Takedown Closing.
(d) Payment for the costs, expenses, taxes and filing fees
identified in Section 9.04 as to which the Purchaser gives the Company notice
prior to the Takedown Closing.
4.03. Board Matters. In accordance with the Stockholders' Agreement,
-------------
the number of persons constituting the Board of Directors of the Company (the
"Board") shall be fixed at no more than seven (7), with the Purchasers having
the right to appoint three (3) representatives to the Board and Kyle D. Parker
having the right to appoint four (4) representatives to the Board. As of the
Initial Closing Date, the Board shall consist of five (5) members who shall
initially be Kyle D. Parker, Douglas W. Parker, Jack W. Holt, Jr., Robert C.
Ammerman and Christian P. Michalik.
4.04. No Default. At the time of and immediately following the Initial
----------
Closing and each Takedown Closing, there shall exist no Event of Default and no
condition, event or act that, with the giving of notice or lapse of time, or
both, would constitute such an Event of Default.
4.05. Key Person Life Insurance. Within ninety (90) days of the Initial
-------------------------
Closing Date, the Company shall obtain with a financially sound and reputable
insurance company term life insurance on the life of Kyle D. Parker in the face
amount of at least $3.0 million, the proceeds of which shall be payable to the
order of the Company.
4.06. Parker Family Debt. The indebtedness of the Company to Melissa Ann
------------------
Parker in the aggregate amount of $4,395,891.01 shall have been, or
simultaneously with the Initial Closing shall be, exchanged for 439,589 shares
of Series B Preferred Stock.
4.07 Payment of Certain Indebtedness. The indebtedness of the Company (i)
-------------------------------
to Deposit Guaranty National Bank in the aggregate amount of $1,869,210.30, (ii)
to Johnnie Hernreich and Larry Murray in the aggregate amount of $307,429.75 and
(iii) to the Arkansas Science and Technology Authority in the aggregate amount
of $62,660.20, shall have been, or simultaneously with the Initial Closing shall
be, paid in full by the Company.
<PAGE>
-22-
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
5.01. Representations and Warranties of the Purchaser. The Purchaser
-----------------------------------------------
hereby represents and warrants that:
(a) The Purchaser has duly authorized, executed and delivered this
Agreement and such of the Operative Documents as require execution by the
Purchaser.
(b) It is the Purchaser's present intention to acquire the
Securities for its own account.
(c) The Securities are being and will be acquired for the purpose of
investment and not with a view to distribution or resale thereof; subject,
nevertheless, to the condition that, except as otherwise provided herein or in
the Stockholders' Agreement, the disposition of the property of the Purchaser
shall at all times be within its control.
(d) The Purchaser acknowledges that it has reviewed and discussed
the Company's business, affairs and current prospects with such officers of the
Company and others as it has deemed appropriate or desirable in connection with
the transactions contemplated by this Agreement. The Purchaser further
acknowledges that it has requested, received and reviewed such information,
undertaken such investigation and made such further inquiries of officers of the
Company and others as it has deemed appropriate or desirable in connection with
such transactions, provided, however, no investigation made heretofore or
hereafter by or on behalf of the Purchaser shall have any effect whatsoever on
the representations and warranties of the Company hereunder, each of which will
survive any such investigation.
(e) The Purchaser understands that it must bear the economic risk of
its investment for an indefinite period of time because the Securities are not,
and will not be, registered under the Securities Act or any applicable state
securities laws, except as may be provided in this Agreement and the
Registration Rights Agreement, and may not be resold unless subsequently
registered under the Securities Act and such other laws or unless an exemption
from such registration is available. The Purchaser also understands that except
as may be provided in this Agreement and the Registration Rights Agreement, it
is not contemplated that any registration will be made under the Securities Act
or any state securities laws, or that the Company will take steps which will
make the provisions of Rule 144 under the Securities Act available to permit
resale of the Securities.
(f) The Purchaser represents that it has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of its investment in the Securities. The Purchaser further
represents that it is (i) an "accredited investor" as such term is defined in
Rule 501 of Regulation D of the Commission under the Securities Act and (ii) an
"institutional investor" as such term is defined in Section 402(b)(8) of
Massachusetts General Laws Chapter 110A, with respect to the purchase of the
Securities.
(g) No Person has or will have, as a result of the transactions
contemplated by this Agreement, any rights, interest or valid claim against or
upon the Company or any of its Subsidiaries for any commission, fee or other
compensation as a finder or broker because of any act or omission by the
Purchaser or any agent of the Purchaser.
<PAGE>
-23-
(h) The Purchaser hereby acknowledges that the Notes, the Warrants
and each certificate representing the Preferred Shares, the Preferred Conversion
Shares, the Warrant Shares and any other securities issued in respect of such
shares upon any stock split, stock dividend, recapitalization, merger or similar
event (unless no longer required in the opinion of counsel, which opinion and
counsel shall be reasonably satisfactory to the Company, it being agreed that
Testa, Hurwitz & Thibeault, LLP shall be satisfactory) shall bear a legend
substantially in the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD OR TRANSFERRED WITHOUT COMPLIANCE WITH THE
REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE FEDERAL
AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
The acquisition by the Purchaser of the Securities shall constitute a
confirmation by it of the foregoing representations.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser as follows:
6.01. Organization and Standing of the Company and Subsidiaries;
----------------------------------------------------------
Ownership. The Company and each of its Subsidiaries is a corporation duly
- ---------
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has all requisite corporate power and
authority for the ownership and operation of its properties and for the carrying
on of its business as now conducted and as now proposed to be conducted. The
Company and each of its Subsidiaries is duly licensed or qualified and in good
standing as a foreign corporation authorized to do business in all jurisdictions
wherein the character of the property owned or leased, or the nature of the
activities conducted, by it makes such licensing or qualification necessary,
except where the failure to be so licensed or qualified, either individually or
in the aggregate, would not have a material adverse effect on the business,
assets, liabilities, financial condition, or on the results of operations or
prospects of the Company and its Subsidiaries taken as a whole (a "Material
Adverse Effect"). Except as set forth on Exhibit 6.01 attached hereto, neither
------------
the Company nor any of its Subsidiaries owns, directly or indirectly, any
capital stock or other equity or ownership or proprietary interest in any
Person.
6.02. Corporate Action. The Company has all necessary corporate power
----------------
and has taken all corporate action required to make all the provisions of this
Agreement, the Operative Documents and any other agreements and instruments
executed by it in connection herewith and therewith valid and enforceable
obligations of the Company. The Company has duly executed and delivered this
Agreement, each of the Operative Documents and each other agreement and
instrument executed by it in connection herewith and therewith and each is a
legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws relating to or affecting creditors' rights generally and by general
principles of equity. Sufficient shares of authorized but unissued Common Stock
of the Company have been reserved by appropriate corporate action in connection
with the prospective conversion of the Preferred Shares and exercise of the
Warrants. Neither the issuance of the Notes, the
<PAGE>
-24-
Preferred Shares or Warrants, nor the issuance of shares of Common Stock upon
the conversion of the Preferred Shares or the exercise of the Warrants, is
subject to preemptive or other similar statutory or contractual rights.
6.03. Governmental Approvals. No authorization, consent, approval,
----------------------
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with, the offer,
issuance, sale, execution or delivery by the Company of, or for the performance
by the Company of its obligations under, this Agreement, any of the Operative
Documents, the Warrants, the Preferred Shares, the Preferred Conversion Shares
or the Warrant Shares, except as may be necessary for registration under the
Securities Act of any of the Preferred Conversion Shares or Warrant Shares
pursuant to the Registration Rights Agreement.
6.04. Litigation. Except as set forth on Exhibit 6.04 attached
---------- ------------
hereto, there is no litigation, action or governmental proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against the Company or any of its Subsidiaries, affecting any of their
respective properties or assets, or against any officer, key employee or
principal stockholder of the Company or any of its Subsidiaries where such
litigation, proceeding or investigation (i) either individually or in the
aggregate would have a Material Adverse Effect, (ii) might call into question
the validity of this Agreement, any Operative Document or any action taken or to
be taken pursuant hereto or thereto or (iii) seeks to prevent the consummation
of the transactions contemplated by this Agreement, nor, to the best knowledge
of the Company, has there occurred any event on the basis of which any
litigation, proceeding or investigation meeting the criteria of (i), (ii) or
(iii) above might properly be instituted. Except as set forth on Exhibit 6.04,
------------
neither the Company nor any of its Subsidiaries is in default with respect to
any order, writ, injunction, decree, ruling or decision of any court,
commission, board or other government agency affecting the Company or any of its
Subsidiaries.
6.05. Compliance with Law. The Company and each of its Subsidiaries
-------------------
is in compliance in all respects with the terms and provisions of this Agreement
and of its Articles of Incorporation (or comparable charter documents) and by-
laws and in all material respects with the terms and provisions of all
judgments, decrees, governmental orders, statutes, rules and regulations to
which it and its properties and assets are subject (collectively, the
"Applicable Laws").
6.06. Federal Reserve Regulations. Neither the Company nor any of
---------------------------
its Subsidiaries is engaged in the business of extending credit for the purpose
of purchasing or carrying margin stock (within the meaning of Regulation G of
the Board of Governors of the Federal Reserve System), and no part of the
proceeds of the Notes, the Preferred Shares or the Warrants will be used to
purchase or carry any margin security or to extend credit to others for the
purpose of purchasing or carrying any margin security or in any other manner
which would involve a violation of any of the regulations of the Board of
Governors of the Federal Reserve System.
6.07. Title to Assets, Patents. Except as set forth on Exhibit 6.07
------------------------ ------------
attached hereto, the Company and each of its Subsidiaries has good and
marketable title in fee to such of its fixed assets as are real property, and
good and merchantable title to all of its other assets, now carried on its books
including those reflected in the most recent balance sheet of the Company
included in the Financial Statements, or acquired since the date of such balance
sheet (except personal property disposed of since said date in the ordinary
course of business), free of any mortgages, pledges, charges, liens, security
interests or other encumbrances. The Company and each of its Subsidiaries enjoys
peaceful and undisturbed possession under all leases under which it is
operating, and all of said leases are valid and subsisting and in full force
<PAGE>
-25-
and effect. The Company and each of its Subsidiaries owns or has a valid right
to use the patents, patent rights, licenses, permits, trade secrets, trademarks,
trademark rights, trade names or trade name rights or franchises, copyrights,
inventions and intellectual property rights being used to conduct its business
as now operated and as now proposed to be operated; and the conduct of its
business as now operated and as now proposed to be operated does not and will
not to the best knowledge of the Company conflict with valid patents, patent
rights, licenses, permits, trade secrets, trademarks, trademark rights, trade
names or trade name rights or franchises, copyrights, inventions and
intellectual property rights of others. Neither the Company nor any of its
Subsidiaries has any obligation to compensate any Person for the use of any such
patents or such rights nor has the Company or any of its Subsidiaries granted to
any Person any license or other rights to use in any manner any of such patents
or such rights.
6.08. Financial Information. (a) Attached hereto as Exhibit 6.08A
--------------------- -------------
are the following financial statements: (i) the audited balance sheets of the
Company and its Subsidiaries as of December 31, 1996 and 1995 and the related
statements of income and stockholders' equity and of cash flows for the fiscal
years then ended (the "Audited Financial Statements"), certified by KPMG Peat
Marwick LLP, the Company's independent public accountants, and (ii) the
unaudited balance sheet of the Company and its Subsidiaries as of August 31,
1997 and the related unaudited statements of income and stockholders' equity and
of cash flows for the eight (8) months then ended (the "Unaudited Financial
Statements" and together with the Audited Financial Statements, including the
notes thereto, are collectively referred to as the "Financial Statements"). The
Audited Financial Statements have been prepared in accordance with GAAP and
consistent with prudent business management practices, the Financial Statements
are complete in all material respects and fairly present the financial position
of the Company and its Subsidiaries as of the respective dates thereof and
results of operations and changes in financial position of the Company and its
Subsidiaries for each of the periods then ended.
(b) Since December 31, 1996, there has been no material adverse
change in the business, assets, liabilities, condition (financial or other), or
in the results of operations or prospects of the Company and its Subsidiaries
taken as a whole.
(c) Neither the Company nor any of its Subsidiaries has any
liability, contingent or otherwise, not disclosed in the Financial Statements or
in the notes thereto that could, together with all such other liabilities, have
a Material Adverse Effect, nor does the Company have any reasonable grounds to
know of any such liability.
(d) A schedule of Indebtedness of the Company and its Subsidiaries as
of the Initial Closing Date (including Capital Leases) is attached hereto as
Exhibit 6.08B.
- -------------
6.09. Taxes. Except as set forth on Exhibit 6.09, the Company and
----- ------------
each of its Subsidiaries has accurately prepared and timely filed all federal,
state and other tax returns required by law to be filed by it, and all taxes
shown to be due and all additional assessments have been paid or provision made
therefor. The Company does not know of any additional assessments or adjustments
pending or threatened against the Company or any of its Subsidiaries for any
period, nor of any basis for any such assessment or adjustment. The charges,
accruals and reserves on the books of the Company and its Subsidiaries in
respect of taxes or other governmental charges are, in the opinion of the
Company, adequate.
6.10. ERISA. The Company and each of its Subsidiaries is in compliance
-----
in all material respects with the currently applicable provisions of The
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), and the
applicable provisions of Section 401(a) of the Code. No employee benefit plan
established or maintained, or to which contributions have been made, by the
Company or any
<PAGE>
-26-
of its Subsidiaries, which is subject to part 3 of Subtitle B of Title I of
ERISA, had an accumulated funding deficiency (as such term is defined in Section
302 of ERISA) as of the last day of the most recent fiscal year of such plan
ended prior to the date hereof, and no material liability to the Pension Benefit
Guaranty Corporation has been incurred with respect to any such plan by the
Company or any of its Subsidiaries.
6.11. Transactions with Affiliates. Except as set forth on Exhibit
---------------------------- -------
6.11 attached hereto and as specifically contemplated by this Agreement, there
- ----
are no loans, leases, royalty agreements or other continuing transactions
between the Company or any of its Subsidiaries, on the one hand, and any officer
or director of the Company, or any Person (including any Person who is an
equitable owner of any Common Stock held by Kyle D. Parker, Trustee for The
Parker Trust dated March 15, 1989) owning, or who did own at any time within the
two-year period preceding the date of this Agreement, any class of capital stock
of the Company or any of its Subsidiaries or other entity controlled by such
stockholder or a member of such stockholder's family, on the other hand.
6.12. Assumptions or Guaranties of Indebtedness of Other Persons. Neither
----------------------------------------------------------
the Company nor any of its Subsidiaries has assumed, guaranteed, endorsed or
otherwise become directly or contingently liable on (including, without
limitation, liability by way of agreement, contingent or otherwise, to purchase,
to provide funds for payment, to supply funds to or otherwise invest in the
debtor or otherwise to assure the creditor against loss) any Indebtedness of any
other Person.
6.13. Investments in Other Persons. Neither the Company nor any of its
----------------------------
Subsidiaries has made any loan or advance to any Person which is outstanding on
the date of this Agreement, nor is the Company or any of its Subsidiaries
obligated or committed to make any such loan or advance.
6.14. Securities Act. Neither the Company nor anyone acting on its behalf
--------------
has offered or will offer to sell the Notes, the Preferred Shares, the Warrants
or similar securities to, or solicit offers with respect thereto from any
Person, so as to bring the issuance and sale of the Notes, the Preferred Shares
and the Warrants under the registration provisions of the Securities Act. The
issuance and the sale of the Notes, the Preferred Shares and the Warrants
pursuant to this Agreement is not required to be registered under the Securities
Act or applicable state securities or "Blue Sky" laws.
6.15. Disclosure. None of this Agreement, the Operative Documents, and
----------
any other agreement, document, certificate or written statement furnished to the
Purchaser or the Purchaser's special counsel by or on behalf of the Company or
any of its Subsidiaries in connection with the transactions contemplated hereby
or thereby contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading. There is no fact within the knowledge of the Company
which has not been disclosed herein or in writing by them to the Purchaser and
which has a Material Adverse Effect, or in the future in its opinion could
reasonably be expected to have a Material Adverse Effect.
6.16. No Brokers or Finders. Except for a fee of $650,000 paid to Dublind
---------------------
Partners Inc. and the issuance to Dublind Investments LLC of warrants (the
"Dublind Warrants") to purchase up to an aggregate of 365,340 shares of Common
Stock, which fee and warrants will be paid in full and issued, as the case may
be, by the Company as of the Initial Closing, no Person had, has or will have,
as a result of the transactions contemplated by this Agreement, any right,
interest or valid claim against or upon the Purchaser, the Company or any of its
Subsidiaries for any commission, fee or other compensation as a finder or broker
because of any act or omission by the Company, any of its Subsidiaries or any of
its or their agents.
<PAGE>
-27-
6.17. Other Agreements of Officers. To the best knowledge of the Company,
----------------------------
no officer or key employee of the Company or any of its Subsidiaries is a party
to or bound by any agreement, contract or commitment, or subject to any
restrictions, particularly but without limitation in connection with any
previous employment of any such person, which has a Material Adverse Effect, or
in the future may (so far as the Company can reasonably foresee) have a Material
Adverse Effect. To the best knowledge of the Company, no officer or key employee
of the Company or any of its Subsidiaries has any present intention of
terminating his employment with the Company or any of its Subsidiaries and
neither the Company nor any of its Subsidiaries has any present intention of
terminating any such employment.
6.18. Capitalization of the Company; Status of Capital Stock.
------------------------------------------------------
Immediately prior to the Initial Closing Date, the Company has a total
authorized capitalization consisting of 10,000,000 shares of Common Stock, of
which 3,590,000 shares are issued and outstanding, and 2,000,000 shares of
Preferred Stock. Of the authorized shares of Preferred Stock, 931,044 shares
are designated Series A Preferred Stock, none of which are issued and
outstanding, and 439,589 shares are designated Series B Preferred Stock, all of
which are issued and outstanding. A complete list of the outstanding capital
stock of the Company and the names in which such capital stock of the Company is
registered is set forth on Exhibit 6.18 hereto. All the outstanding shares of
------------
capital stock of the Company have been duly authorized, are validly issued and
are fully paid and nonassessable. The shares of Common Stock issuable upon
conversion of the Preferred Shares and upon exercise of the Warrants, when so
issued against payment of the purchase price for such Common Stock, will be duly
authorized, validly issued and fully paid and nonassessable. Except as
otherwise set forth on Exhibit 6.18 and except for the Preferred Shares, the
------------
Warrants and the Dublind Warrants, there are no options, warrants or rights to
purchase shares of capital stock or other securities of the Company authorized,
issued or outstanding, nor is the Company obligated in any other manner to issue
shares of its capital stock or other securities. Except as otherwise set forth
on Exhibit 6.18 or as set forth in the Stockholders' Agreement, there are no
------------
restrictions on the transfer of shares of capital stock of the Company other
than those imposed by relevant state and federal securities laws. Except as set
forth in this Agreement, in the Stockholders' Agreement or as otherwise set
forth on Exhibit 6.18, no holder of any security of the Company is entitled to
------------
preemptive or similar statutory or contractual rights, either arising pursuant
to any agreement or instrument to which the Company is a party, or which are
otherwise binding upon the Company. The offer and sale of all shares of capital
stock and other securities of the Company issued before the Initial Closing
complied with or were exempt from all federal and state securities laws.
6.19. Capital Stock of Subsidiaries. The Company owns all of the
-----------------------------
outstanding capital stock of each of the Subsidiaries, beneficially and of
record, free and clear of all liens, encumbrances, restrictions and claims of
every kind. All the outstanding shares of capital stock of each of the
Subsidiaries have been duly authorized, are validly issued and are fully paid
and nonassessable. There are no options, warrants or rights to purchase shares
of capital stock or other securities of any of the Subsidiaries authorized,
issued or outstanding, nor is any Subsidiary obligated in any other manner to
issue shares of its capital stock or other securities.
6.20. Insurance. The Company and each of its Subsidiaries has insurance
---------
covering its properties and business adequate and customary for the type and
scope of its properties and business, and in any event in amounts sufficient to
prevent the Company and its Subsidiaries from becoming co-insurers.
6.21. Books and Records. The books of account, ledgers, order books and
-----------------
records of the Company and its Subsidiaries accurately and completely reflect
all material information relating to the business of the Company and its
Subsidiaries, the nature, acquisition, maintenance, location and collection
<PAGE>
-28-
of the assets of the Company and its Subsidiaries, and the nature of all
transactions giving rise to the obligations or accounts receivable of the
Company and its Subsidiaries.
6.22. Registration Rights. Other than pursuant to the terms of the
-------------------
Registration Rights Agreement, no Person has demand or other rights to cause the
Company or any of its Subsidiaries to file any registration statement under the
Securities Act relating to any securities of the Company or any of its
Subsidiaries or any right to participate in any such registration statement.
6.23. Other Agreements. Except as explicitly disclosed and described
----------------
in the Financial Statements or as set forth on Exhibit 6.23 attached hereto,
------------
neither the Company nor any of its Subsidiaries is a party to any written or
oral contract or instrument or other corporate restriction the due performance
of which individually or in the aggregate could have a Material Adverse Effect.
Except as specifically contemplated by this Agreement or as set forth on Exhibit
-------
6.23 attached hereto neither the Company nor any of its Subsidiaries is a party
- ----
to or otherwise bound or affected by any written or oral:
(a) agreement, contract or commitment with any present or former
shareholder, director, officer, employee or consultant or for the employment of
any Person;
(b) agreement, contract, commitment or arrangement with any labor
union or other representative of employees;
(c) agreement, contract or commitment for the purchase of, or payment
for, supplies or products, or for the performance of services by a third party,
involving in any one case $25,000 or more, other than purchase orders for the
acquisition of raw materials inventory incurred in the ordinary course of
business;
(d) agreement, contract or commitment to sell or supply products or
to perform services, involving in any one case $25,000 or more, other than for
the sale of its inventory goods by the Company and its Subsidiaries incurred in
the ordinary course of business;
(e) agreement, contract or commitment continuing over a period of
more than six months from the date hereof or exceeding $25,000 in value;
(f) representative or sales agency agreement, contract or
commitment;
(g) lease under which it is either lessor or lessee;
(h) note, debenture, bond, conditional sale agreement, equipment
trust agreement, letter of credit agreement, loan agreement or other agreement
or contract, commitment or arrangement for the borrowing or lending of money
(including without limitation loans to or from officers, directors, any
shareholder or any member of any of their immediate families), agreement,
contract, commitment or arrangement for a line of credit or guarantee, pledge or
undertaking of the indebtedness of any other Person;
(i) agreement, contract or commitment for any charitable or political
contribution;
(j) agreement, contract or commitment for any capital expenditure
in excess of $25,000;
<PAGE>
-29-
(k) agreement, contract or commitment limiting or restraining it from
engaging or competing in any lines of business with any Person, nor is any
officer or employee of the Company or any Subsidiary subject to any such
agreement except where such limitation runs to the benefit of the Company;
(l) license, franchise, distributorship or other similar agreement,
contract or commitment, including without limitation (i) those which relate to
the compilation, conversion, publication, joint-publication and/or marketing of
state and federal law libraries and legal treatises and other legal publications
into electronic formats, and/or (ii) those which relate in whole or in part to
any patent, trademark, trade name, service mark or copyright or to any ideas,
technical assistance or other know-how of or used by the Company or any
Subsidiary; or
(m) agreement, contract or commitment not made in the ordinary course
of business exceeding the sum of $25,000 in value or liability.
The Company and each of its Subsidiaries and, to the best of the Company's
knowledge, each other party thereto have in all material respects performed all
the obligations required to be performed by them to date, have received no
notice of default and are not in material default under any lease, agreement or
contract now in effect to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries or its respective
property may be bound. Neither the Company nor any of its Subsidiaries has any
present expectation or intention of not fully performing all its obligations
under each such lease, contract or other agreement, and the Company has no
knowledge of any material breach by the other party to any contract or
commitment to which the Company or any of its Subsidiaries is a party.
6.24. Hazardous and Toxic Materials. (a) None of the properties owned,
-----------------------------
leased or operated by the Company or any of its Subsidiaries is in material
violation of any federal, state or local laws, ordinances or regulations
existing or enacted relating to the environment, health and safety, any
Hazardous Discharges (as hereinafter defined) or to industrial hygiene or the
environmental conditions on, under or about any of the property owned, leased or
operated by the Company or any of its Subsidiaries, including, without
limitation, soil and ground water conditions; (b) neither the Company nor any of
its Subsidiaries has received any complaint, order, citation or notice with
regard to air emissions, Hazardous Discharges or other environmental, health or
safety matters affecting any of the properties at any time owned, leased or
operated by the Company or any of its Subsidiaries or the businesses therein
conducted, and (c) there has been no spill, discharge, release or cleanup of any
hazardous or toxic waste or substance or any oil or pesticide which would result
in a Material Adverse Effect ("Hazardous Substances") at any of the properties
at any time owned, leased or operated by the Company or any of its Subsidiaries,
including, without limitation, into or upon any of its soils, surface water,
ground water or the improvements located thereon (a "Hazardous Discharge"). To
the extent that any of the properties owned, leased or operated by the Company
or any of its Subsidiaries are used for the handling, storage, transportation or
disposal of hazardous or toxic materials, such use is in accordance with all
federal, state and local environmental laws, rules, and regulations which apply
to the handling, storage, transportation or disposal of hazardous or toxic
materials and the Company and each of its Subsidiaries has obtained any and all
necessary permits, licenses and approvals with respect to such use, including
without limitation, United States Environmental Protection Agency identification
numbers, hazardous waste manifests and hazardous waste permits required under
the Federal Resource Conversation and Recovery Act.
6.25. Customers, Vendors and Suppliers. None of the fifteen (15)
--------------------------------
largest customers or subscribers of the Company's and its Subsidiaries' products
(based on total sales volume for the latest full fiscal year) or any party (a
"Business Partner") with which the Company and its Subsidiaries maintains any
publishing, joint-publishing, marketing, and/or royalty relationship involving
the Company's business
<PAGE>
-30-
and/or its products has cancelled or otherwise terminated or made any threat to
cancel or otherwise terminate its relationship with the Company or such
Subsidiary, nor has any such customer, subscriber or Business Partner indicated
an intent or desire to materially decrease its purchase volume, change its
subscription, or change its relationship, as the case may be, with the Company
or such Subsidiary.
6.26. No Violations. Neither the execution and delivery of this
-------------
Agreement and the Operative Documents, nor the consummation of any of the
transactions contemplated hereby or thereby, by the Company, will (a) violate,
conflict with, or result in a breach or default under any provision of the
Articles of Incorporation or By-Laws of the Company or any of its Subsidiaries,
(b) violate any provision of any Applicable Laws, or (c) result in a material
violation or breach by the Company or any of its Subsidiaries of, conflict with,
constitute (with or without due notice or lapse of time or both) a default by
the Company or any of its Subsidiaries (or give rise to any right of
termination, cancellation, payment or acceleration) under, or result in the
creation of any Lien upon any of the properties or assets of the Company or any
of its Subsidiaries under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, license, franchise, permit, agreement, lease,
franchise agreement or other instrument or obligation to which the Company or
any of its Subsidiaries is a party, or by which it or any of its respective
properties or assets may be bound.
ARTICLE VII
COVENANTS OF THE COMPANY
7.01. Affirmative Covenants of the Company Other Than Reporting
---------------------------------------------------------
Requirements. Without limiting any other covenants and provisions hereof, the
- ------------
Company covenants and agrees that, as long as any of the Notes or at least fifty
percent (50%) of the Preferred Shares are outstanding, it will perform and
observe the following covenants and provisions and will cause each Subsidiary to
perform and observe such of the following covenants and provisions as are
applicable to such Subsidiary:
(a) Punctual Payment. Pay the principal of, premium, if any, and
----------------
interest on each of the Notes at the times and place and in the manner provided
in the Notes and herein.
(b) Payment of Taxes and Trade Debt. Pay and discharge, and cause
-------------------------------
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary, provided that neither the
Company nor any Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company or the Subsidiary concerned shall have set aside on
its books adequate reserves with respect thereto. Pay and cause each Subsidiary
to pay, when due, or in conformity with customary trade terms, all lease
obligations, all trade debt, and all other Indebtedness incident to the
operations of the Company or the Subsidiaries, except such as are being
contested in good faith and by appropriate proceedings if the Company or the
Subsidiary concerned shall have set aside on its books adequate reserves with
respect thereto.
(c) Maintenance of Insurance. Maintain, and cause each Subsidiary
------------------------
to maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is usually carried by
companies engaged in similar businesses and owning similar properties in the
same general areas in which the Company or such Subsidiary operates, and in any
event in
<PAGE>
-31-
amounts sufficient to prevent the Company or such Subsidiary from becoming a co-
insurer.
(d) Preservation of Corporate Existence. Preserve and maintain,
-----------------------------------
and cause each Subsidiary to preserve and maintain, its corporate existence,
rights, franchises and privileges in the jurisdiction of its incorporation, and
qualify and remain qualified, and cause each Subsidiary to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and operations
or the ownership of its properties, except where the failure to remain so
qualified would not, either individually or in the aggregate, have a Material
Adverse Effect; provided, however, that nothing herein contained shall prevent
any merger, consolidation or transfer of assets permitted by subsection 7.02(e).
Preserve and maintain, and cause each Subsidiary to preserve and maintain, all
licenses and other rights to use patents, processes, licenses, trademarks, trade
names, inventions, intellectual property rights or copyrights owned or possessed
by it and necessary to the conduct of its business.
(e) Compliance with Laws. Comply, and cause each Subsidiary to
--------------------
comply, with all applicable laws, rules, regulations and orders of any
governmental authority, the noncompliance with which could have a Material
Adverse Effect.
(f) Inspection Rights. At any reasonable time and from time to time
-----------------
and upon prior written notice, permit the Purchaser or any of its agents or
representatives to examine and make copies of and extracts from the records and
books of account of, and visit and inspect the properties of, the Company and
any Subsidiary, and to discuss the affairs, finances and accounts of the Company
and any Subsidiary with any of their officers or directors and independent
accountants. If an Event of Default then exists, all reasonable out-of-pocket
expenses of the Purchaser (or its agents or representatives), the Company or any
Subsidiary incurred in connection with such inspection rights shall be borne by
the Company.
(g) Keeping of Records and Books of Account. Keep, and cause each
---------------------------------------
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with GAAP, reflecting all financial
transactions of the Company and each Subsidiary, and in which, for each fiscal
year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
(h) Maintenance of Properties, Etc. Maintain and preserve, and
------------------------------
preserve, and cause each Subsidiary to maintain and preserve, all of its
properties, necessary or useful in the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted.
(i) Compliance with ERISA. Comply, and cause each Subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension or other
employee benefit or employee contribution plans which are subject to ERISA or to
the Code, and comply, and cause each Subsidiary to comply, in all other material
respects with the provisions of ERISA and the Code, and the rules and
regulations thereunder, which are applicable to any such plan. Neither the
Company nor any Subsidiary will permit any event or condition to exist which
could permit any such plan to be terminated under circumstances which would
cause the lien provided for in Section 4068 of ERISA to attach to the assets of
the Company or any Subsidiary.
(j) Attendance at Board Meetings. At any time at which a nominee of
----------------------------
the Purchaser is not a member of the Board or any committee of the Board as
provided in this Agreement and the Stockholders' Agreement, so long as the Notes
remain outstanding or, if no Notes are then outstanding, the Purchaser holds
either (i) at least twenty five percent (25%) of the Common Stock issued or
issuable upon
<PAGE>
-32-
the conversion of the Preferred Shares then outstanding or (ii) at least twenty
five percent (25%) of the Common Stock issued and issuable upon the exercise of
the Warrants then outstanding, permit the Purchaser or its designee to have one
observer attend each meeting of the Board and any committee thereof. The Company
will send to the Purchaser and its designee the notice of the time and place of
any such meeting in the same manner and at the same time as notice is sent to
the directors or committee members, as the case may be. The Company shall also
provide to such Purchaser copies of all notices, reports, minutes, consents and
other documents at the time and in the manner as they are provided to the Board
or committees. The Company shall reimburse the Purchaser for all reasonable
costs incurred by the Purchaser or its designee in connection with traveling to
and from and attending meetings of the Board and committees.
(k) Payment of Senior Debt by the Purchaser. In the event that any
---------------------------------------
default occurs in the payment of the principal of or any interest on any Senior
Debt and such default shall continue for a period of thirty (30) days (or such
shorter period as is necessary in order to permit the Purchaser to act pursuant
to this subsection prior to any acceleration of such Senior Debt) without waiver
or forbearance by the lender of such Senior Debt, permit the Purchaser, on
behalf of the Company, to cure such default, to prepay in full any such Senior
Debt or to purchase such Senior Debt, upon terms and conditions set forth in the
Subordination Agreement.
(l) Board of Directors and Committees. The Company shall use its
---------------------------------
best efforts to fix the Board at not more than seven (7) members and cause three
(3) representatives of the Purchaser to be recommended to the stockholders for
election as a director at all meetings for such purpose. The Board shall meet at
least four (4) times per calendar year. The Company shall at all times maintain
a Compensation Committee and an Audit Committee of the Board and each such
committee shall consist of three (3) members. The Purchaser shall at all times
be entitled to appoint one representative to each of the Compensation Committee
and the Audit Committee. The Purchaser shall at all times have a representative
on each other committee of the Board unless and only for so long as they waive
such right with respect to a specific committee. The Company shall reimburse the
Purchaser and its appointees for all reasonable costs incurred by them in
connection with traveling to and from and attending meetings of the Board and
committees of the Board, in addition to any directors fees regularly paid to all
members of the Board.
(m) Interest Coverage Ratio. As of the dates set forth below, the
-----------------------
Company will maintain a ratio of EBITDA to Interest Expense for the twelve (12)
month period ending on such dates of at least the ratio set forth opposite such
dates:
Twelve Month Period Ending Interest Coverage Ratio
-------------------------- -----------------------
December 31, 1998 1 to 1
March 31, 1999 2 to 1
June 30, 1999 and the last day of 3 to 1
each fiscal quarter of the
Company thereafter
(n) Fixed Charge Coverage Ratio . As of the dates set forth below,
the Company will maintain a ratio of EBITDA to Fixed Charges for the twelve (12)
month period ending on such dates of at least the ratio set forth opposite such
dates:
Twelve Month Period Ending Fixed Charge Coverage Ratio
-------------------------- ---------------------------
<PAGE>
-33-
December 31, 1998 .40 to 1
March 31, 1999 1 to 1
June 30, 1999 1 to 1.5
September 30, 1999 and the
last day of each fiscal quarter 2 to 1
of the Company thereafter
(o) Maximum Total Funded Debt to EBITDA Ratio. As of the dates set
-----------------------------------------
forth below, the Company will not permit the ratio of Total Funded Debt to
EBITDA for the twelve (12) month period ending on such dates to be more than the
ratio set forth opposite such date:
Twelve Month Period Ending Total Funded Debt to EBITDA Ratio
-------------------------- ---------------------------------
December 31, 1998 10 to 1
March 31, 1999 3.5 to 1
June 30, 1999 and the last day 2.5 to 1
of each fiscal quarter of the
Company thereafter
(p) Minimum Tangible Capital Base. The Company shall maintain a
-----------------------------
Tangible Capital Base, measured as at each of the dates set forth below, equal
to or greater than the amount set forth opposite such date:
Minimum
Fiscal Quarter End Tangible Capital Base
------------------
March 31, 1998 $ (5,500,000)
June 30, 1998 (8,000,000)
September 30, 1998 (11,000,000)
December 31, 1998 (12,000,000)
March 31, 1999 (10,000,000)
June 30, 1999 (7,500,000)
September 30, 1999 (2,500,000)
December 31, 1999 2,500,000
March 31, 2000 and the last day $2,500,000 plus 80% of the
of each fiscal quarter of the cumulative amount of Net
Company thereafter Income earned by the Company
for each fiscal quarter
subsequent to December 31,
1999.
(q) Database Expenditures. The Company shall not make any Database
---------------------
Expenditure during any fiscal year of the Company which, when aggregated with
all other Database Expenditures in such fiscal year, exceeds, in the case of the
Company's fiscal year ended December 31, 1998, $10,000,000, and in the case of
each fiscal year thereafter $750,000.
<PAGE>
-34-
(r) Minimum EBITDA. EBITDA for the each of the periods set forth below
--------------
shall not be less than the amount set forth opposite such period:
Period Minimum EBITDA
------ --------------
Three (3) month period ended March 31,
1998 $(600,000)
Six (6) month period ended June 30, 1998 (800,000)
Nine (9) month period ended September 30,
1998 (600,000)
Twelve (12) month period ended December 31,
1998 1,000,000
7.02. Negative Covenants of the Company. Without limiting any other
---------------------------------
covenants and provisions hereof, the Company covenants and agrees that, as long
as any of the Notes or fifty percent (50%) of the Preferred Shares are
outstanding, it will comply with and observe the following covenants and
provisions, and will cause each Subsidiary to comply with and observe such of
the following covenants and provisions as are applicable to such Subsidiary, and
will not:
(a) Liens. Create, incur, assume or suffer to exist, or permit
-----
any Subsidiary to create, incur, assume or suffer to exist, any mortgage, deed
of trust, pledge, lien, security interest or other charge or encumbrance
(including the lien or retained security title of a conditional vendor) of any
nature, upon or with respect to any of its properties, now owned or hereafter
acquired, or assign or otherwise convey any right to receive income, except that
the foregoing restrictions shall not apply to mortgages, deeds of trust,
pledges, liens, security interests or other charges or encumbrances
(collectively, "Permitted Liens"):
(i) for taxes, assessments or governmental charges or levies on
property of the Company or any Subsidiary if the same shall not at the time
be delinquent or thereafter can be paid without penalty, or are being
contested in good faith and by appropriate proceedings;
(ii) imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary course of
business;
(iii) arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(iv) securing the performance of bids, tenders, contracts (other
than for the repayment of borrowed money), statutory obligations and surety
bonds;
(v) in the nature of zoning restrictions, easements and rights or
restrictions of record on the use of real property which do not materially
detract from its value or impair its use;
(vi) arising by operation of law in favor of the owner or
sublessor of leased premises and confined to the property rented;
<PAGE>
-35-
(vii) arising from any litigation or proceeding which is being
contested in good faith by appropriate proceedings, provided, however, that
no execution or levy has been made;
(viii) described on Exhibit 6.07 which secure the Indebtedness set
------------
forth on Exhibit 6.08B, provided that no such lien is extended to cover
-------------
other or different property of the Company or any Subsidiary; and
(ix) liens on the accounts receivable of the Company which secure
Indebtedness permitted by Section 7.02(b).
(b) Indebtedness . Without the prior written consent of the
------------
Purchaser, create, incur, assume or suffer to exist, or permit any Subsidiary to
create, incur, assume or suffer to exist, any liability with respect to
Indebtedness except for (1) up to $10,000,000 in principal amount of
Indebtedness for Money Borrowed incurred pursuant to the EFT Financing, (2)
current liabilities, other than for Indebtedness for Money Borrowed, which are
incurred in the ordinary course of business, (3) purchase money security
interests securing the purchase of equipment to be used in connection with the
business of the Company and its Subsidiaries, and (5) the Notes, provided that
the incurrence and maintenance of all such Indebtedness does not result in the
Company's or any Subsidiary's failure to comply with any of the provisions of
Article VII hereof.
(c) Lease Obligations. Become obligated to pay rent under any
-----------------
leases or other rental arrangements (including Capital Leases) under which the
amount of the aggregate lease or other payments under all such agreements or
arrangements exceeds $150,000 on a consolidated basis for any twelve-month
period.
(d) Assumptions or Guaranties of Indebtedness of Other Persons.
----------------------------------------------------------
Assume, guarantee, endorse or otherwise become directly or contingently liable
on, or permit any Subsidiary to assume, guarantee, endorse or otherwise become
directly or contingently liable on (including, without limitation, liability by
way of agreement, contingent or otherwise, to purchase, to provide funds for
payment, to supply funds to or otherwise invest in the debtor or otherwise to
assure the creditor against loss) any Indebtedness of any other Person, except
for guarantees by endorsement of negotiable instruments for deposit or
collection in the ordinary course of business and except by the Company with
respect to any Indebtedness of any Subsidiary which is permitted by this
Agreement.
(e) Mergers, Sale of Assets, Etc. Without the prior written
----------------------------
consent of the Purchaser, merge or consolidate with any Person, or sell, assign,
lease or otherwise dispose of or voluntarily part with the control of (whether
in one transaction or in a series of transactions) any of its assets (whether
now owned or hereinafter acquired) or permit any Subsidiary to do so, except
that (1) any Subsidiary may merge into or consolidate with or transfer assets to
any other Subsidiary, (2) any Subsidiary may merge into or transfer assets to
the Company and (3) the Company or any Subsidiary may sell, assign, lease or
otherwise dispose of (i) electronic legal library information in the ordinary
course of business, (ii) equipment that is no longer used or useful in the
Company's or any of its Subsidiaries' business or that is physically obsolete,
provided that the proceeds thereof are used first to reduce outstanding Senior
Debt and then to reduce other outstanding Indebtedness, (iii) sales of equipment
the net proceeds of which are applied within thirty (30) days of such sale to
the purchase of replacement equipment with like value and function and (iv)
other sales of assets in any given year which have a fair market value of less
than one million dollars ($1,000,000) in the aggregate provided that at least
fifty percent (50%) of the net proceeds from such dispositions are applied first
to reduce outstanding Senior Debt and then to reduce other
<PAGE>
-36-
outstanding Indebtedness.
(f) Investments in Other Persons. Without the prior written
----------------------------
consent of the Purchaser, make or permit any Subsidiary to make, any loan or
advance to any Person, or purchase, otherwise acquire, or permit any Subsidiary
to purchase or otherwise acquire, any capital stock, assets or other property
of, obligations of, or any interest in, any Person, except:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of America and
having a maturity of not more than one year from the date of acquisition;
(ii) investments by the Company or a Subsidiary in certificates of
deposit, notes, acceptances and repurchase agreements having a maturity of
not more than one year from the date of acquisition issued by a bank
organized in the United States having capital, surplus and undivided
profits of at least $100,000,000 and whose parent holding company has long-
term debt rated Aa1 or higher, and whose commercial paper (if rated) is
rated Prime 1 by Moody's Investors Service, Inc.;
(iii) loans or advances from a Subsidiary to the Company or from
the Company to a Subsidiary;
(iv) investments by the Company or a Subsidiary in the highest-
rated commercial paper having a maturity of not more than one year from the
date of acquisition;
(v) advances to employees for travel or relocation in accordance
with the ordinary course of business; and
(vi) acquisitions or assets, capital stock or other property which
individually and in the aggregate are not material to the Company or such
Subsidiary (assets, capital stock and other property with a fair market
value of less than $250,000 acquired in any one-year period in the
aggregate shall not be deemed "material"); provided, however, that each
such acquisition can be made in compliance with the other terms of this
Agreement, including, without limitation, Section 7.02(l).
(g) Distributions. Without the prior written consent of the
-------------
Purchaser, declare or pay any dividends, purchase, redeem, retire, or otherwise
acquire for value any of its capital stock (or rights, options or warrants to
purchase such shares) now or hereafter outstanding, return any capital to its
stockholders as such, or make any distribution of assets to its stockholders as
such, or permit any Subsidiary to do any of the foregoing (such transactions
being hereinafter referred to as "Distributions"); provided, however, that
nothing herein contained shall prevent:
(i) the Company from effecting a stock split or declaring or
paying any dividend consisting of shares of any class of Common Stock to
the holders of shares of such class of Common Stock, provided that such
stock split or dividend is effected equally across all classes of Common
Stock, or
(ii) the Company from repurchasing or redeeming the Warrants and
the Preferred Shares and the shares of Common Stock issued or issuable upon
exercise or conversion thereof in accordance with the terms of Section 3.10
of the Stockholders' Agreement; or
<PAGE>
(iii) the Company from redeeming the Series B Preferred Stock issued
and outstanding on the date of this Agreement;
(iv) any Subsidiary from declaring or making payment of cash and
stock dividends, returns of capital or distributions of assets to the
Company;
if in the case of any such transaction the Distribution can be made in
compliance with the other terms of this Agreement.
(h) Dealings with Affiliates. Without the prior written consent of
------------------------
the Purchaser, enter or permit any Subsidiary to enter into any transaction with
any holder of any class of capital stock of the Company, or any member of their
families or any corporation or other entity in which any one or more of such
stockholders or members of their immediate families directly or indirectly holds
any class of capital stock; provided, however, that this Section 7.02(h) shall
not apply to any transaction which is governed by Section 7.02(m).
(i) Maintenance of Ownership of Subsidiaries. Sell or otherwise
----------------------------------------
dispose of any shares of capital stock of any Subsidiary, except to the Company
or another Subsidiary, or permit any Subsidiary to issue, sell or otherwise
dispose of any shares of its capital stock or the capital stock of any
Subsidiary, except to the Company or another Subsidiary, provided, however, that
nothing herein contained shall prevent any merger, consolidation or transfer of
assets permitted by subsection 7.02(e).
(j) Change in Nature of Business. Without the prior written consent
----------------------------
of the Purchaser, make, or permit any Subsidiary to make, any change in the
nature of its business as carried on at the date hereof.
(k) No Amendment or Waiver of Charter Documents. Amend, alter,
-------------------------------------------
repeal or terminate its Articles of Incorporation (or comparable charter
documents) without the prior written consent of the Purchaser.
(l) Capital Expenditures. Make, or permit any Subsidiary to make,
--------------------
any Capital Expenditure during (i) during the period from the Initial Closing
Date through the fiscal year of the Company ended December 31, 1998 which
exceeds $1,500,000 and (ii) any fiscal year of the Company thereafter which
exceeds $500,000 in the aggregate.
(m) Compensation. Pay, directly or indirectly, as salary, bonuses,
------------
fringe benefits, expenses, stock option grants, drawing accounts or otherwise
any compensation to any executive officer (or any relative of any executive
officer) of the Company or any Subsidiary not approved by the Compensation
Committee of the Board other than such compensation arrangements as are in place
as of the Initial Closing Date.
(n) Preferred Stock. Without the prior written consent of the
---------------
Purchaser, issue any shares of, or rights to acquire any shares of, Preferred
Stock as authorized in the Company's Articles of Incorporation as in effect on
the date hereof (except the 931,044 shares of Series A Preferred Stock and the
439,589 shares of Series B Preferred Stock issued and outstanding as of the date
hereof).
7.03. Reporting Requirements. The Company will furnish to each holder of any
----------------------
Note, any Preferred Share, any Preferred Conversion Share, any Warrant or any
Warrant Shares (except that the
<PAGE>
provisions of Sections 7.03 (d), (e), (f) and (g) shall terminate upon payment
in full of the aggregate outstanding principal balance of the Notes together
with all interest and premium, if any, due thereon and when less than fifty
percent (50%) of the Preferred Shares remain outstanding):
(a) as soon as possible and in any event within five (5) days after
the occurrence of each Event of Default or each event which, with the giving of
notice or lapse of time or both, would constitute an Event of Default, the
statement of the chief financial officer of the Company setting forth details of
such Event of Default or event and the action which the Company proposes to take
with respect thereto;
(b) as soon as available and in any event within thirty (30) days
after the end of each month, consolidated and consolidating balance sheets of
the Company and its Subsidiaries as of the end of such month and consolidated
and consolidating statements of income and retained earnings and of cash flows
of the Company and its Subsidiaries for such month and for the periods
commencing at the end of the previous fiscal year and ending with the end of
such month, setting forth in each case in comparative form the corresponding
figures for the corresponding period of the preceding fiscal year and the Budget
for the current year, all in reasonable detail, in a format reasonably
satisfactory to the Purchaser, and duly certified (subject to normal year-end
adjustments) by the chief financial officer of the Company as having been
prepared in accordance with GAAP and including a discussion by the Company's
management of any variance from the Budget for such fiscal year;
(c) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company (except that with respect to
the Company's fiscal year ended December 31, 1997, the Company will have to
furnish the information required by this Section 7.03(c) within 120 days after
the end of such fiscal year), a copy of the annual audit report for such year
for the Company and its Subsidiaries, including therein consolidated and
consolidating balance sheets of the Company and its Subsidiaries as of the end
of such fiscal year and consolidated and consolidating statements of income and
retained earnings and of cash flows of the Company and its Subsidiaries for such
fiscal year, setting forth in each case in comparative form the corresponding
figures for the preceding fiscal year, all duly certified by independent public
accountants of recognized national standing acceptable to the Purchasers and
including a discussion by the Company's management of any variance from the
Budget for the fiscal year just ended;
(d) at least thirty (30) days prior to the end of each fiscal year
of the Company, (x) an operating budget (the "Budget") of the Company and its
Subsidiaries for the next fiscal year in the form customarily prepared by
management for internal use, which Budget shall be reasonably satisfactory in
form to the Purchaser but which shall in any case include a detailed balance
sheet and detailed monthly statements of income and cash flows, and (y) three to
five year financial plans for the Company and the Subsidiaries in the form
customarily prepared by management for internal use, which shall be reasonably
satisfactory in form to the Purchaser;
(e) at the time of delivery of each monthly and annual statement, a
certificate, executed by the chief financial officer of the Company, stating
that such officer has caused this Agreement, the Notes, and the Warrants to be
reviewed and has no knowledge of any default by the Company or any Subsidiary in
the performance or observance of any of the provisions of this Agreement, the
Notes or the Warrants or, if such officer has such knowledge, specifying such
default and the nature thereof, and setting forth computations in reasonable
detail demonstrating compliance with the provisions of subsections 7.01(m), (n),
(o) and (p) and subsections 7.02(b) and (d);
<PAGE>
(f) at the time of delivery of each annual statement, a certificate
executed by the Company's independent public accountants, setting forth
computations in reasonable detail demonstrating compliance with the provisions
of subsections 7.01(m), (n), (o) and (p) and subsections 7.02(b) and (d);
(g) promptly upon receipt thereof, any written report submitted to
the Company or any Subsidiary by independent public accountants in connection
with an annual or interim audit of the books of the Company and the Subsidiaries
made by such accountants;
(h) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, affecting the
Company or any Subsidiary of the type described in Section 6.04;
(i) promptly after sending, making available, or filing the same,
such reports and financial statements as the Company or any Subsidiary shall
send or make available to the stockholders of the Company or the Commission; and
(j) such other information respecting the business, assets,
liabilities, financial condition, results of operations or prospects of the
Company or any of its Subsidiaries as the Purchaser may from time to time
reasonably request, and to make available to the Purchaser and its
representatives, members of management and employees with significant
responsibilities (such as department heads) for the purposes of updating the
Purchaser as to the condition of the Company and its Subsidiaries.
ARTICLE VIII
EVENTS OF DEFAULT
8.01. Events of Default. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing :
(a) The Company shall fail to pay any installment of principal of
any of the Notes when due; or
(b) The Company shall fail to pay any interest or premium, if any,
on any of the Notes when due; or
(c) The Company shall default in the performance of any covenant
contained in subsections 7.01(m), (n), (o) and (p) or shall default in the
performance of any covenant contained in Section 7.02 for ten (10) consecutive
Business days; or
(d) Any representation or warranty made by the Company in this
Agreement or by the Company (or any of its officers) in any certificate,
instrument or written statement made or delivered pursuant to or in connection
with this Agreement, shall prove to have been incorrect when made in any
material respect; or
(e) The Company or any Subsidiary shall fail to perform or observe
any other term, covenant or agreement contained in this Agreement, the Notes or
the Warrants on its part to be performed or observed and any such failure
remains unremedied for fifteen (15) Business Days after written notice
<PAGE>
thereof shall have been given to the Company by any registered holder of the
Notes; or
(f) The Company or any Subsidiary shall fail to pay any
Indebtedness for Money Borrowed exceeding $100,000 owing by the Company or such
Subsidiary (as the case may be), or any interest or premium thereon, when due
(or, if permitted by the terms of the relevant document, within any applicable
grace period), whether such Indebtedness for Money Borrowed shall become due by
scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise, or shall fail to perform any term, covenant or agreement on its part
to be performed under any agreement or instrument evidencing or securing or
relating to any such Indebtedness for Money Borrowed owing by the Company or any
Subsidiary, as the case may be, when required to be performed (or, if permitted
by the terms of the relevant document, within any applicable grace period), if
the effect of such failure to pay or perform is to accelerate, or to permit the
holder or holders of such Indebtedness for Money Borrowed, or the trustee or
trustees under any such agreement or instrument to accelerate the maturity of
such Indebtedness for Money Borrowed, unless such failure to pay or perform
shall be waived by the holder or holders of such Indebtedness for Money Borrowed
or such trustee or trustees; or
(g) The Company or any Subsidiary shall be involved in financial
difficulties evidenced (i) by its admitting in writing its inability to pay its
debts generally as they become due; (ii) by its commencement of a voluntary case
under Title 11 of the United States Code as from time to time in effect, or by
its authorizing, by appropriate proceedings of its board of directors or other
governing body, the commencement of such a voluntary case; (iii) by its filing
an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief in any involuntary case
commenced under said Title 11; (v) by its seeking relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction relating to the
liquidation or reorganization of debtors or to the modification or alteration of
the rights of creditors, or by its consenting to or acquiescing in such relief;
(vi) by the entry of an order by a court of competent jurisdiction (a) finding
it to be bankrupt or insolvent, (b) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of its creditors,
or (c) assuming custody of, or appointing a receiver or other custodian for, all
or a substantial part of its property; or (vii) by its making an assignment for
the benefit of, or entering into a composition with, its creditors, or
appointing or consenting to the appointment of a receiver or other custodian for
all or a substantial part of its property; or
(h) A Change in Control occurs, which Change in Control is not
consented to specifically with reference to this Section 8.01(h) by the
Purchaser; or
(i) Any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the Company or any Subsidiary and such judgment, writ, or similar
process shall not be released, vacated or fully bonded within sixty (60) days
after its issue or levy;
then, and in any such event,
(1) the Purchaser may, by notice to the Company, declare the entire
unpaid principal amount of the Notes, all interest accrued and unpaid
thereon and all other amounts payable under this Agreement to be forthwith
due and payable, whereupon the Notes, all such accrued interest and all
such amounts shall become and be forthwith due and payable (unless there
shall have occurred an Event of Default under subsection 8.01(g) in which
case all such amounts shall
<PAGE>
automatically become due and payable), without presentment, demand, protest
or further notice of any kind, all of which are hereby expressly waived by
the Company, and
(2) the Purchaser may proceed to protect and enforce their
rights by suit in equity (including without limitation a suit for
rescission), action at law and/or other appropriate proceeding either for
specific performance of any covenant, provision or condition contained or
incorporated by reference in this Agreement or any term of the Articles of
Incorporation of the Company, or in aid of the exercise of any power
granted in this Agreement or in the Articles of Incorporation of the
Company, and, immediately, in the case of Section 8.01(g) hereof, and at
any time after the giving of the Put Notice (as such term is defined in the
Stockholders' Agreement) to the Company pursuant to Section 3.10 of the
Stockholders' Agreement, the theretofore unexercised "put" rights set forth
in Section 3.10 of the Stockholders' Agreement, to the extent not already
exercisable, be deemed to have become immediately exercisable and
thereafter the Purchaser may in such Put Notice to the Company declare all
or part of such theretofore unexercised "put" rights to be forthwith
exercised and due and payable (unless there shall have occurred an Event of
Default under Section 8.01(g) hereof, in which case such "put" rights shall
be automatically exercised and due and payable), whereupon the Repurchase
Price (as such term is defined in the Stockholders' Agreement) for the
Preferred Shares, the Warrants, the Preferred Conversion Shares and the
Warrant Shares subject thereto shall become so due and payable without
presentation, presentment, protest or further demand or notice of any kind,
all of which are expressly waived), and any such holder or holders may
proceed to enforce payment of such amount or part thereof in such manner as
it or they may elect.
Without in any way limiting the rights of the holders of the
Notes, the Company hereby agrees that the holders of the Preferred Shares, the
Warrants, the Preferred Conversion Shares and the Warrant Shares would have no
adequate remedy at law, for monetary compensation or otherwise, for the damages
that would be suffered if the Company were to fail to comply with its
obligations under Article III hereof and Section 3.10 of the Stockholders'
Agreement, and that the Company therefore agrees that the holders of the
Warrants and the Warrant Shares shall be entitled to obtain specific performance
of the Company's obligations under Article III of this Agreement and Section
3.10 of the Stockholders' Agreement.
8.02. Annulment of Defaults. Section 8.01 is subject to the
---------------------
condition that, if at any time after the principal of any of the Notes shall
have become due and payable, and before any judgment or decree for the payment
of the moneys so due, or any portion thereof, shall have been entered, then and
in every such case the holders of sixty-six and two-thirds percent (662/3%) or
more in principal amount of all Notes then outstanding may, by written
instrument filed with the Company, rescind and annul such declaration and its
consequences; but no such rescission or annulment shall extend to or affect any
subsequent default or Event of Default or impair any right consequent thereon.
ARTICLE IX
MISCELLANEOUS
9.01. No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
the Purchaser, or any other holder of the Notes, Preferred Shares, Warrants,
Preferred Conversion Shares or Warrant Shares in exercising any right, power or
remedy hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power or remedy preclude any other or
further exercise thereof or the
<PAGE>
exercise of any other right, power or remedy hereunder. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
9.02. Amendments, Waivers and Consents. Any provision in this
--------------------------------
Agreement, the Notes, the Warrants or the other Operative Documents to the
contrary notwithstanding, changes in or additions to this Agreement may be made,
and compliance with any covenant or provision herein set forth may be omitted or
waived, if the Company shall, as long as any Notes are outstanding, obtain
consent thereto in writing from the holder or holders of at least sixty-six and
two-thirds percent (662/3%) in principal amount of all Notes then outstanding,
or, if no Notes are then outstanding, obtain consent thereto in writing from (i)
the holder or holders of at least sixty-six and two-thirds percent (662/3%) of
the Common Stock issued or issuable upon conversion of the Preferred Shares then
outstanding and (ii) the holder or holders of at least sixty-six and two-thirds
percent (662/3%) of the Common Stock issued and issuable upon exercise of the
Warrants then outstanding, and shall, in any case, deliver copies of such
consent in writing to all other holders of Notes, Preferred Shares and/or
Warrants; provided that no such consent shall be effective to reduce or to
postpone the date fixed for the payment of the principal (including any required
redemption) or interest payable on any Note without the consent of the holder
thereof, or to alter or amend the consent mechanism provided for under this
Section 9.02. Any waiver or consent may be given subject to satisfaction of
conditions stated therein and any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given. Written
notice of any waiver or consent effected under this subsection shall promptly be
delivered by the Company to any holders who did not execute the same.
9.03. Addresses for Notices, Etc. All notices, requests, demands and
--------------------------
other communications provided for hereunder shall be in writing and mailed (by
first class registered or certified mail, postage prepaid), telegraphed, sent by
express overnight courier service or electronic facsimile transmission with a
copy by mail, or delivered to the applicable party at the addresses indicated
below:
If to the Company:
Law Office Information Systems, Inc.
105 North 28th Street
Van Buren, AR 72956
Attn: Kyle D. Parker, President
Telecopy No.: (501) 471-9224
With a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, MA 02109
Attention: Karen L. Linsley, Esq.
Telecopy No.: (617) 338-2880
If to CRL III:
Capital Resource Lenders III, L.P.
c/o Capital Resource Partners
85 Merrimac Street
Suite 200
<PAGE>
Boston, Massachusetts 02114
Attention: Robert C. Ammerman
Telecopy No.: (617) 723-9819
With a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower
125 High Street
Boston, Massachusetts 02110
Attention: Andrew E. Taylor, Jr., Esq.
Telecopy No.: (617) 248-7100
If to any other holder of the Notes, Preferred Shares or Warrants:
at such holder's address for notice as set
forth in the transfer records of the
Company
or, as to each of the foregoing, at such other address as shall be designated by
such Person in a written notice to the other party complying as to delivery with
the terms of this Section. All such notices, requests, demands and other
communications shall, when mailed, telegraphed or sent, respectively, be
effective (i) three days after being deposited in the mails or (ii) one day
after being delivered to the telegraph company, deposited with the express
overnight courier service or sent by electronic facsimile transmission (with
receipt confirmed), respectively, addressed as aforesaid.
9.04. Costs, Expenses and Taxes. The Company agrees to pay on demand all
-------------------------
costs and expenses of the Purchaser in connection with the preparation,
execution and delivery of this Agreement, the Notes, the Preferred Shares, the
Warrants, the other Operative Documents and other instruments and documents to
be delivered hereunder, and in connection with the consummation of the
transactions contemplated hereby and thereby, as well as all costs and expenses
of the Purchaser in connection with the amendment, waiver (whether or not such
amendment or waiver becomes effective) or enforcement of this Agreement, the
Notes, the Preferred Shares, the Warrants, the other Operative Documents, and
other instruments and documents to be delivered hereunder and thereunder.
Notwithstanding the preceding sentence, and in addition to the provisions of
such sentence, the Company agrees to pay on demand all fees and out-of-pocket
expenses of Testa, Hurwitz & Thibeault, LLP, special counsel to the Purchaser,
in connection with the transactions contemplated by this Agreement, including
any amendment, waiver (whether or not such amendment or waiver becomes
effective) or enforcement of this Agreement, the Notes, the Preferred Shares,
the Warrants, the Operative Documents, and other instruments and documents to be
delivered hereunder and thereunder. In addition, the Company agrees to pay any
and all stamp and other taxes payable or determined to be payable in connection
with the execution and delivery of this Agreement, the Notes, the Preferred
Shares, the Warrants, the other Operative Documents, and the other instruments
and documents to be delivered hereunder or thereunder and the Company agrees to
save the Purchaser harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes
and filing fees.
9.05. Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the Company and the Purchaser and their respective
successors and assigns, except that the
<PAGE>
Company shall not have the right to assign its rights hereunder or any interest
therein without the prior written consent of the Purchaser. Except as expressly
set forth herein, nothing in this Agreement shall confer any claim, right,
interest or remedy on any third party or inure to the benefit of any third
party.
9.06. Payments in Respect of Notes. The Purchaser and any successor
----------------------------
holder of the Notes, by their acceptance thereof, agree that, with respect to
all sums received by them applicable to the payment of principal of or interest
on the Notes, equitable adjustment will be made among them so that, in effect,
all such sums shall be shared ratably by all of the holders of the Notes whether
received by voluntary payment, by realization upon security, by the exercise of
the right of setoff, by counterclaim or cross-action or by the enforcement of
any or all of the Notes. If any holder of the Notes receives any payment on its
Notes in excess of its pro rata portion, then such holder receiving such excess
payment shall purchase for cash from the other holders an interest in their
Notes in such amounts as shall result in a ratable participation by all of the
holders in the aggregate unpaid amount of Notes then outstanding. The Company
shall not have any obligation to any Person under this Section 9.06.
9.07. Payments in Respect of the Preferred Shares and Warrants. The
--------------------------------------------------------
Purchaser and any successor holder of the Preferred Shares or Warrants, by their
acceptance thereof, agree that, with respect to the sale to, or repurchase by,
the Company or any Person directly or indirectly affiliated with the Company or
any of its directors, officers, or shareholders, of the Preferred Shares or the
Warrants, equitable adjustment will be made among the holders of the Preferred
Shares or the Warrants so that in effect all sums so received shall be shared
ratably in proportion to their respective holdings of the Preferred Shares or
Warrants. If any holder of the Preferred Shares or the Warrants receives any
such sum in respect of its Preferred Shares or Warrants in excess of its pro
rata portion, then such holder receiving such excess shall purchase for cash
from the other holders of the Preferred Shares or the Warrants an interest in
their Preferred Shares or Warrants in such amount as shall result in a ratable
participation of all of the holders in the aggregate of all Preferred Shares or
Warrants then outstanding. The Company shall not have any obligation to any
Person under this Section 9.07.
9.08. Indemnification. The Company agrees to indemnify and hold
---------------
harmless the Purchaser, its subsidiaries, directors, officers, partners, counsel
and employees, from and against any and all liability (including, without
limitation, reasonable legal fees incurred in defending against any such
liability) under, arising out of or relating to this Agreement, the Notes, the
Warrants and the Warrant Shares, the transactions contemplated hereby or thereby
or in connection herewith or therewith, including (to the maximum extent
permitted by law) any liability arising under federal or state securities laws,
except to the extent such liability shall result from any act or omission on the
part of such Purchaser or its employees, agents, brokers or other
representatives. The obligations of the Company under this Section 9.08 shall
survive and continue to be in full force and effect notwithstanding (a) the
repayment of the Notes and (b) the termination of this Agreement.
9.09. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties made in this Agreement, the Notes, the Warrants, the Operative
Documents or any other instrument or document delivered in connection herewith
or therewith, shall survive the execution and delivery hereof and thereof,
regardless of any investigation made by the Purchaser or on behalf of the
Purchaser .
9.10. Prior Agreements. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes any prior understandings or agreements con
cerning the subject matter hereof.
9.11. Severability . The invalidity or unenforceability of any provision
------------
hereof shall in no way affect the validity or enforceability of any other
provision.
<PAGE>
9.12. Governing Law. This Agreement shall be governed by, and construed
-------------
in accordance with, the internal laws of The Commonwealth of Massachusetts.
9.13. Waiver of Right to Jury Trial. The parties hereby waive all
-----------------------------
rights to a trial by jury for all legal proceedings concerning this Agreement,
the Notes or the Warrants.
9.14. Headings. Article, Section and subsection headings in this
--------
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
9.15. Sealed Instrument. This Agreement is executed as an
-----------------
instrument under seal.
9.16. Counterparts. This Agreement may be executed in any number
------------
of counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Agreement by signing
any such counterpart.
9.17. Further Assurances. From and after the date of this Agreement,
------------------
upon the request of the Purchasers, the Company and each Subsidiary shall
execute and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement, the Notes and the Warrants.
9.18. Consent to Jurisdiction. The Company irrevocably submits to the
-----------------------
non-exclusive jurisdiction of any state or federal court sitting in The
Commonwealth of Massachusetts over any suit, action or proceeding arising out of
or relating to this Agreement or any of the Notes, the Preferred Shares, the
Warrants, the Preferred Conversion Shares or Warrant Shares. To the fullest
extent it may effectively do so under applicable law, the Company irrevocably
waives and agrees not to assert, by way of motion, as a defense or otherwise,
any claim that it is not subject to the jurisdiction of any such court, any
objection that it may now or hereafter have to the laying of the venue of any
such suit, action or proceeding brought in any such court and any claim that any
such suit, action or proceeding brought in any such court has been brought in an
inconvenient forum.
9.19. Effect of Judgment. The Company agrees, to the fullest extent
------------------
it may effectively do so under applicable law, that a judgment in any suit,
action or proceeding of the nature referred to in Section 9.18 brought in any
such court shall, subject to such rights of appeal on issues other than
jurisdiction as may be available to the Company, be conclusive and binding upon
the Company and may be enforced in the courts of the United States of America or
The Commonwealth of Massachusetts (or any other courts to the jurisdiction of
which the Company is or may be subject) by a suit upon such judgment.
9.20. Service of Process. The Company consents to service of process in
------------------
any suit, action or proceeding of the nature referred to in Section 9.18 by
actual receipt of a copy thereof by registered or certified mail, postage
prepaid, return receipt requested, to the address of the Company specified in or
designated pursuant to Section 9.03. The Company agrees that such service (i)
shall be deemed in every respect effective service of process upon the Company
in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by law, be taken and held to be valid personal service upon and
personal delivery to the Company.
9.21. No Limitation. Nothing in Section 9.18, 9.19, 9.20 or 9.22 shall
-------------
affect the right of any Purchaser to serve process in any manner permitted by
law, or limit any right that any Purchaser may have to bring proceedings against
the Company in the courts of any jurisdiction or to enforce in any lawful
<PAGE>
manner a judgment obtained in one jurisdiction in any other jurisdiction.
9.22. Specific Performance. Upon breach or default by the Company
--------------------
with respect to any obligation hereunder, under the Notes, the Preferred Shares,
the Warrants, the Preferred Conversion Shares or the Warrant Shares the
Purchaser shall be entitled to protect and enforce its rights at law, or in
equity or by other appropriate proceedings for specific performance of such
obligation, or for an injunction against such breach or default, or in aid of
the exercise of any power or remedy granted hereby or thereby or by law.
9.23. Actions by Purchaser. Wherever in this Agreement action is
--------------------
required or permitted to be taken by, or consent is required of, or a matter
requires the satisfaction of, the Purchaser, unless the context otherwise
requires, such action may be taken by, and/or such consent may be obtained from,
and/or such satisfaction may be expressed by, (i) for as long as any of the
Notes remain outstanding, the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the principal amount of all Notes then outstanding, or (ii)
if no Notes are then outstanding, the holders of at least sixty-six and two
thirds percent (66 2/3%) of the Common Stock issued and issuable upon conversion
of the Preferred Shares then outstanding and the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the Common Stock issued and issuable upon
exercise of the Warrants then outstanding.
9.24. Confidentiality. The Company's obligations under Sections
---------------
7.02(f) and 7.03 shall at all times be contingent upon the Purchaser's
agreement, and the Purchaser hereby agrees, to take all reasonable precautions
to safeguard the confidentiality of the information received by or disclosed to
the Purchaser by the Company in the fulfillment of the Company's obligations
under such Sections and to refrain from disclosure of such information to anyone
other than a person who will assist the Purchaser in evaluating the Company or
to the Purchaser's accountants, attorneys and other professional advisors and,
in the case of Section 7.03, to its equity investors (but only to the extent
reasonably necessary to meet the Purchaser's reporting obligations).
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Senior
Subordinated Note and Securities Purchase Agreement as of the date first above
written.
LAW OFFICE INFORMATION SYSTEMS, INC.
By: /s/ Kyle D. Parker
-------------------------------------------
Name: Kyle D. Parker
Title: President
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
Its General Partner
By: /s/ Robert C. Ammerman
-------------------------------------------
<PAGE>
EXHIBIT 10.18
(cont.)
AMENDMENT
This Amendment dated as of June 29, 1998 (this "Amendment") amends that
certain Senior Subordinated Note and Securities Purchase Agreement dated as of
November 24, 1997 (the "Purchase Agreement") among Law Office Information
Systems, Inc. (the "Company") and Capital Resource Lenders III, L.P. ("CRL
III").
WHEREAS, pursuant to the Purchase Agreement (i) the Company issued and sold
to CRL III (A) 12.5% Senior Subordinated Notes due 2004 of the Company dated
November 24, 1997 in the aggregate principal amount of $4,000,000 (the "Notes"),
(B) an aggregate of 931,044 shares of Series A Convertible Preferred Stock, par
value $.001 per share, of the Company (the "Preferred Shares"), and (C) Common
Stock Purchase Warrants (the "Warrants") to purchase up to an aggregate of
972,293 shares of Common Stock, par value $.001 per share, of the Company; and
(ii) CRL III agreed to purchase from the Company up to an additional $6,000,000
aggregate principal amount of 12.5% Senior Subordinated Notes due 2004 of the
Company at separate closings to be held on March 31, 1998 (the "First Takedown
Closing") and June 30, 1998 (the "Second Takedown Closing"),
WHEREAS, pursuant to an Assignment, Assumption and Consent dated as of
January 1, 1998 (the "Assignment Agreement") by and among the Company, CRL III,
CRP Investment Partners III, LLC ("CRP Investment") and Rowland Moriarty
("Moriarty" and, together with CRL III and CRP Investment, the "Purchasers"),
(i) CRL III assigned, transferred and set over a portion of its rights,
interests and obligations associated with the Notes, the Preferred Shares and
the Warrants to CRP Investment and Moriarty, including the right and obligation
under Article II of the Purchase Agreement for CRP Investment and Moriarty to
purchase its Pro Rata Share (as such term is defined in the Assignment
Agreement) of the First Takedown Principal and the Second Takedown Principal at
the First Takedown Closing and the Second Takedown Closing, respectively, and
(ii) CRP Investment and Moriarty each agreed to accept the rights and assume the
performance of the obligations transferred by CRL III under the Assignment
Agreement;
WHEREAS, the First Takedown Closing occurred on March 2, 1998 and at such
First Takedown Closing the Company issued and sold to the Purchasers Notes in
the aggregate principal amount of $3,000,000; and
WHEREAS, the Company and the Purchasers hereby desire to extend the date of
the Second Takedown Closing to December 31, 1998 and amend the Purchase
Agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the agreements herein
contained, and intending to be bound hereby, the parties hereby agree as
follows:
1. Amendment of Purchase Agreement.
-------------------------------
1
<PAGE>
1.01. Section 1.01 of the Purchase Agreement shall be amended by adding
the following defined terms:
"Assignment Agreement" shall mean that certain Assignment,
--------------------
Assumption and Consent dated as of January 1, 1998 among the Company, CRL
III, CRP Investment Partners, a Delaware limited partnership, and Rowland
Moriarty.
"CRL III Guarantees" means any and all guarantees by CRL III in
------------------
favor of Fleet National Bank and on behalf of the Company.
"Guaranty Amount" means, at any time, the maximum amount being
---------------
guaranteed by CRL III under any and all CRL III Guarantees in effect at
such time.
"Purchasers" shall mean CRL III, CRP Investment Partners III, LLC, a
----------
Delaware limited liability company, and Rowland Moriarty, and their
successors and assigns.
1.02. Section 2.01(c) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(c) The purchase and sale of up to an additional $3,000,000
aggregate principal amount of Notes shall take place at a closing (the "Second
Takedown Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP,
High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m. local
time on December 31, 1998 (the "Second Takedown Closing Date"), upon written
notice (the "Second Takedown Notice") given by the Company to the Purchasers at
least twenty (20) days prior to the Second Takedown Closing Date. Such Second
Takedown Notice shall specify the aggregate principal amount (the "Second
Takedown Principal") of the Notes to be issued and sold at such Second Takedown
Closing, which Second Takedown Principal shall not exceed $3,000,000 less the
----
Guaranty Amount, if any. At the Second Takedown Closing, the Company will issue
and sell to each Purchaser a single Note, dated the Second Takedown Closing
Date, in the principal amount equal to such Purchaser's Pro Rata Share (as such
term is defined in the Assignment Agreement) of the Second Takedown Principal,
against receipt of funds by wire transfer to an account or accounts designated
by the Company prior to such Second Takedown Closing in the amount of such
Purchaser's Pro Rata Share of the Second Takedown Principal, in payment of the
purchase price for such Note. The First Takedown Closing and the Second Takedown
Closing are sometimes herein referred to individually as a "Takedown Closing"
and collectively as the "Takedown Closings").
2. Miscellaneous.
2.01. Effect. The Assignment Agreement shall remain in full force and
------
effect and, except as amended hereby, the Purchase Agreement shall remain in
full force and effect.
2.02. No Waiver. This Amendment is effective only in the specific
---------
instance and for the specific purpose for which it is executed and shall not be
considered a waiver or agreement to amend as to any provision of the Purchase
Agreement (as amended) in the future.
2
<PAGE>
2.03. Defined Terms. All capitalized terms used but not specifically
-------------
defined herein shall have the same meanings given such terms in the Purchase
Agreement unless the context clearly indicates or dictates a contrary meaning.
2.04. Notices. All notices, requests, demands and other communications
-------
provided for in this Amendment shall be delivered in compliance with Section
9.03 of the Purchase Agreement.
2.05. Costs, Expenses, Taxes. The Company agrees to pay on demand all
----------------------
costs and expenses of the Purchasers in connection with the preparation,
execution and delivery of this Amendment and other instruments and documents to
be delivered hereunder, including the reasonable fees and out-of-pocket expenses
of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers.
2.06. Governing Law. This Amendment shall be governed by, and construed
-------------
and enforced in accordance with, the internal laws of The Commonwealth of
Massachusetts.
2.07. Seal. This Amendment is executed as an instrument under seal.
----
2.08. Counterparts. This Amendment may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Amendment by signing
any of such counterparts.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or have
caused it to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
Law Office Information Systems, Inc.
By: /s/ Kyle D. Parker
--------------------------------
Name: Kyle D. Parker
Title: President
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
Its General Partner
By: /s/ Robert C. Ammerman
--------------------------------
CRP INVESTMENT PARTNERS III, LLC
By: /s/ Robert C. Ammerman
---------------------------------
/s/ Rowland Moriarty
------------------------------------------
Rowland Moriarty
4
<PAGE>
-1-
EXHIBIT 10.18
(cont.)
AMENDMENT NO. 2
This Amendment No. 2 dated as of August 20, 1998 (this "Amendment") by and
among the Company, Capital Resource Lenders III, L.P. ("CRL III"), CRP
Investment Partners III, L.L.C. ("CRP Investment") and Rowland Moriarty
("Moriarty" and together with CRL III and CRP Investment, the "Purchasers")
amends that certain Senior Subordinated Note and Securities Purchase Agreement
dated as of November 24, 1997 by and between the Company and CRL III, as amended
by that certain Amendment dated as of June 29, 1998 ("Amendment No. 1") by and
among the Company, CRL III, CRP Investment and Moriarty (as so amended by
Amendment No. 1, the "Purchase Agreement").
WHEREAS, pursuant to the Purchase Agreement and that certain Assignment,
Assumption and Consent dated as of January 1, 1998 (the "Assignment Agreement")
by and among the Company and the Purchasers, the Company has issued and sold to
the Purchasers (i) 12.5% Senior Subordinated Notes due 2004 (the "Notes") of the
Company dated November 24, 1997 in the aggregate principal amount of $7,000,000,
(ii) an aggregate of 931,044 shares of Series A Convertible Preferred Stock, par
value $.001 per share, of the Company, and (iii) Common Stock Purchase Warrants
to purchase up to an aggregate of 972,293 shares of Common Stock, par value
$.001 per share, of the Company;
WHEREAS, pursuant to Section 2.01(c) of the Purchase Agreement, the
Purchasers remain obligated to purchase additional Notes (a) on December 31,
1998 such that the aggregate amount of outstanding Notes issued on December 31,
1998 is equal to a minimum of $3,000,000 Less the Maximum Cumulative Liability
----
(as such term is defined in the CRL III Guaranty), and (b) on May 31, 1999 such
that the aggregate amount of outstanding Notes issued on December 31, 1998 and
May 31, 1999 is equal to a minimum of $3,000,000 less the Maximum Cumulative
----
Liability (as such term is defined in the CRL III Guaranty).
WHEREAS, (i) the Company and the Bank have entered into a Credit Agreement
dated as of the date hereof (the "Loan Agreement"), pursuant to which the Bank
has agreed, subject to the terms and conditions set forth therein, to establish
a credit facility in the original aggregate principal amount of $10,000,000 in
favor of the Company, and (ii) as contemplated by the Credit Agreement, CRL III
has executed a Limited Guaranty dated the date hereof (the "CRL III Guaranty")
in favor of the Bank, pursuant to which CRL III has agreed to guarantee certain
obligations of the Company under the Loan Agreement; and
WHEREAS, as a condition to the Loan Agreement and in connection with the
consummation of the transactions contemplated thereby, the parties hereto desire
to amend the Purchase Agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the agreements herein
contained, and intending to be bound hereby, the parties hereby agree as
follows:
1. Amendment of Purchase Agreement.
-------------------------------
<PAGE>
-2-
1.01. Section 1.01 of the Purchase Agreement shall be amended by deleting
in their entirety the following definitions: "CRL Guarantees," "EFT
Financing," "Fixed Assets," "Guaranty Amount," "Interest Expense," "Net Income,"
"Net Loss" and "Total Funded Debt."
1.02. Section 1.01 of the Purchase Agreement shall be further amended by
amending the definitions of "EBITDA" and "Senior Debt" to read in their entirety
as follows and by adding the following other defined terms:
"Adjusted Current Assets" shall mean, as of any date of
-----------------------
determination, the sum of (i) cash and cash equivalents and (ii) the
Maximum Cumulative Liability (as defined under the CRL III Guaranty) plus
the amount of the CRL Subordinated Creditors' aggregate unfunded commitment
obligations under Section 2.02(c) of this Agreement and (iii) Net Accounts
Receivable.
"Adjusted Current Liabilities" shall mean, as of any date of
----------------------------
determination, (i) current liabilities (as determined in accordance GAAP
consistently applied) less (ii) Deferred Revenue.
"Adjusted EBITDA" shall mean, as of any date of determination,
---------------
EBITDA for the twelve (12) month period ending on such date minus the sum
of (i) those amounts attributable to Capital Expenditures during such
twelve (12) month period, which such amounts have not been incurred in
violation of Section 5.27 of the Loan Agreement, and (ii) all taxes due or
payable with respect to such twelve (12) month period.
"Bank" means and shall include Fleet National Bank, a national
----
banking association, and its successors and assigns.
"Capital Expenditures" shall mean expenditures which are properly
--------------------
chargeable to capital account under GAAP (including Capital Leases).
"CRL III Guaranty" shall mean that certain Limited Guaranty dated as
----------------
of August 20, 1998 executed by CRL III in favor of the Bank, pursuant to
which CRL III has agreed to guarantee certain obligations of the Company
under the Loan Agreement.
"Debt Service" shall mean, as at any date of determination, the sum
------------
of (i) consolidated interest expense of the Company and its Subsidiaries
for the twelve month period ending on such date, plus (ii) schedule
principal payments on long term debt (including, without limitation, all
Indebtedness of the Company to the Bank and the Purchasers) for the twelve
month period commencing on the date following such date of determination,
plus (iii) any amounts paid by the Company in respect of the Deferred
Facility Fee (as such term is defined in the Loan Agreement) during the
twelve month period ending on such date, all as determined in accordance
with GAAP consistently applied.
<PAGE>
-3-
"Deferred Revenue" shall mean all liabilities of the Company under
----------------
subscription contracts, which under GAAP consistently applied are recorded
as deferred revenues.
"EBITDA" shall mean, as of any date of determination, the sum of the
------
consolidated pre-tax earnings of the Company and its Subsidiaries, plus to
----
the extent deducted in calculating pre-tax earnings, consolidated
depreciation, amortization and interest expense of the Company and its
Subsidiaries.
"Loan Agreement" shall mean that certain Credit Agreement dated as
--------------
of August 20, 1998 by and between the Company and the Bank, as from time to
time amended and in effect between the parties thereto.
"Net Accounts Receivable" shall mean, as of any date of
-----------------------
determination, the consolidated accounts receivable of the Company less all
applicable reserves (in each case, as determined in accordance with GAAP
consistently applied).
"Net Intangible Assets" shall mean the total book value of all
---------------------
assets of the Company and its Subsidiaries which would be treated as
intangible assets under GAAP, including without limitation, such items as
goodwill, trademarks, trade names, service marks, brand names, copyrights,
patents and licenses, and right with respect to the foregoing.
"Renewal Rate" shall mean as of any date of determination, the
------------
percentage of the Company's and its Subsidiaries' customers whose
subscriptions come up for renewal during the relevant fiscal year that
renew their subscriptions with the Company and/or its Subsidiaries, on
terms no less favorable than those terms generally being offered by the
Company and its Subsidiaries at the time of each such renewal.
"Senior Debt" means (i) all Indebtedness for Money Borrowed of the
-----------
Company and any of its Subsidiaries from the Bank pursuant to the Loan
Agreement or from other banks or institutional lenders, including any
extensions or renewals thereof, whether outstanding on the date hereof or
hereafter created or incurred, which is not by its terms subordinate and
junior to the Notes and which is disclosed on the Financial Statements or
is permitted by this Agreement at the time it is created or incurred, (ii)
all Indebtedness for Money Borrowed of the Company and any of its
Subsidiaries incurred to refinance any of the Indebtedness for Money
Borrowed referred to in item (i) above, where the security securing such
Indebtedness is substantially the same security as that securing the
Indebtedness for Money Borrowed being refinanced, (iii) all obligations of
the Company and any of its Subsidiaries under Capital Leases which are
permitted by this Agreement at the time they are incurred and (iv) all
guarantees by the Company and any of its Subsidiaries which are not by
their terms subordinate and junior to the Notes and which are permitted
hereby at the time they are made of Indebtedness of any Subsidiary if such
Indebtedness would have been Senior Debt pursuant to the provisions of
clause (i), (ii) or (iii) of this sentence had it been Indebtedness of the
Company.
<PAGE>
-4-
"Tangible Capital Base" shall mean, as of any date of determination,
---------------------
the sum of (i) stockholders' equity (as determined in accordance with GAAP
consistently applied), (ii) Subordinated Debt and (iii) the Maximum
Cumulative Liability (as defined under the CRL III Guaranty) plus the
amount of the CRL Subordinated Creditors' aggregate unfunded commitment
obligations under Section 2.02(c) of the CRL Purchase Agreement less Net
Intangible Assets, provided, however, that the database assets, to the
extent under GAAP they are included as net intangible assets, shall not be
included as Net Intangible Assets.
1.03. Section 2.02(c) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(c)(i) The purchase and sale of up to an additional $3,000,000
aggregate principal amount of Notes shall take place at a closing (the
"Second Takedown Closing") to be held at the offices of Testa, Hurwitz &
Thibeault, LLP, High Street Tower, 125 High Street, Boston, Massachusetts,
at 10:00 a.m. local time on December 31, 1998 (the "Second Takedown Closing
Date"), upon written notice (the "Second Takedown Notice") given by the
Company to the Purchasers at least twenty (20) days prior to the Second
Takedown Closing Date. Such Second Takedown Notice shall specify the
aggregate principal amount (the "Second Takedown Principal") of the Notes
to be issued and sold at such Second Takedown Closing, which Second
Takedown Principal shall not exceed $3,000,000 less the Maximum Cumulative
----
Liability (as such term is defined in the CRL III Guaranty) of CRL III
under the CRL III Guaranty as of the Second Takedown Closing Date. At the
Second Takedown Closing, the Company will issue and sell to each Purchaser
and each purchaser shall have the obligation to purchase a single Note,
dated the Second Takedown Closing Date, in the principal amount equal to
such Purchaser's Pro Rata Share (as such term is defined in the Assignment
Agreement) of the Second Takedown Principal, against receipt of funds by
wire transfer to an account or accounts designated by the Company prior to
such Second Takedown Closing in the amount of such Purchaser's Pro Rata
Share of the Second Takedown Principal, in payment of the purchase price
for such Note ; and (ii) the purchase and sale of up to an additional
$3,000,000 aggregate principal amount of Notes shall take place at a
closing (the "Third Takedown Closing") to be held at the offices of Testa,
Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts, at 10:00 a.m. local time on May 31, 1999 (the "Third
Takedown Closing Date"), upon written notice (the "Third Takedown Notice")
given by the Company to the Purchasers at least twenty (20) days prior to
the Third Takedown Closing Date. Such Third Takedown Notice shall specify
the aggregate principal amount (the "Third Takedown Principal") of the
Notes to be issued and sold at such Third Takedown Closing, which Third
Takedown Principal, when aggregated with the Second Takedown Principal,
shall not exceed $3,000,000 less the Maximum Cumulative Liability (as such
----
term is defined in the CRL III Guaranty) of CRL III under the CRL III
Guaranty as of the Third Takedown Closing Date. At the Third Takedown
Closing, the Company will issue and sell to each Purchaser and each
purchaser shall have the obligation to purchase a single Note, dated the
Third Takedown Closing Date, in the principal amount equal to such
Purchaser's Pro Rata Share (as such term is
<PAGE>
-5-
defined in the Assignment Agreement) of the Third Takedown Principal,
against receipt of funds by wire transfer to an account or accounts
designated by the Company prior to such Third Takedown Closing in the
amount of such Purchaser's Pro Rata Share of the Third Takedown Principal,
in payment of the purchase price for such Note. The First Takedown Closing,
the Second Takedown Closing and the Third Takedown Closing are sometimes
herein referred to individually as a "Takedown Closing" and collectively as
the "Takedown Closings").
1.04. Section 2.12 of the Purchase Agreement is hereby amended to read in
its entirety as follows:
2.12. Subordination. The Indebtedness evidenced by the Notes and
-------------
the rights and remedies of the Purchasers under this Agreement shall be
subordinate and junior to certain Indebtedness of the Company to the Bank
in the manner and to the extent provided in the Subordination and
Intercreditor Agreement dated as of August 20, 1998 by and among the Bank,
the Company and the Purchasers (the "Subordination Agreement").
1.05. Section 7.01(m) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(m) Minimum Annual Revenue. The consolidated revenues of the
----------------------
Company and its Subsidiaries shall not be less than the amounts set forth
below as of the end of each fiscal period set forth below:
Period Minimum Annual Revenue
------ ----------------------
January 1, 1998 to December 31, 1998 $ 5,850,000
January 1, 1999 to December 31, 1999 $13,500,000
January 1, 2000 to December 31, 2000 $27,000,000
1.06. Section 7.01(n) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(n) Minimum Quick Ratio. The ratio of (a) consolidated Adjusted
-------------------
Current Assets to (b) consolidated Adjusted Current Liabilities shall not
be less than 1.50 to 1.0 as at the end of each three (3) month period
ending on each fiscal quarter commencing with the fiscal quarter ending
June 30, 1998.
1.07. Section 7.01(o) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(o) Minimum Tangible Capital Base. The Tangible Capital Base
-----------------------------
shall not be less than the amounts set forth below at the end of each three
(3) month fiscal period set forth below:
<PAGE>
-6-
Period Minimum Tangible Capital Base
------ -----------------------------
July 1, 1998 to September 30, 1998 $4,770,000
October 1, 1998 to December 31, 1998 $4,140,000
January 1, 1999 to March 31, 1999 $2,520,000
April 1, 1999 to June 30, 1999 $1,350,000
July 1, 1999 to September 30, 1999 $ 585,000
October 1, 1999 to December 31, 1999 $ 200,000
In addition, for the three (3) month quarterly fiscal period ending
after March 31, 2000, and for each three (3) month quarterly fiscal period
ending thereafter, the Borrower and its Subsidiaries shall have a Tangible
Capital Base of not less than $495,000.
1.08. Section 7.01(p) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(p) Debt Service Coverage. The ratio of (a) consolidated
---------------------
Adjusted EBITDA to (b) consolidated Debt Service of the Company and its
Subsidiaries shall not be less than 1.10 to 1.0 at the end of each twelve
(12) month period ending on each fiscal quarter commencing with the fiscal
quarter ending December 31, 1999; provided, however, that Adjusted EBITDA
-------- -------
for the twelve (12) month period ending December 31, 1999 shall be based
upon the annualized nine (9) month period commencing April 1, 1999 and
ending December 31, 1999.
1.09. Section 7.01(q) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(q) Maximum Quarterly Net Losses; Minimum Income. The Company
--------------------------------------------
and its Subsidiaries shall not, during each three (3) month quarterly
fiscal period set forth below, have a consolidated net loss (denoted in
parentheses) (as determined in accordance with GAAP consistently applied)
in excess of the amount set forth opposite such three (3) month fiscal
period:
Period Maximum Consolidated Net Loss
------ -----------------------------
July 1, 1998 to September 30, 1998 *($1,650,000)
October 1, 1998 to December 31, 1998 *($1,100,000)
January 1, 1999 to March 31, 1999 *($2,200,000)
April 1, 1999 to June 30, 1999 *($1,925,000)
July 1, 1999 to September 30, 1999 *($1,375,000)
October 1, 1998 to December 31, 1999 * ($550,000)
* Less than or equal to
In addition, for each three (3) month quarterly fiscal period ending
after December 31, 1999, the Company and its Subsidiaries shall have
positive consolidated net income (as determined in accordance with
generally accepted accounting principles consistently
<PAGE>
-7-
applied) of not less than $1.00.
1.10. Section 7.01(r) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(r) Renewal Rate. The consolidated Company's Renewal Rate shall
------------
not be less than eighty percent (70%) as of the end of each twelve (12)
month period ending on each fiscal year of the Company, commencing with the
fiscal year ending December 31, 1998.
1.11. Section 7.02(b) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(b) Indebtedness. Without the prior written consent of the
Purchasers, create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any liability with
respect to Indebtedness except for (1) up to $12,500,000 in the aggregate
(exclusive of interest, fees, expenses, costs, protective advances and
other amounts which may be added to principal under the Loan Agreement) in
Senior Debt, (2) current liabilities, other than for Indebtedness for Money
Borrowed, which are incurred in the ordinary course of business, (3)
purchase money security interests securing the purchase of equipment to be
used in connection with the business of the Company and its Subsidiaries,
and (5) the Notes, provided that the incurrence of all such Indebtedness
does not result in the Company's or any Subsidiary's failure to comply with
any of the provisions of Article VII hereof.
1.12. Section 7.02(l) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(l) Capital Expenditures. Make, or permit any Subsidiary to
--------------------
make or incur, Capital Expenditures in an aggregate amount in excess of
$1,650,000 in fiscal year 1998, and $1,100,000 in any fiscal year
thereafter.
1.13. Section 7.03(e) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(e) at the time of delivery of each monthly and annual statement,
a certificate, executed by the chief financial officer of the Company,
stating that such officer has caused this Agreement, the Notes, and the
Warrants to be reviewed and has no knowledge of any default by the Company
or any Subsidiary in the performance or observance of any of the provisions
of this Agreement, the Notes or the Warrants or, if such officer has such
knowledge, specifying such default and the nature thereof, and setting
forth computations in reasonable detail demonstrating compliance with the
provisions of subsections 7.01(m), (n), (o) (p), (q) and (r) and
subsections 7.02(b) and (d);
1.14. Section 7.03(f) of the Purchase Agreement is hereby amended to read
in its
<PAGE>
-8-
entirety as follows:
(f) at the time of delivery of each annual statement, a
certificate executed by the Company's independent public accountants,
setting forth computations in reasonable detail demonstrating compliance
with the provisions of subsections 7.01(m), (n), (o), (p), (q) and (r) and
subsections 7.02(b) and (d);
1.15. Section 8.01(c) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(c) The Company shall default in the performance of any covenant
contained in subsections 7.01(m), (n), (o), (p), (q) and (r) or shall
default in the performance of any covenant contained in Section 7.02 for
ten (10) consecutive Business days; or
1.16. The Purchase Agreement is hereby amended to add a new Section
7.02(o) which shall read in its entirety as follows:
(o) Prepayments under Loan Agreement. Without the prior written
--------------------------------
consent of the Purchasers, make any prepayments of principal or interest
under the Revolving Credit or the Equipment Line of Credit (as such terms
are defined in the Loan Agreement), until such time as all outstanding SBLC
Line of Credit Advances (including all SBLC Line of Credit Advances
evidenced by the SBLC Line of Credit Term Note) (as such terms are defined
in the Loan Agreement) have been repaid to the Bank in full.
1.17. The Purchase Agreement is hereby amended to add a new Section
7.02(p) which shall read in its entirety as follows:
(p) Borrowings under the SBLC Line of Credit. Without the prior
----------------------------------------
written consent of the Purchasers, make (i) any requests for SBLC Line of
Credit Advances (as such term is defined in the Loan Agreement) pursuant to
Section 2.04(f) of the Loan Agreement or (ii) any requests of the Bank to
issue L/C's (as such term is defined in the Loan Agreement) pursuant to
Section 2.05(a) of the Loan Agreement.
2. Consent to Credit Documents.
The Purchasers hereby consent to the Company entering into the Loan
Agreement and the Credit Documents (as such term is defined in the Loan
Agreement).
3. Miscellaneous.
3.01. Effect. The Assignment Agreement shall remain in full force and
------
effect and, except as amended hereby, the Purchase Agreement shall remain in
full force and effect .
3.02. No Waiver. This Amendment is effective only in the specific
---------
instance and for the specific purpose for which it is executed and shall not be
considered a waiver or agreement to
<PAGE>
-9-
amend as to any provision of the Purchase Agreement (as amended) in the future.
3.03. Defined Terms. All capitalized terms used but not specifically
-------------
defined herein shall have the same meanings given such terms in the Purchase
Agreement unless the context clearly indicates or dictates a contrary meaning.
3.04. Notices. All notices, requests, demands and other communications
-------
provided for in this Amendment shall be delivered in compliance with Section
9.03 of the Purchase Agreement.
3.05. Costs, Expenses, Taxes. The Company agrees to pay on demand all
----------------------
costs and expenses of the Purchasers in connection with the preparation,
execution and delivery of this Amendment and other instruments and documents to
be delivered hereunder, including the reasonable fees and out-of-pocket expenses
of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers.
3.06. Governing Law. This Amendment shall be governed by, and construed
-------------
and enforced in accordance with, the internal laws of The Commonwealth of
Massachusetts.
3.07. Seal. This Amendment is executed as an instrument under seal.
----
3.08. Counterparts. This Amendment may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Amendment by signing
any of such counterparts.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-10-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or
have caused it to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
LAW OFFICE INFORMATION SYSTEMS, INC.
By: /s/ Kyle D. Parker
----------------------------------------
Name: Kyle D. Parker
Title: President
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
Its General Partner
By: /s/ Robert C. Ammerman
-----------------------------------------
CRP INVESTMENT PARTNERS III, LLC
By: /s/ Robert C. Ammerman
-----------------------------------------
/s/ Rowland Moriarty
--------------------------------------------
Rowland Moriarty
<PAGE>
-1-
EXHIBIT 10.18
(cont.)
1/12/98
AMENDMENT NO. 3
This Amendment No. 3 dated as of November 30, 1998 (this "Amendment") by
and among the Company, Capital Resource Lenders III, L.P. ("CRL III"), CRP
Investment Partners III, L.L.C. ("CRP Investment") and Rowland Moriarty
("Moriarty" and together with CRL III and CRP Investment, the "Purchasers")
amends that certain Senior Subordinated Note and Securities Purchase Agreement
dated as of November 24, 1997 by and between the Company and CRL III, as amended
by that certain Amendment dated as of June 29, 1998 by and among the Company and
the Purchasers and that certain Amendment No. 2 dated as of August 20, 1998 by
and among the Company and the Purchasers (as so amended, the "Purchase
Agreement").
WHEREAS, pursuant to the Purchase Agreement and that certain Assignment,
Assumption and Consent dated as of January 1, 1998 (the "Assignment Agreement")
by and among the Company and the Purchasers, the Company has issued and sold to
the Purchasers (i) 12.5% Senior Subordinated Notes due 2004 (the "Notes") of the
Company in the aggregate principal amount of $7,000,000, (ii) an aggregate of
931,044 shares of Series A Convertible Preferred Stock, par value $.001 per
share, of the Company, and (iii) Common Stock Purchase Warrants to purchase up
to an aggregate of 972,293 shares of Common Stock, par value $.001 per share, of
the Company;
WHEREAS, pursuant to Section 2.02(c) of the Purchase Agreement, the
Purchasers remain obligated to purchase additional Notes at separate Takedown
Closings; and
WHEREAS, the Company and the Purchasers desire to amend Sections 1.01 and
2.02(c) of the Purchase Agreement as hereinafter set forth.
NOW THEREFORE, in consideration of the premises and the agreements herein
contained, and intending to be bound hereby, the parties hereby agree as
follows:
1. Amendment of Purchase Agreement.
-------------------------------
1.01. Section 1.01 of the Purchase Agreement shall be amended to delete in
its entirety the definition of "Second Takedown Notice" and by adding the
following definitions:
"Fourth Takedown Closing" shall have the meaning assigned to that
-----------------------
term in Section 2.02(c).
"Fourth Takedown Closing Date" shall have the meaning assigned to
----------------------------
that term in Section 2.02(c).
"Fourth Takedown Notice" shall have the meaning assigned to that
----------------------
term in Section 2.02(c).
<PAGE>
-2-
"Fourth Takedown Principal" shall have the meaning assigned to that
-------------------------
term in Section 2.02(c).
"Third Takedown Closing" shall have the meaning assigned to that
----------------------
term in Section 2.02(c).
"Third Takedown Closing Date" shall have the meaning assigned to
---------------------------
that term in Section 2.02(c).
"Third Takedown Principal" shall have the meaning assigned to that
------------------------
term in Section 2.02(c).
1.02. Section 2.02(c) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(c)(i) The purchase and sale of up to an additional $500,000
aggregate principal amount of Notes (the "Second Takedown Principal") shall
take place at a closing (the "Second Takedown Closing") to be held at the
offices of Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High
Street, Boston, Massachusetts, at 10:00 a.m. local time on November 30,
1998 (the "Second Takedown Closing Date"). At the Second Takedown Closing,
the Company will issue and sell to each Purchaser and each Purchaser shall
have the obligation to purchase a single Note, dated the Second Takedown
Closing Date, in the principal amount equal to such Purchaser's Pro Rata
Share (as such term is defined in the Assignment Agreement) of the Second
Takedown Principal, against receipt of funds by wire transfer to an account
or accounts designated by the Company prior to such Second Takedown Closing
in the amount of such Purchaser's Pro Rata Share of the Second Takedown
Principal, in payment of the purchase price for such Note; (ii) The
purchase and sale of up to an additional $500,000 aggregate principal
amount of Notes (the "Third Takedown Principal") shall take place at a
closing (the "Third Takedown Closing") to be held at the offices of Testa,
Hurwitz & Thibeault, LLP, High Street Tower, 125 High Street, Boston,
Massachusetts, at 10:00 a.m. local time on December 15, 1998 (the "Third
Takedown Closing Date"). At the Third Takedown Closing, the Company will
issue and sell to each Purchaser and each Purchaser shall have the
obligation to purchase a single Note, dated the Third Takedown Closing
Date, in the principal amount equal to such Purchaser's Pro Rata Share (as
such term is defined in the Assignment Agreement) of the Third Takedown
Principal, against receipt of funds by wire transfer to an account or
accounts designated by the Company prior to such Third Takedown Closing in
the amount of such Purchaser's Pro Rata Share of the Third Takedown
Principal, in payment of the purchase price for such Note; and (iii) The
purchase and sale of up to an additional $2,000,000 aggregate principal
amount of Notes shall take place at a closing (the "Fourth Takedown
Closing") to be held at the offices of Testa, Hurwitz & Thibeault, LLP,
High Street Tower, 125 High Street, Boston, Massachusetts, at 10:00 a.m.
local time on May 31, 1999 (the "Fourth Takedown Closing Date"), upon
written notice (the "Fourth Takedown Notice") given by the Company to the
Purchasers at least twenty (20) days prior to the Fourth Takedown Closing
Date.
<PAGE>
-3-
Such Fourth Takedown Notice shall specify the aggregate principal amount
(the "Fourth Takedown Principal") of the Notes to be issued and sold at
such Fourth Takedown Closing, which Fourth Takedown Principal shall not
exceed $2,000,000 less the Maximum Cumulative Liability (as such term is
----
defined in the CRL III Guaranty) of CRL III under the CRL III Guaranty as
of the Fourth Takedown Closing Date. At the Fourth Takedown Closing, the
Company will issue and sell to each Purchaser and each Purchaser shall have
the obligation to purchase a single Note, dated the Fourth Takedown Closing
Date, in the principal amount equal to such Purchaser's Pro Rata Share (as
such term is defined in the Assignment Agreement) of the Fourth Takedown
Principal, against receipt of funds by wire transfer to an account or
accounts designated by the Company prior to such Fourth Takedown Closing in
the amount of such Purchaser's Pro Rata Share of the Fourth Takedown
Principal, in payment of the purchase price for such Note. The First
Takedown Closing, the Second Takedown Closing, the Third Takedown Closing
and the Fourth Takedown Closing are sometimes herein referred to
individually as a "Takedown Closing" and collectively as the "Takedown
Closings").
2. Miscellaneous.
2.01. Effect. The Assignment Agreement shall remain in full force and
------
effect and, except as amended hereby, the Purchase Agreement shall remain in
full force and effect.
2.02. No Waiver. This Amendment is effective only in the specific
---------
instance and for the specific purpose for which it is executed and shall not be
considered a waiver or agreement to amend as to any provision of the Purchase
Agreement (as amended) in the future.
2.03. Defined Terms. All capitalized terms used but not specifically
-------------
defined herein shall have the same meanings given such terms in the Purchase
Agreement unless the context clearly indicates or dictates a contrary meaning.
2.04. Notices. All notices, requests, demands and other communications
-------
provided for in this Amendment shall be delivered in compliance with Section
9.03 of the Purchase Agreement.
2.05. Costs, Expenses, Taxes. The Company agrees to pay on demand all
----------------------
costs and expenses of the Purchasers in connection with the preparation,
execution and delivery of this Amendment and other instruments and documents to
be delivered hereunder, including the reasonable fees and out-of-pocket expenses
of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers.
2.06. Governing Law. This Amendment shall be governed by, and construed
-------------
and enforced in accordance with, the internal laws of The Commonwealth of
Massachusetts.
2.07. Seal. This Amendment is executed as an instrument under seal.
----
2.08. Counterparts. This Amendment may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties
<PAGE>
-4-
hereto may execute this Amendment by signing any of such counterparts.
[Remainder of Page Intentionally Left Blank]
<PAGE>
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment or have
caused it to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
Law Office Information Systems, Inc.
By: /s/ Kyle D. Parker
----------------------------------------
Name: Kyle D. Parker
Title: President
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
Its General Partner
By: /s/ Robert C. Ammerman
----------------------------------------
CRP INVESTMENT PARTNERS III, LLC
By: /s/ Robert C. Ammerman
----------------------------------------
/s/ Rowland Moriarty
-------------------------------------------
Rowland Moriarty
<PAGE>
-1-
Exhibit 10.18
(cont.)
AMENDMENT NO. 5
This Amendment No. 5 dated as of May 25, 1999 (this "Amendment") by and
among the Company, Capital Resource Lenders III, L.P. ("CRL III"), CRP
Investment Partners III, L.L.C. ("CRP Investment") and Rowland Moriarty
("Moriarty" and together with CRL III and CRP Investment, the "Purchasers")
amends that certain Senior Subordinated Note and Securities Purchase Agreement
dated as of November 24, 1997 by and between the Company and CRL III, as amended
by that certain Amendment dated as of June 29, 1998, that certain Amendment No.
2 dated as of August 20, 1998, that certain Amendment No. 3 dated as of November
30, 1998 and that certain Amendment No. 4 dated as of January 29, 1999, all by
and among the Company and the Purchasers (as so amended, the "Purchase
Agreement").
WHEREAS, pursuant to the Purchase Agreement and that certain Assignment,
Assumption and Consent dated as of January 1, 1998 by and among the Company and
the Purchasers, the Company has issued and sold to the Purchasers (i) 12.5%
Senior Subordinated Notes due 2004 of the Company dated November 24, 1997 in the
aggregate principal amount of $10,000,000 (the "Notes"), (ii) an aggregate of
931,044 shares of Series A Convertible Preferred Stock, par value $.001 per
share, of the Company, and (iii) Common Stock Purchase Warrants to purchase up
to an aggregate of 972,293 shares of Common Stock, par value $.001 per share, of
the Company;
WHEREAS, the Company requested that the Purchasers amend certain provisions
of the Purchase Agreement and that the Purchasers waive the Company's obligation
to comply with certain financial covenants set forth in the Purchase Agreement;
and
WHEREAS, the Purchasers are willing to amend and waive certain provisions
of the Purchase Agreement, on the terms and conditions more fully set forth in
this Amendment.
NOW THEREFORE, in consideration of the premises and the agreements herein
contained, and intending to be bound hereby, the parties hereby agree as
follows:
1. Amendment of Purchase Agreement.
-------------------------------
1.01. Section 1.01 of the Purchase Agreement shall be amended by amending
the definitions of "Change of Control", "Qualified IPO" and "Senior Debt" to
read in their entirety as follows:
"Change of Control" means any of the following:
(i) any person other than Kyle D. Parker or a Person controlled
by Kyle D. Parker at any time becomes the beneficial owner, directly
or indirectly and whether as a result of issuances, redemptions or
repurchases by the Company of Common Stock or transfers of Common
Stock by stockholders of the Company, of Common Stock representing
50% or more of the combined voting power with respect to the election
of directors of the Company represented by all then outstanding
Common Stock of the Company;
<PAGE>
-2-
(ii) the Company consolidates with, or merges with or into,
another person, sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of its assets directly
or indirectly to any Person, or any person consolidates with, or
merges with or into, the Company, in any such event pursuant to a
transaction in which the outstanding Common Stock of the Company is
converted into or exchanged for cash, securities, equity interests or
other property and immediately after such transaction the persons who
were the beneficial owners of the outstanding Common Stock of the
Company immediately prior to such transaction are not the beneficial
owners, directly or indirectly, of more than 50% of the combined
voting power represented by all then outstanding common stock of the
surviving or transferee Person; or
(iii) the Company or any of its Subsidiaries purchase, lease or
otherwise acquire assets of any Person or Persons, in one or a series
of related transactions, for consideration consisting in whole or in
part of Common Stock, Convertible Securities or Rights and the number
of shares of Common Stock issued by the Company (including all shares
issuable or purchasable upon exercise of all such Convertible
Securities and Rights) in such transaction is equal to 50% or more of
the number of fully diluted shares of Common Stock outstanding
immediately prior to such transaction (or the first of such
transactions).
"Qualified IPO" means a firm commitment underwritten public offering
of shares of the Company's Common Stock in which (i) the aggregate proceeds
to the Company in such underwritten public offering equals or exceeds
$20,000,000, and (ii) the per share price of Common Stock offered for sale
in such offering is at least $6.4444 (as adjusted for stock splits,
dividends, recapitalizations and the like).
"Senior Debt" means (i) all Indebtedness for Money Borrowed of the
-----------
Company and any of its Subsidiaries from the Bank pursuant to the Loan
Agreement or from other banks or institutional lenders, including any
extensions or renewals thereof, whether outstanding on the date hereof or
hereafter created or incurred, which is not by its terms subordinate and
junior to the Notes at the time it is created or incurred, (ii) all
Indebtedness for Money Borrowed of the Company and any of its Subsidiaries
incurred to refinance any of the Indebtedness for Money Borrowed referred
to in item (i) above, where the security securing such Indebtedness is
substantially the same security as that securing the Indebtedness for Money
Borrowed being refinanced, (iii) all obligations of the Company and any of
its Subsidiaries under Capital Leases which are permitted by this Agreement
at the time they are incurred and (iv) all guarantees by the Company and
any of its Subsidiaries which are not by their terms subordinate and junior
to the Notes and which are permitted hereby at the time they are made of
Indebtedness of any Subsidiary if such Indebtedness would have been Senior
Debt pursuant to the provisions of clause (i), (ii) or (iii) of this
sentence had it been Indebtedness of the Company.
1.02. Section 2.01 of the Purchase Agreement is hereby amended so that all
references to the year "2004" shall read "2003" and all references to "September
30, 2004" shall read
<PAGE>
-3-
"November 30, 2003".
1.03. Section 2.06(a) of the Purchase Agreement is hereby amended to read
in its entirety as follows:
(a) Required Redemption. On the stated or accelerated maturity of
-------------------
the Notes, the Company will pay the principal amount of the Notes then
outstanding together with all accrued and unpaid interest then due thereon.
Except as set forth in subsection 2.06(c), no optional redemption of less
than all of the Notes shall affect the obligation of the Company to make
the redemption required by this subsection.
1.04. Section 3.04 of the Purchase Agreement is hereby deleted in its
entirety.
1.05. Section 3.05 of the Purchase Agreement is hereby amended to read in
its entirety as follows:
3.05. Termination Upon Liquidity IPO. The Purchasers' right to
------------------------------
purchase new Mezzanine Securities set forth in Section 3.03 shall terminate
immediately prior to the closing of a Liquidity IPO.
1.06. Section 7.01 of the Purchase Agreement is hereby amended to read in
its entirety as follows:
7.01. Affirmative Covenants of the Company Other Than Reporting
---------------------------------------------------------
Requirements. Without limiting any other covenants and provisions
------------
hereof, the Company covenants and agrees that, as long as any of the Notes
are outstanding and, thereafter, only in the case of Section 7.01(f), as
long as at least fifty percent (50%) of the Preferred Shares are
outstanding, it will perform and observe the following covenants and
provisions and will cause each Subsidiary to perform and observe such of
the following covenants and provisions as are applicable to such
Subsidiary:
(a) Punctual Payment. Pay the principal of, premium, if any,
----------------
and interest on each of the Notes at the times and place and in the manner
provided in the Notes and herein.
(b) Payment of Taxes and Trade Debt. Pay and discharge, and
-------------------------------
cause each Subsidiary to pay and discharge, all taxes, assessments and
governmental charges or levies imposed upon it or upon its income or
profits or business, or upon any properties belonging to it, prior to the
date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the Company or
any Subsidiary, provided that neither the Company nor any Subsidiary shall
be required to pay any such tax, assessment, charge, levy or claim which is
being contested in good faith and by appropriate proceedings if the Company
or the Subsidiary concerned shall have set aside on its books adequate
reserves with respect thereto. Pay and cause each Subsidiary to pay, when
due, or in conformity with customary trade terms, all lease obligations,
all trade debt, and all other Indebtedness incident to the operations of
the Company or the Subsidiaries, except such as are being contested in good
faith and by appropriate
<PAGE>
-4-
proceedings if the Company or the Subsidiary concerned shall have set aside
on its books adequate reserves with respect thereto.
(c) Maintenance of Insurance. Maintain, and cause each
------------------------
Subsidiary to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is
usually carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Company or such
Subsidiary operates, and in any event in amounts sufficient to prevent the
Company or such Subsidiary from becoming a co-insurer.
(d) Preservation of Corporate Existence. Preserve and maintain,
-----------------------------------
and cause each Subsidiary to preserve and maintain, its corporate
existence, rights, franchises and privileges in the jurisdiction of its
incorporation, and qualify and remain qualified, and cause each Subsidiary
to qualify and remain qualified, as a foreign corporation in each
jurisdiction in which such qualification is necessary or desirable in view
of its business and operations or the ownership of its properties, except
where the failure to remain so qualified would not, either individually or
in the aggregate, have a Material Adverse Effect; provided, however, that
nothing herein contained shall prevent any merger, consolidation or
transfer of assets permitted by subsection 7.02(e). Preserve and maintain,
and cause each Subsidiary to preserve and maintain, all licenses and other
rights to use patents, processes, licenses, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or possessed
by it and necessary to the conduct of its business.
(e) Compliance with Laws. Comply, and cause each Subsidiary to
--------------------
comply, with all applicable laws, rules, regulations and orders of any
governmental authority, the noncompliance with which could have a Material
Adverse Effect.
(f) Inspection Rights. At any reasonable time and from time to
-----------------
time and upon prior written notice, permit the Purchasers or any of their
agents or representatives to examine and make copies of and extracts from
the records and books of account of, and visit and inspect the properties
of, the Company and any Subsidiary, and to discuss the affairs, finances
and accounts of the Company and any Subsidiary with any of their officers
or directors and independent accountants. If an Event of Default then
exists, all reasonable out-of-pocket expenses of the Purchasers (or their
agents or representatives), the Company or any Subsidiary incurred in
connection with such inspection rights shall be borne by the Company.
(g) Keeping of Records and Books of Account. Keep, and cause
---------------------------------------
each Subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with GAAP, reflecting all
financial transactions of the Company and each Subsidiary, and in which,
for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization, taxes, bad debts and other purposes in
connection with its business shall be made.
(h) Maintenance of Properties, Etc. Maintain and preserve, and
------------------------------
cause each Subsidiary to maintain and preserve, all of its properties,
necessary or useful in the proper conduct of its business, in good repair,
working order and condition, ordinary wear
<PAGE>
-5-
and tear excepted.
(i) Compliance with ERISA. Comply, and cause each Subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension or
other employee benefit or employee contribution plans which are subject to
ERISA or to the Code, and comply, and cause each Subsidiary to comply, in
all other material respects with the provisions of ERISA and the Code, and
the rules and regulations thereunder, which are applicable to any such
plan. Neither the Company nor any Subsidiary will permit any event or
condition to exist which could permit any such plan to be terminated under
circumstances which would cause the lien provided for in Section 4068 of
ERISA to attach to the assets of the Company or any Subsidiary.
(j) Attendance at Board Meetings. At any time at which a nominee
----------------------------
of the Purchasers is not a member of the Board or any committee of the
Board as provided in this Agreement and the Amended and Restated
Stockholders Agreement dated as of May ___, 1999 (as the same may be
amended, modified or supplemented from time to time, the "Amended and
Restated Stockholders Agreement") among the Company, the Purchasers and the
other parties thereto, permit the Purchasers or their designee to have one
observer attend each meeting of the Board and any committee thereof. The
Company will send to the Purchasers and their designee the notice of the
time and place of any such meeting in the same manner and at the same time
as notice is sent to the directors or committee members, as the case may
be; provided, however, that the Purchasers and their designee shall always
received at least ten (10) days prior notice of any meeting which is not an
emergency meeting and at least three (3) Business Days' notice of any
emergency meeting. The Company shall also provide to the Purchasers copies
of all notices, reports, minutes, consents and other documents at the time
and in the manner as they are provided to the Board or committees. The
Company shall reimburse the Purchasers for all reasonable costs incurred by
the Purchasers or their designee in connection with traveling to and from
and attending meetings of the Board and committees. Any observer who
attends any meetings of the Board or committees thereof, as a condition to
his or her right to attend such meetings, shall execute and comply with an
agreement with the Company containing such restrictions on the use or
disclosure of confidential information and similar matters as the Company
may reasonably request.
(k) Payment of Senior Debt by the Purchasers. In the event that
----------------------------------------
any default occurs in the payment of the principal of or any interest on
any Senior Debt and such default shall continue for a period of thirty (30)
days (or such shorter period as is necessary in order to permit the
Purchasers to act pursuant to this subsection prior to any acceleration of
such Senior Debt) without waiver or forbearance by the lender of such
Senior Debt, permit the Purchasers, on behalf of the Company, to cure such
default, to prepay in full any such Senior Debt or to purchase such Senior
Debt, upon terms and conditions set forth in the Subordination Agreement.
(l) Minimum Annual Revenue. The consolidated revenues of the
----------------------
Company and its Subsidiaries shall not be less than the amounts set forth
below as of the end of each fiscal period set forth below:
<PAGE>
-6-
Period Minimum Annual Revenue
------ ----------------------
January 1, 1999 to December 31, 1999 $ 7,500,000
January 1, 2000 to December 31, 2000 $15,000,000
January 1, 2001 to December 31, 2001 $25,000,000
1.07. Section 7.02 of the Purchase Agreement is hereby amended to read in
its entirety as follows:
7.02. Negative Covenants of the Company. Without limiting any other
covenants and agrees that, until repayment in full of the aggregate
outstanding principal balance of the Notes together with all interest and
premium, if any, due thereon, it will comply with and observe the following
covenants and provisions, and will cause each Subsidiary to comply with and
observe such of the following covenants and provisions as are applicable to
such Subsidiary, and will not:
(a) Liens. Create, incur, assume or suffer to exist, or
-----
permit any Subsidiary to create, incur, assume or suffer to exist, any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance (including the lien or retained security title of a conditional
vendor) of any nature, upon or with respect to any of its properties, now
owned or hereafter acquired, or assign or otherwise convey any right to
receive income, except that the foregoing restrictions shall not apply to
mortgages, deeds of trust, pledges, liens, security interests or other
charges or encumbrances (collectively, "Permitted Liens"):
(i) for taxes, assessments or governmental charges or levies
on property of the Company or any Subsidiary if the same shall not at
the time be delinquent or thereafter can be paid without penalty, or
are being contested in good faith and by appropriate proceedings;
(ii) imposed by law, such as carriers', warehousemen's and
mechanics' liens and other similar liens arising in the ordinary
course of business;
(iii) arising out of pledges or deposits under workmen's
compensation laws, unemployment insurance, old age pensions, or other
social security or retirement benefits, or similar legislation;
(iv) securing the performance of bids, tenders, contracts
(other than for the repayment of borrowed money), statutory
obligations and surety bonds;
(v) in the nature of zoning restrictions, easements and
rights or restrictions of record on the use of real property which do
not materially detract from its value or impair its use;
(vi) arising by operation of law in favor of the owner or
sublessor of leased premises and confined to the property rented;
<PAGE>
-7-
(vii) arising from any litigation or proceeding which is being
contested in good faith by appropriate proceedings, provided, however,
that no execution or levy has been made;
(viii) described on Exhibit 6.07 which secure the Indebtedness
------------
set forth on Exhibit 6.08B, provided that no such lien is extended to
-------------
cover other or different property of the Company or any Subsidiary;
and
(ix) liens on the accounts receivable of the Company which
secure Indebtedness permitted by Section 7.02(b).
(b) Indebtedness. Without the prior written consent of the
------------
Purchasers, create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any liability with
respect to Indebtedness except for (1) up to $12,500,000 in the aggregate
(exclusive of interest, fees, expenses, costs, protective advances and
other amounts which may be added to principal under any applicable loan
agreement) in Senior Debt, (2) current liabilities, other than for
Indebtedness for Money Borrowed, which are incurred in the ordinary course
of business, (3) purchase money security interests securing the purchase of
equipment to be used in connection with the business of the Company and its
Subsidiaries, and (4) the Notes.
(c) Lease Obligations. Become obligated to pay rent under
-----------------
any leases or other rental arrangements (other than Capital Leases) under
which the amount of the aggregate lease or other payments under all such
agreements or arrangements exceeds $150,000 on a consolidated basis for any
twelve-month period.
(d) Assumptions or Guaranties of Indebtedness of Other
--------------------------------------------------
Persons. Assume, guarantee, endorse or otherwise become directly or
-------
contingently liable on, or permit any Subsidiary to assume, guarantee,
endorse or otherwise become directly or contingently liable on (including,
without limitation, liability by way of agreement, contingent or otherwise,
to purchase, to provide funds for payment, to supply funds to or otherwise
invest in the debtor or otherwise to assure the creditor against loss) any
Indebtedness of any other Person, except for guarantees by endorsement of
negotiable instruments for deposit or collection in the ordinary course of
business and except by the Company with respect to any Indebtedness of any
Subsidiary which is permitted by this Agreement.
(e) Mergers, Sale of Assets, Etc. Without the prior written
----------------------------
consent of the Purchasers (i) merge or consolidate with any other Person,
or sell, assign, lease or otherwise dispose of or voluntarily part with the
control of (whether in one transaction or in a series of transactions) all,
or substantially all, of its assets (whether now owned or hereinafter
acquired), or dissolve, liquidate or wind-up its business or affairs or
otherwise terminate or permit the termination of its legal existence,
except that any wholly-owned Subsidiary may merge into or consolidate with
or transfer assets to the Company or any wholly-owned Subsidiary, or (ii)
sell, transfer, convey, mortgage, pledge or otherwise dispose of or
encumber any of their respective properties (including any property
<PAGE>
-8-
consisting of an equity interest or other investment or interest in any
Subsidiary), except for (A) sales of property in the ordinary course of
business, consistent with past practices, in arm's length transactions with
non-Affiliates, (B) encumbrances of assets on customary terms and
consistent with past practices to secure Indebtedness permitted by
paragraph (b) of this Section 7.02, and (C) the sale of property not
permitted by subclause (A) or (B) of this clause if such sale is to a non-
Affiliate of the Company, is at a price not less than fair market value and
the aggregate sale price for such sale and all other sales (whether or nor
related) during any single fiscal year made in reliance on this subclause
(C) does not exceed $1,000,000, provided that at least 50% of the net
proceeds from any such dispositions in excess of $250,000 during any single
fiscal year are applied to reduce outstanding Indebtedness.
(f) Investments in Other Persons. Without the prior written
----------------------------
consent of the Purchasers, make or permit any Subsidiary to make, any loan
or advance to any Person, or purchase, otherwise acquire, or permit any
Subsidiary to purchase or otherwise acquire, any capital stock, assets or
other property of, obligations of, or any interest in, any Person, except:
(i) investments by the Company or a Subsidiary in evidences of
indebtedness issued or fully guaranteed by the United States of
America and having a maturity of not more than one year from the date
of acquisition;
(ii) investments by the Company or a Subsidiary in certificates
of deposit, notes, acceptances and repurchase agreements having a
maturity of not more than one year from the date of acquisition issued
by a bank organized in the United States having capital, surplus and
undivided profits of at least $100,000,000 and whose parent holding
company has long-term debt rated Aa1 or higher, and whose commercial
paper (if rated) is rated Prime 1 by Moody's Investors Service, Inc.;
(iii) loans or advances from a Subsidiary to the Company or from
the Company to a Subsidiary;
(iv) investments by the Company or a Subsidiary in the highest-
rated commercial paper having a maturity of not more than one year
from the date of acquisition;
(v) advances to employees for travel or relocation in
accordance with the ordinary course of business; and
(vi) acquisitions or assets, capital stock or other property
which individually and in the aggregate are not material to the
Company or such Subsidiary (assets, capital stock and other property
with a fair market value of less than $250,000 acquired in any one-
year period in the aggregate shall not be deemed "material");
provided, however, that each such acquisition can be made in
compliance with the other terms of this Agreement, including, without
limitation, Section 7.02(l).
<PAGE>
-9-
(g) Distributions. Without the prior written consent of the
-------------
Purchasers, declare or pay any dividends, purchase, redeem, retire, or
otherwise acquire for value any of its capital stock (or rights, options or
warrants to purchase such shares) now or hereafter outstanding, return any
capital to its stockholders as such, or make any distribution of assets to
its stockholders as such, or permit any Subsidiary to do any of the
foregoing (such transactions being hereinafter referred to as
"Distributions"); provided, however, that nothing herein contained shall
prevent:
(i) the Company from effecting a stock split or declaring or
paying any dividend consisting of shares of any class of Common Stock
to the holders of shares of such class of Common Stock, provided that
such stock split or dividend is effected equally across all classes of
Common Stock, or
(ii) any Subsidiary from declaring or making payment of cash and
stock dividends, returns of capital or distributions of assets to the
Company;
if in the case of any such transaction the Distribution can be made in
compliance with the other terms of this Agreement.
(h) Dealings with Affiliates. Without the prior written consent
------------------------
of the Purchasers, enter or permit any Subsidiary to enter into any
transaction with any holder of any class of capital stock of the Company,
or any member of their families or any corporation or other entity in which
any one or more of such stockholders or members of their immediate families
directly or indirectly holds any class of capital stock; provided, however,
that this Section 7.02(h) shall not apply to any transaction which is
governed by Section 7.02(m) or to the sale of goods or services in the
ordinary course of business.
(i) Maintenance of Ownership of Subsidiaries. Sell or other-
----------------------------------------
wise dispose of any shares of capital stock of any Subsidiary, except to
the Company or another Subsidiary, or permit any Subsidiary to issue, sell
or otherwise dispose of any shares of its capital stock or the capital
stock of any Subsidiary, except to the Company or another Subsidiary,
provided, however, that nothing herein contained shall prevent any merger,
consolidation or transfer of assets permitted by subsection 7.02(e).
(j) Change in Nature of Business. Without the prior written
----------------------------
consent of the Purchasers, make, or permit any Subsidiary to make, any
change in the nature of its business as carried on at the date hereof.
(k) No Amendment or Waiver of Charter Documents . Amend,
-------------------------------------------
alter, repeal or terminate its Articles of Incorporation (or comparable
charter documents) without the prior written consent of the Purchasers.
(l) Capital Expenditures. Make, or permit any Subsidiary to
--------------------
make or incur, Capital Expenditures in an aggregate amount in excess of
$5,000,000 in fiscal year 1999, and $1,650,000 in any fiscal year
thereafter.
<PAGE>
-10-
(m) Compensation. Pay, directly or indirectly, as salary,
------------
bonuses, fringe benefits, expenses, stock option grants, drawing accounts
or otherwise any compensation to any executive officer (or any relative of
any executive officer) of the Company or any Subsidiary not approved by the
Compensation Committee of the Board other than such compensation
arrangements as are in place as of the Initial Closing Date.
(n) Preferred Stock. Without the prior written consent of the
---------------
Purchasers, issue any shares of, or rights to acquire any shares of,
Preferred Stock as authorized in the Company's Articles of Incorporation as
amended and in effect on May 21, 1999 (except the 931,044 shares of
Series A Preferred Stock and the 439,589 shares of Series B Preferred Stock
and the 2,581,756 shares of Series C Preferred Stock authorized for
issuance as of that date).
1.08. Section 7.03(e) and (f), respectively, are hereby amended to read in
their entirety as follows:
(e) at the time of delivery of each monthly and annual statement, a
certificate, executed by the chief financial officer of the Company,
stating that such officer has caused this Agreement, the Notes, and the
Warrants to be reviewed and has no knowledge of any default by the Company
or any Subsidiary in the performance or observance of any of the provisions
of this Agreement, the Notes or the Warrants or, if such officer has such
knowledge, specifying such default and the nature thereof, and setting
forth computations in reasonable detail demonstrating compliance with the
provisions of subsections 7.01(l) and subsections 7.02(b) and (d);
(f) at the time of delivery of each annual statement, a certificate
executed by the Company's independent public accountants, setting forth
computations in reasonable detail demonstrating compliance with the
provisions of subsections 7.01(l) and subsections 7.02(b) and (d);
1.09. Section 8.01 is hereby amended to read in its entirety as follows:
Events of Default. If any of the following events ("Events of
-----------------
Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal
of any of the Notes when due; or
(b) The Company shall fail to pay any interest or premium, if
any, on any of the Notes when due; or
(c) The Company shall default in the performance of any
covenant contained in subsections 7.01(l) or shall default in the
performance of any covenant contained in Section 7.02 for ten (10)
consecutive Business days; or
<PAGE>
-11-
(d) Any representation or warranty made by the Company in this
Agreement or by the Company (or any of its officers) in any certificate,
instrument or written statement made or delivered pursuant to or in
connection with this Agreement, shall prove to have been incorrect when
made in any material respect; or
(e) The Company or any Subsidiary shall fail to perform or
observe any other term, covenant or agreement contained in this Agreement,
the Notes or the Warrants on its part to be performed or observed and any
such failure remains unremedied for fifteen (15) Business Days after
written notice thereof shall have been given to the Company by any
registered holder of the Notes; or
(f) The Company or any Subsidiary shall fail to pay any
Indebtedness for Money Borrowed exceeding $100,000 owing by the Company or
such Subsidiary (as the case may be), or any interest or premium thereon,
when due (or, if permitted by the terms of the relevant document, within
any applicable grace period), whether such Indebtedness for Money Borrowed
shall become due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, or shall fail to perform any term,
covenant or agreement on its part to be performed under any agreement or
instrument evidencing or securing or relating to any such Indebtedness for
Money Borrowed owing by the Company or any Subsidiary, as the case may be,
when required to be performed (or, if permitted by the terms of the
relevant document, within any applicable grace period), if the effect of
such failure to pay or perform is to accelerate, or to permit the holder or
holders of such Indebtedness for Money Borrowed, or the trustee or trustees
under any such agreement or instrument to accelerate the maturity of such
Indebtedness for Money Borrowed, unless such failure to pay or perform
shall be waived by the holder or holders of such Indebtedness for Money
Borrowed or such trustee or trustees; or
(g) The Company or any Significant Subsidiary (as such term is
defined in Section 5.1 of Part A of Article Fourth of the Company's
Articles of Incorporation, as amended and in effect on May 21, 1999) shall
(i) admit in writing its inability to pay its debts generally as they
become due; (ii) commence a voluntary case under Title 11 of the United
States Code as from time to time in effect, or authorize, by appropriate
proceedings of its board of directors or other governing body, the
commencement of such a voluntary case; (iii) file an answer or other
pleading admitting or failing to deny the material allegations of a
petition filed against it commencing an involuntary case under said Title
11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations
of any such petition; (iv) be the subject of the entry of an order for
relief in any involuntary case commenced under said Title 11; (v) seek
relief as a debtor under any applicable law, other than said Title 11, of
any jurisdiction relating to the liquidation or reorganization of debtors
or to the modification or alteration of the rights of creditors, or by its
consenting to or acquiescing in such relief; (vi) be the subject of the
entry of an order by a court of competent jurisdiction (a) finding it to be
bankrupt or insolvent, (b) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of its
creditors, or (c) assuming custody of, or appointing a receiver or other
custodian for, all or a substantial part of its property; or (vii) make an
assignment for the benefit of, or enter into a composition with, its
creditors, or appoint or consent to the appointment of a receiver or
<PAGE>
-12-
other custodian for all or a substantial part of its property; or
(h) A Change in Control occurs, which Change in Control is not
consented to specifically with reference to this Section 8.01(h) by the
Purchasers; or
(i) Any judgment, writ, warrant of attachment or execution or
similar process shall be issued or levied against a substantial part of the
property of the Company or any Subsidiary and such judgment, writ, or
similar process shall not be released, vacated or fully bonded within sixty
(60) days after its issue or levy;
then, and in any such event,
(1) the Purchasers may, by notice to the Company, declare the
entire unpaid principal amount of the Notes, all interest accrued and
unpaid thereon and all other amounts payable under this Agreement to
be forthwith due and payable, whereupon the Notes, all such accrued
interest and all such amounts shall become and be forthwith due and
payable (unless there shall have occurred an Event of Default under
subsection 8.01(g) in which case all such amounts shall automatically
become due and payable), without presentment, demand, protest or
further notice of any kind, all of which are hereby expressly waived
by the Company, and
(2) the Purchasers may proceed to protect and enforce their
rights by suit in equity (including without limitation a suit for
rescission), action at law and/or other appropriate proceeding either
for specific performance of any covenant, provision or condition
contained or incorporated by reference in this Agreement or any term
of the Articles of Incorporation of the Company, or in aid of the
exercise of any power granted in this Agreement or in the Articles of
Incorporation of the Company.
1.10. Section 9.24 is hereby amended to read in its entirety as follows:
Confidentiality. The Company's obligations under Sections 7.01(f)
---------------
and 7.03 shall at all times be contingent upon the Purchasers' agreement,
and the Purchasers hereby agrees, to take all reasonable precautions to
safeguard the confidentiality of the information received by or disclosed
to the Purchasers by the Company in the fulfillment of the Company's
obligations under such Sections and to refrain from disclosure of such
information to anyone other than a person who will assist the Purchasers in
evaluating the Company or to the Purchasers' accountants, attorneys and
other professional advisors and, in the case of Section 7.03, to its equity
investors (but only to the extent reasonably necessary to meet the
Purchasers' reporting obligations).
1. Modification to Terms of Notes.
------------------------------
2.01. Modification of Notes. The parties hereto agree that, subject to
---------------------
the terms of the Purchase Agreement, the scheduled maturity date of the Notes be
changed from September 30, 2004 to November 30, 2003, and that, in accordance
with Section 1.02 of this Amendment, the
<PAGE>
-13-
Purchase Agreement shall be deemed to be amended to reflect such new maturity
date.
2.02. Cancellation of Notes. Upon execution and delivery of this Amendment,
---------------------
in order to properly reflect the new maturity date of the Notes as contemplated
by Section 2.01 hereof, the Purchasers shall each surrender the Notes in
exchange for new Notes (the "New Notes"), dated March 31, 1999 (the last day
through which interest thereon has been accounted for). The New Notes issued in
exchange for the Notes shall be substantially in the form set forth as Exhibit A
---------
attached hereto and shall be in the aggregate principal amounts set forth
opposite the Purchasers' respective names on Schedule I attached hereto. The
----------
parties hereto further agree that any reference to the term Notes in the
Purchase Agreement shall include the New Notes issued in exchange for the Notes
pursuant to this Section 2.02.
3. Waiver. The Company has indicated to the Purchasers that the Company is
------
not in compliance with the financial covenants set forth in Sections 7.01(m)
through 7.01(q) of the Purchase Agreement (as in effect prior to the amendments
set forth in this Amendment). Based on the representations and warranties set
forth herein, and subject to the terms and conditions of this Amendment, the
Purchasers hereby waive any and all Events of Default resulting from the
Company's failure to comply with the financial covenants set forth in Sections
7.01(m) through 7.01(q) of the Purchase Agreement (as in effect prior to the
amendments set forth in this Amendment) up to and through the date of this
Amendment. The foregoing waiver shall apply only to those specific Sections of
the Purchase Agreement referenced above (as in effect prior to the amendments
set forth in this Amendment). Except as set forth herein, nothing herein shall
be deemed to constitute an amendment, modification or waiver of any other
covenant set forth in the Purchase Agreement or any breach, default or Event of
Default under the Purchase Agreement (as amended hereby) that may arise after
the date hereof.
4. Miscellaneous.
-------------
4.01. Effect. The Assignment Agreement shall remain in full force and
------
effect, and the Purchase Agreement (as amended hereby) shall remain in full
force and effect.
4.02. No Waiver. This Amendment is effective only in the specific instance
---------
and for the specific purpose for which it is executed and shall not be
considered a waiver or agreement to amend as to any provision of the Purchase
Agreement (as amended) in the future.
4.03. Defined Terms. All capitalized terms used but not specifically
-------------
defined herein shall have the same meanings given such terms in the Purchase
Agreement unless the context clearly indicates or dictates a contrary meaning.
4.04. Notices. All notices, requests, demands and other communications
-------
provided for in this Amendment shall be delivered in compliance with Section
9.03 of the Purchase Agreement.
4.05. Costs, Expenses, Taxes. The Company agrees to pay on demand all
----------------------
costs and expenses of the Purchasers in connection with the preparation,
execution and delivery of this Amendment and other instruments and documents to
be delivered hereunder, including the reasonable fees and out-of-pocket expenses
of Messrs. Testa, Hurwitz & Thibeault, special counsel for the Purchasers.
<PAGE>
-14-
4.06. Governing Law. This Amendment shall be governed by, and construed
-------------
and enforced in accordance with, the internal laws of The Commonwealth of
Massachusetts.
4.07. Seal. This Amendment is executed as an instrument under seal.
----
4.08. Counterparts. This Amendment may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and each of the parties hereto may execute this Amendment by signing
any of such counterparts.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
-15-
IN WITNESS WHEREOF, the parties hereto have executed this Amendment No. 5
or have caused it to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
LAW OFFICE INFORMATION SYSTEMS, INC.
By: /s/ Kyle D. Parker
----------------------------------------
Name: Kyle D. Parker
Title: President
CAPITAL RESOURCE LENDERS III, L.P.
By: Capital Resource Partners III, L.L.C.
Its General Partner
By: /s/ Robert C. Ammerman
----------------------------------------
CRP INVESTMENT PARTNERS III, LLC
By: /s/ Robert C. Ammerman
----------------------------------------
/s/ Rowland Moriarty
-------------------------------------------
Rowland Moriarty
<PAGE>
-16-
SCHEDULE I
----------
PRINCIPAL AMOUNTS OF NOTES
REFLECTING NEW MATURITY DATE
----------------------------
Name Principal Amount
- ---- ----------------
Capital Resource Lenders III, L.P. $9,824,050
CRP Investment Partners, L.L.C. $ 11,539
Rowland Moriarty $ 153,844
----------
TOTAL: $9,989,433
==========
<PAGE>
EXHIBIT 10.19
AT&T INTERNET SERVICES
GENERAL AGREEMENT
- --------------------------------------------------------------------------------
Customer Name ("Customer") AT&T
Internet Services Contract Management
Lois, Inc.
- --------------------------------------------------------------------------------
Address Address
105 north 28th 55 Corporate Drive, Room - 32B15
van buren, ar 72956 Bridgewater, NJ 08807
- --------------------------------------------------------------------------------
This Agreement consists of this Cover Sheet, the attached General Terms and
Conditions and all Service Attachments ("Attachments") indicated below
(collectively, this "Agreement"). In the event of conflict between the General
Terms and Conditions and any Attachment, the Attachment shall take precedence.
This Agreement shall become effective when signed by both parties and shall
continue in effect for as long as any Attachment remains in effect, unless
earlier terminated in accordance with the provisions of the Agreement. The term
of each Attachment is stated in the Attachment.
<TABLE>
CAPTION>
==================================================================================================================================
SERVICE(S) ORDERED
==================================================================================================================================
<S> <C>
[_] AT&T WorldNet(R) Managed Internet Service All of the following services must be accompanied with an AT&T Web
[_] AT&T WorldNet(R) Managed Internet Service - Burstable Site Services Attachment
Service [_] AT&T Easy World Wide Web(R) Service ("EW3")
[_] AT&T WorldNet(R) Enhanced Fax Service [_] AT&T Easy World Wide Web(R) Service ("EW3" Basic)
[_] AT&T WorldNet(R) Asynchronous Service [_] AT&T Easy World Wide Web(R) Service ("EW3" Basic for Alternate
[_] AT&T WorldNet(R) Virtual Private Network Service Channel)
[_] AT&T WorldNet(R) Business Dial Service [_] AT&T Enhanced Web Development Package ("EWDP")
[_] AT&T Dedicated Hosting Service - Level 1
[_] AT&T Dedicated Hosting Service - Level 2
[_] AT&T SecureBuy(SM) Service
[_] AT&T interactiveAnswers(SM) Service
[_] AT&T Web Site Service eCommerce Suite
==================================================================================================================================
</TABLE>
- --------------------------------------------------------------------------------
CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS
EACH OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND AGREES TO BE BOUND BY
THEM.
- --------------------------------------------------------------------------------
CUSTOMER: AT&T CORP.
By: /s/ Kyle Parker By: /s/ Yolanda Wilson
------------------------------- ------------------------------------
(Authorized Signature) (Authorized Signature)
Kyle Parker Yolanda Wilson
- ----------------------------------- ----------------------------------------
(Typed or Printed Name) (Typed or Printed Name)
C.E.O. Contract Manager
- ----------------------------------- ----------------------------------------
(Title) (Title)
12-8-98 12/21/98
- ----------------------------------- ----------------------------------------
(Date) (Date)
501-471-5581
- -------------
(Telephone #)
SALES TRACKING INFORMATION
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
AT&T SALES REPRESENTATIVE INFORMATION AT&T AUTHORIZED AGENT INFORMATION
======================================================================================================
<S> <C> <C>
BRANCH MANAGER: Joe Houawcak NAME:
- ------------------------------------------------------------------------------------------------------
NAME: Joice Vinsant COMPANY NAME:
- ------------------------------------------------------------------------------------------------------
PHONE NUMBER: 501-474-6520 PHONE NUMBER:
- ------------------------------------------------------------------------------------------------------
E-MAIL: [email protected] E-MAIL:
- ------------------------------------------------------------------------------------------------------
ADDRESS: 7600 I 30 ADDRESS:
Little Rock, AR 72209
- ------------------------------------------------------------------------------------------------------
SALES STRATA: Commercial AGENT CODE:
- ------------------------------------------------------------------------------------------------------
SALES REGION: Southern
- -------------------------------------------------
</TABLE>
<PAGE>
AT&T INTERNET SERVICES
GENERAL AGREEMENT
The following terms and conditions shall apply to the provisions and use of the
products and services (individually a "Service") provided pursuant to the
Attachments.
1.0 DEFINITIONS
1.1 "Affiliate" of a party means any entity that controls, is controlled by or
is under common control with such party, and, in the case of AT&T, also means
any entity which AT&T has authorized under contract to offer any Service or part
of any Service.
1.2 "Content" means information made available, displayed or transmitted in
connection with a Service (including, without limitation, information made
available by means of an HTML, "hot link", a third party posting or similar
means) including all trademarks, service marks and domain names contained
therein as well as the contents of any bulletin boards or chat forums and, all
updates, upgrades, modifications and other versions of any of the foregoing.
1.3 "User" means anyone whom CUSTOMER, allows, by action or omission, to use
or access any Service including, without limitation, CUSTOMER'S Affiliates.
2.0 CHARGES AND BILLING
2.1 CUSTOMER shall pay AT&T for its and Users' use of the Services at the rates
and charges specified in the Attachments, without deductions, setoff or delay
for any reason, including circumstances arising under any other Attachment.
Charges set forth in the Attachments are exclusive of any applicable taxes.
CUSTOMER may be required to pay a deposit before Services are provided or as
specified in Section 10.1.
2.2 CUSTOMER shall pay all shipping charges, taxes (excluding those on AT&T's
net income (and other similar charges (and any related interest and penalties)
relating to the sale, transfer of ownership, installation, license, use or
provision of the Services, except to the extent a valid tax exemption
certificates is provided by CUSTOMER to AT&T prior to the delivery of Services.
2.3 Payment is due within 30 days after the date of invoice and shall refer to
the invoice number. Restrictive endorsements or other statements on checks
accepted by AT&T will not apply. CUSTOMER shall reimburse AT&T for all costs
(including reasonable attorney fees) associated with collecting delinquent or
dishonored payments. At AT&T's option, interest charges may be added to any
past due amounts at the lower of 1.5% per month or the maximum rate allowed by
law.
3.0 RESPONSIBILITIES OF THE PARTIES
3.1 AT&T shall provide Services to CUSTOMER in accordance with the terms and
conditions and at the charges specified in this Agreement.
3.2 CUSTOMER represents and warrants that its and User's use of the Services
and the Content will at all times comply with all applicable laws, regulations
and written and electronic instructions for use. CUSTOMER shall promptly
resolve all claims by anyone that CUSTOMER'S or Users' use or Content violate
any laws or regulations. AT&T reserves the right to terminate affected
Attachments, suspend affected Services and/or remove CUSTOMER or Users' Content
from the Services if AT&T (i) determines, in its sole discretion, that AT&T's
public image, reputation or goodwill will be adversely affected or that such use
or Content does not conform with the requirements set forth in this Agreement,
or that AT&T could be subject to liability; or (ii) receives notice from anyone
that CUSTOMER's or Users' use or Content may violate any laws or regulations.
AT&T's actions or inaction under this Section shall not constitute review or
approval of CUSTOMER's or Users' use or Content.
3.3 AT&T grants to CUSTOMER the right to permit Users to access and use the
Services, provided that CUSTOMER shall remain solely responsible for such access
and use and shall defend, indemnify and hold harmless AT&T from and against all
Damages (including, without limitation, reasonable attorney fees), whether or
not arising out of third-party claims and regardless of the form of action,
whether in contract, tort, strict liability or otherwise, concerning or relating
to: any noncompliance by CUSTOMER or Users with any provision of this
Agreement; negligent acts or omissions by CUSTOMER or Users; CUSTOMER's or
Users' Content or use of the Services (including, without limitation,
infringement of any personal or property rights); and claims by any User or
business affiliate of Customer relating to any Service failure, defect or
outage.
3.4 Except to the extent required by law or expressly permitted in an
Attachment, CUSTOMER may not resell any Services.
4.0 USE OF INFORMATION
4.1 All documentation, technical information, Software, business information,
proposals for new Services or other materials that are disclosed by either party
to the other in the course of performing this Agreement shall be considered
proprietary information ("INFORMATION") of the disclosing party, provided such
information is in written or other tangible form that is clearly marked as
"proprietary" or "confidential", or is disclosed orally and is both identified
as proprietary or confidential at the time of disclosure and summarized in a
writing so marked within 15 business days following the oral disclosure. This
Agreement shall be deemed to be AT&T INFORMATION.
4.2 Each party's INFORMATION shall, for a period of 3 years following its
disclosure (except in the case of Software, for an indefinite period): (i) be
held in confidence; (ii) be used only for purposes of performing this Agreement
and using the Services; and, (iii) not be disclosed except to the receiving
party's employees, agents and contractors having a need-to-know (provided that
such agents and contractors are not direct AT&T competitors and agree in writing
to use and disclosure restrictions as restrictive as this Article 4) or to the
extent required by law.
4.3 The restrictions in Section 4.2 shall not apply to any information that:
(i) is independently developed by the receiving party; or (ii) is lawfully
received by the receiving party free of any obligation to keep it confidential;
or (iii) becomes generally available to the public other than by breach of this
Agreement.
4.4 CUSTOMER authorizes AT&T to: (i) monitor and record calls and
transmissions using the Services and callas or transmissions to AT&T concerning
the Services in order to detect fraud, check quality and operate, maintain and
repair the Services; and (ii) disclose such information to the extent AT&T deems
it is legally required.
5.0 PUBLICITY AND MARKS
5.1 No public statements or announcements relating to this Agreement shall be
issued by either party without the prior written consent of the other party.
5.2 Each party agrees not to display or use, in advertising or otherwise, any
of the other party's trade names, logos, trademarks, service marks or other
indicia or origin (collectively, "Marks") without the other party's prior
written consent, provided that such consent may be revoked at any time and
consent to use AT&T's Marks can only be granted by the AT&T Vice President,
Corporate Identity.
6.0 SOFTWARE
6.1 AT&T grants CUSTOMER a personal, non-transferable and non-exclusive license
(without the right to sublicense) to use, in object code form, all software and
associated written and electronic documentation and data furnished pursuant to
the Attachments (collectively, the "Software"), solely in connection with the
Services and solely in accordance with applicable written and electronic
documentation. CUSTOMER will refrain from taking any steps to reverse assemble,
reverse compile or otherwise derive a source code version of the Software. The
Software shall at all times remain the sole and exclusive property of AT&T or
its suppliers. "Third-Party Software" means Software that bears a copyright
notice of a third party. "AT&T Software" means all Software other than Third-
Party Software."
6.2 CUSTOMER shall not copy or download the Software, except to the extent
expressly provided otherwise in the applicable documentation for the Service or
in a writing signed by AT&T. Any copy must contain the same copyright notices
and proprietary markings as the original Software.
6.3 CUSTOMER shall ensure that its employees and Users comply with the terms
and conditions of this Article 6.
6.4 The term of the license granted hereunder shall be coterminous with the
Attachment which covers the Software.
6.5 CUSTOMER agrees to comply with any additional restrictions that are
provided with any Third-Party Software.
6.6 AT&T warrants that all AT&T Software will perform substantially in
accordance with its applicable published specifications during a warranty period
of ninety (90) days beginning on the date of delivery of the AT&T Software to
CUSTOMER. If CUSTOMER returns to AT&T, within the 90-day warranty period, any
AT&T Software that does not comply with this warranty, then AT&T, at its option,
will either repair or replace the portion of the AT&T Software that does not
comply or refund the amount paid by CUSTOMER for such failed or defective AT&T
Software. This warranty will apply only if the AT&T Software is used in
accordance with the terms of this Agreement and is not altered, modified or
tampered with by CUSTOMER or Users.
7.0 DISPUTE RESOLUTION
7.1 Except as described in Section 7.3, all disputes, controversies or claims,
whether based in contract, tort, statute, fraud, misrepresentation or any other
legal theory, arising out of or relating to this Agreement and the Services
provided under this Agreement (collectively, "Disputes"), not resolved amicably
between the parties shall be settled by final and binding arbitration conducted
in New York or other mutually agreed location by one neutral arbitrator, in
accordance with this Agreement and the then current Commercial Arbitration Rules
of the American Arbitrator Association ("AAA"). The arbitrability of Disputes
shall also be determined by the arbitrator. Each party shall bear its own
expenses and the parties shall equally share the filing and other administrative
fees of the AAA and the expenses of the arbitrator. Any award of the arbitrator
shall be in writing and shall state the reasons for the award. Judgment upon an
award may be entered in any Court having competent jurisdiction. The arbitrator
shall not have the power to award any damages in excess of the liability
limitations set forth in this Agreement, including any Attachment. The
arbitrator shall not have the power to order pre-hearing discovery of documents
or the taking of depositions, but may compel attendance of witnesses and the
production of documents at the
<PAGE>
AT&T INTERNET SERVICES
GENERAL AGREEMENT
hearing. The Federal Arbitration Act, 9 U.S.C. Sections 1 to 14, shall govern
the interpretation and enforcement of this Section 7.1.
7.2 The parties, their representatives and participants and the arbitrator
shall hold the existence, content and result of the arbitration in confidence,
except to the limited extent necessary to enforce a final settlement agreement
or to obtain or enforce a judgment on an arbitration decision and award.
7.3 Disputes relating to: (i) matters that are subject to the primary
jurisdiction of the FCC, a state public utility commission or other
administrative agency, or (ii) non-compliance with Articles 4, 5 or 6 of this
Agreement, a violation of which would cause irreparable harm for which damages
would be inadequate; or (iii) billing or payment of charges under an Attachment;
or (iv) Software, technology or other intellectual property; shall be exempt
from the binding arbitration requirement described in Section 7.1. As to
Disputes described in this Section 7.3, the claimant reserves the right to seek
relief from an administrative agency having primary jurisdiction or a court of
competent jurisdiction, as appropriate.
8.0 FORCE MAJEURE
Neither AT&T nor Customer shall be liable for any delay, failure in performance,
loss or damage due to: fire, explosion, power blackout, earthquake, flood, the
elements, strike, embargo, labor disputes, acts of civil or military authority,
war, acts of God, acts or omissions of carriers, or suppliers, acts of
regulatory or governmental agencies, or other causes beyond such party's
reasonable control, whether or not similar to the foregoing, except that
CUSTOMERS's obligation to pay for charges incurred shall not be excused.
9.0 LIMITATIONS OF LIABILITY
9.1 For purposes of Section 3.3, and Articles 8 and 9 and all other exclusive
remedies and limitations of liability set forth in this Agreement or any
Attachment, "AT&T" shall be defined as AT&T, its Affiliates, and its and their
employees, directors, officers, agents, representatives, subcontractors,
interconnection service providers and suppliers; and "Damages" will refer
collectively to all injury, damage, liability, loss, penalty, interest and
expense incurred.
9.2 AT&T'S ENTIRE LIABILITY, AND CUSTOMER'S EXCLUSIVE REMEDIES AGAINST AT&T,
FOR ANY DAMAGES CAUSED BY ANY SERVICE DEFECT OR FAILURE, OR FOR OTHER CLAIMS
ARISING IN CONNECTION WITH ANY SERVICE OR THIS AGREEMENT SHALL BE:
(i) FOR BODILY INJURY OR DEATH TO ANY PERSON NEGLIGENTLY CAUSED BY AT&T,
CUSTOMER'S RIGHT TO PROVEN DIRECT DAMAGES;
(ii) FOR DEFECTS OR FAILURES OF SOFTWARE, THE REMEDIES SET FORTH IN SECTION
6.6;
(iii) FOR DAMAGES OTHER THAN THOSE SET FORTH ABOVE AND NOT EXCLUDED UNDER THIS
AGREEMENT OR ANY ATTACHMENT, AT&T'S LIABILITY SHALL BE LIMITED TO PROVEN DIRECT
DAMAGES NOT TO EXCEED PER CLAIM (OR IN THE AGGREGATE DURING ANY TWELVE-MONTH
PERIOD) THE TOTAL NET PAYMENTS MADE BY CUSTOMER FOR THE APPLICABLE SERVICE UNDER
THE APPLICABLE ATTACHMENT DURING THE 12 MONTHS PRECEDING THE MONTH IN WHICH THE
DAMAGE OCCURRED.
9.3 IN NO EVENT SHALL AT&T BE LIABLE FOR ANY INDIRECT, INCIDENTAL,
CONSEQUENTIAL, PUNITIVE, RELIANCE OR SPECIAL DAMAGES, INCLUDING WITHOUT
LIMITATION, DAMAGES FOR LOST PROFITS, ADVANTAGE, SAVINGS OR REVENUES OF ANY KIND
OR INCREASED COST OF OPERATIONS, WHETHER OR NOT AT&T HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES.
9.4 AT&T ALSO SHALL NOT BE LIABLE FOR ANY DAMAGES ARISING OUT OF OR RELATING
TO: SERVICE INTERRUPTIONS; LOST OR ALTERED MESSAGES OR TRANSMISSIONS;
INTEROPERABILITY, INTERACTION OR INTERCONNECTION PROBLEMS WITH APPLICATIONS,
EQUIPMENT SERVICES OR NETWORKS PROVIDED BY CUSTOMER OR THIRD PARTIES; OR,
UNAUTHORIZED ACCESS TO OR THEFT, ALTERATION, LOSS OR DESTRUCTION OF CUSTOMER'S,
USERS' OR THIRD PARTIES' APPLICATIONS, CONTENT, DATA, PROGRAMS, INFORMATION,
NETWORK OR SYSTEMS.
9.5 EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, AT&T MAKES NO WARRANTIES,
EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ANY WARRANTY OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT OR ANY WARRANTY
ARISING BY USAGE OF TRADE, COURSE OF DEALING OR COURSE OF PERFORMANCE. AT&T DOES
NOT WARRANT THAT THE SERVICES WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT THE
SERVICES WILL MEET CUSTOMER'S REQUIREMENTS OR THAT THE SERVICES WILL PREVENT
UNAUTHORIZED ACCESS BY THIRD PARTIES. AT&T DOES NOT AUTHORIZE ANYONE TO MAKE A
WARRANTY OF ANY KIND ON ITS BEHALF AND CUSTOMER SHOULD NOT RELY ON ANYONE MAKING
SUCH STATEMENTS.
9.6 THE LIMITATIONS OF LIABILITY SET FORTH IN THIS ARTICLE 9 AND IN ANY
ATTACHMENT SHALL APPLY: (i) REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT, TORT, STRICT LIABILITY OR OTHERWISE; AND (ii) WHETHER OR NOT DAMAGES
WERE FORESEEABLE. THESE LIMITATIONS OF LIABILITY SHALL SURVIVE FAILURE OF ANY
EXCLUSIVE REMEDIES PROVIDED IN THIS AGREEMENT.
9.7 This Agreement does not expressly or implicitly provide any third party
(including Users) with any remedy, claim, liability, reimbursement, cause of
action or other right or privilege.
10.0 TERMINATION
10.1 If a party fails to perform or observe any material term or condition of
this Agreement and the failure continues unremedied for 30 days after receipt of
written notice, the other party may terminate for cause any Attachment affected
by the breach. If CUSTOMER fails to pay any charge when due and such failure
continues unremedied for ten days after written notice by AT&T, AT&T may, at its
option, terminate affected Attachments, suspend Service under affected
Attachments, require a deposit under any or all Attachments as a condition of
continuing to provide Services and/or terminate this entire Agreement.
10.2 An Attachment may be terminated immediately upon written notice by: (i)
either party if the other party has violated the other's Marks, becomes
insolvent or involved in a liquidation or termination of its business, files a
bankruptcy petition, has an involuntary bankruptcy petition filed against it (if
not dismissed within 30 days of filing), becomes adjudicated bankrupt, or
becomes involved in an assignment for the benefit of its creditors; (ii) AT&T
pursuant to Section 3.2 or in the event of a material breach of any provision of
Article 6; or (iii) either party if mandated by governmental or regulatory
authority.
10.3 CUSTOMER shall be responsible for payment of all charges under a
terminated Attachment incurred as of the effective date of termination. CUSTOMER
shall also be liable to AT&T for termination Charges, as specified in a
terminated Attachment, in the event that AT&T terminates under Section 10.1,
10.2(i) or (ii), or CUSTOMER terminates without cause
10.4 Termination by either party of an Attachment does not waive any other
rights or remedies it may have under this Agreement.
10.5 Except as provided under Section 10.1, termination or suspension of an
Attachment shall not affect the Services provided or the rights and obligations
of the parties under any other Attachment.
11. GENERAL PROVISIONS
11.1 Any supplement, modification or waiver of any provision of this Agreement
or any Attachment must be in writing and signed by authorized representatives of
both parties.
11.2 This Agreement may not be assigned by either party without the prior
written consent of the other, except that AT&T may, without CUSTOMER's consent,
assign this Agreement or any Attachment to a present or future Affiliate or
successor and may assign its right to receive payments. AT&T may subcontract
work to be performed under this Agreement, but shall retain responsibility for
all such work.
11.3 If any portion of this Agreement is found to be invalid or unenforceable,
the remaining provisions shall remain in effect and the parties shall promptly
begin negotiations to replace invalid or unenforceable portions that are
essential parts of this Agreement.
11.4 Any initial demand for arbitration pursuant to Section 7.1 and any legal
action arising in connection with this Agreement must begin within two years
after the cause of action arises.
11.5 All notices under this Agreement shall be in writing and either mailed by
certified or registered mail, postage prepaid return receipt requested, sent by
express courier or hand delivered and addressed to each party at the address set
forth on the front of this Agreement or, if the notice relates to a specific
Attachment, the address set forth in such Attachment, or, in any case, such
other address a party designates in writing.
11.6 The construction, interpretation and performance of this Agreement shall
be governed by the substantive law of the State of New York, excluding its
choice of law rules and the United Nations Convention on Contracts for
International Sale of Goods.
11.7 The respective obligations of CUSTOMER and AT&T which by their nature
would continue beyond the termination or expiration of this Agreement or any
Attachment shall survive termination or expiration of this Agreement or any
Attachment.
11.8 With respect to any indemnification obligations under this Agreement: (i)
the indemnified party will notify the indemnifying party in writing promptly
upon learning of any claim or suit for which indemnification may be sought;
provided that failure to do so shall not affect the indemnity except to the
extent the indemnifying party is prejudiced thereby; (ii) the indemnifying party
shall have control of the defense or settlement, provided that the indemnified
party shall have the right to participate in such defense or settlement with
counsel of its own selection and at its sole expense; (iii) the indemnified
party shall
<PAGE>
AT&T INTERNET SERVICES
GENERAL AGREEMENT
reasonably cooperate with the defense, at the indemnifying party's expense; and
(iv) the indemnifying part shall not, without the indemnified party's express
prior written consent, make any admission or stipulation, or consent to any
settlement agreement or injunctive or non-monetary relief which could adversely
affect any indemnified party.
11.9 THIS AGREEMENT CONSTITUTES THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH
RESPECT TO THE SERVICES TO BE PROVIDED HEREUNDER. THIS AGREEMENT SUPERSEDES ALL
PRIOR AGREEMENTS, PROPOSALS, REPRESENTATIONS, STATEMENTS OR UNDERSTANDINGS,
WHETHER WRITTEN OR ORAL, CONCERNING SUCH SERVICES OR THE RIGHTS AND OBLIGATIONS
RELATING TO THOSE SERVICES. THIS AGREEMENT SHALL NOT BE CONTRADICTED, EXPLAINED
OR SUPPLEMENTED BY ANY WRITTEN OR ORAL STATEMENTS, PROPOSALS, REPRESENTATIONS,
ADVERTISEMENTS, SERVICE DESCRIPTIONS OR CUSTOMER PURCHASE ORDER FORMS NOT
EXPRESSLY SET FORTH IN THIS AGREEMENT OR AN ATTACHMENT.
<PAGE>
EXHIBIT 10.20
[Logo] AT&T
<TABLE>
<CAPTION>
AT&T Contract Tariff Order Form
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Customer Name (Full Legal Name):
AT&T Corp.
Law Office Information Systems, Inc. ("AT&T")
- ------------------------------------------------------------------------------------------------------------------------------------
Customer Address: AT&T Address:
105 North 28th Street
- ------------------------------------------------------------------------------------------------------------------------------------
55 Corporate Drive AT&T Contact Name:
Rowland McKinney
- ------------------------------------------------------------------------------------------------------------------------------------
City State Zip Code City State Zip Code AT&T Contact Telephone Number:
Van Buren, AR 72956 Bridgewater NJ 08807 501 973-9458
- ------------------------------------------------------------------------------------------------------------------------------------
Customer hereby places an order for:
[_] New AT&T Contract Tariff (attachment required) [_] Existing AT&T Contract Tariff No. 10358-(attachment required)
Customer hereby agrees to the following term commitment:
</TABLE>
TERM: [_] 18 months [_] 24 months [X] 36 months
================================================================================
Existing Pricing Plan Replacement/Discontinuance:
[_] Check here and identify below any AT&T CT or other AT&T pricing plan being
discontinued in conjunction with this order. Also specify the CT No., Plan ID
No. or Main Billed Account No. (Note: Charges may apply as specified in the plan
being discontinued.)
================================================================================
1. Services will be provided Contract Tariff ("CT") ordered hereunder, subject
to the rates , terms and conditions in the CT as well as the AT&T tariffs (if
any) referenced in the CT ("Applicable Tariffs"), as those under the Applicable
Tariffs may be modified from time to time.
2. This Form (including its addenda, if any), the CT and the Applicable Tariffs
constitute the entire agreement (collectively the "Agreement") between Customer
and AT&T with respect to the services provided under the CT and supersede any
and all prior agreements, proposals, representations, statements, or
understandings, whether written or oral, concerning such services or the rights
and obligations relating to such services. In the event of any inconsistency
between the terms of this Form (including its addenda, if any) and the CT or
Applicable Tariffs, the terms of the Applicable Tariffs and CT shall prevail. In
the event of any inconsistency between the terms of the CT and the Applicable
Tariffs, the terms of the CT shall prevail. Except for changes to rates (to the
extent permitted under the CT ) and changes to the Applicable Tariffs, no
change, modification or waiver of any of the terms of this Agreement shall be
binding unless reduced to writing and signed by authorized representatives of
both parties and, to the extent required by law, filed with the FCC.
3. Except to the extent that federal law applies, the construction,
interpretation and performance of this Agreement shall be governed by the
substantive law of the State of New York, excluding its choice of law rules.
4. EXCEPT FOR ANY WARRANTIES EXPRESSLY MADE IN THIS AGREEMENT, AT&T EXCLUDES ALL
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. AT&T DOES
NOT AUTHORIZE ANYONE TO MAKE A WARRANTY OF ANY KIND ON ITS BEHALF AND CUSTOMER
SHOULD NOT RELY ON ANYONE MAKING SUCH STATEMENTS.
5. As to new CTs, Customer may, as its sole remedy, cancel this order for the CT
without liability before the CT becomes effective if, without Customer's
consent: (a) AT&T fails to file the CT with the FCC within 30 days after the
date this Form is signed by both parties; (b) the CT as filed is not consistent
with the attached illustrative copy; or (c) the CT does not go into effect
within 30 days after filing.
6. Orders for existing CTs will be accepted and implemented by AT&T only if the
specified CT is available when ordered and Customer is eligible for the CT. The
CUSTOMER'S Initial Service Date (CISD) referenced in the CT shall be one (1)
calendar day after the execution of this Agreement, unless it is a weekend or
holiday, in which event the CISD shall be the following business day.
7. Customer shall provide installation instructions and other information as
required by AT&T.
- --------------------------------------------------------------------------------
YOUR SIGNATURE ACKNOWLEDGES THAT YOU HAVE READ, UNDERSTAND AND AGREE TO THE
PROVISIONS OF THIS AGREEMENT AND THAT YOU ARE DULY AUTHORIZED TO SIGN THIS
AGREEMENT,
- --------------------------------------------------------------------------------
Customer AT&T Corp.
Full Legal Name: ______________________
By: /s/ Kyle Parker By: /s/ Yolanda Wilson
---------------------------------- --------------------------------
(Authorized Customer Signature) Authorized AT&T Signature)
Kyle Parker - CEO Yolanda Wilson, Contract Manager
----------------------- -------------------------------------
(Typed or Printed Name and Title) (Typed or Printed Name and Title)
Date: 2/17/99 Date: 4/6/99
-------------------------------- ------------------------------
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358
Adm. Rates and Tariffs Original Title Page
Bridgewater, NJ 08807
Issued: September 21, 1998 Effective: September 22, 1998
** All material on this page is new. **
CONTRACT TARIFF NO. 10358
TITLE PAGE
This Contract Tariff applies to AT&T Private Line Services consisting of:
Domestic ACCUNET T1.5 Service Access Connections, M24-Multiplexing Office
Functions, Domestic ACCUNET T45 Service Access Connections, Domestic 56/64 kbps
ACCUNET Spectrum of Digital Services Access Connections, AT&T Terrestrial 1.544
Mbps Local Channels and associated Access Coordination Functions, AT&T
Terrestrial 45 Mbps Local Channels and associated Access Coordination Functions
and 56/64 kbps ACCUNET Generic Digital Access Local Channels and associated
Access Coordination Functions for interstate or foreign communications in
accordance with the Communications Act of 1934, as amended.
Telecommunication services provided under this Contract Tariff are furnished by
means of wire, radio, satellite, fiber optics or any suitable technology or
combination of technologies.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358
Adm. Rates and Tariffs Original Page 1
Bridgewater, NJ 08807
Issued: September 21, 1998 Effective: September 22, 1998
** All material on this page is new. **
CONTRACT TARIFF No. 10358
CHECK SHEET
The Title Page and Pages 1 through 6 inclusive of this tariff are effective as
of the date shown.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Check Sheet................................................................................ 1
List of Concurring, Connecting and Other Participating Carriers............................ 1
Explanation of Symbols - Coding of Tariff Revisions........................................ 1
Trademarks and Service Marks............................................................... 2
Explanation of Abbreviations............................................................... 2
Contract Summary........................................................................... 3
</TABLE>
LIST OF CONCURRING, CONNECTING AND OTHER PARTICIPATING CARRIERS
Concurring Carriers - NONE
Connecting Carriers - NONE
Other Participating Carriers - NONE
EXPLANATION OF SYMBOLS - Coding of Tariff Revisions
Revisions to this tariff are coded through the use of symbols. These symbols
appear in the. right margin of the page, The symbols and their meanings are:
R - to signify reduction.
I - to signify increase.
C - to signify changed regulation.
T - to signify a change in text but no change in rate or regulation.
S - to signify reissued matter.
M - to signify matter relocated without change.
N - to signify new rate or regulation.
D - to signify discontinued rate or regulation.
Z - to signify a correction.
Other marginal codes are used to direct the tariff reader to a footnote for
specific information. Codes used for this purpose are lower case letters of the
alphabet, c.g., x, y and z. These codes may appear beside the page revision
number in the page header or in the right margin opposite specific text.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358
Adm. Rates and Tariffs Original Page 2
Bridgewater, NJ 08807
Issued: September 21, 1998 Effective: September 22, 1998
** All material on this page is new. **
TRADEMARKS AND SERVICE MARKS -The following marks, to the extent, if any, used
throughout this tariff, are trademarks and service marks of AT&T Corp.
Trademarks Service Marks
---------- -------------
None ACCUNET
EXPLANATION OF ABBREVIATIONS
Adm. - Administrator
IOCs- Inter Office Channels
kbps - kilobits per second
Mbps - Megabits per second
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358
Adm. Rates and Tariffs Original Page 3
Bridgewater, NJ 08807
Issued: September 21, 1998 Effective: September 22, 1998
** All material on this page is new. **
CONTRACT TARIFF No. 10358
1. Services Provided:
A. AT&T Private Line Services (AT&T Tariff F.C.C. No. 9) consisting of:
1. Domestic ACCUNET T1.5 Service Access Connections
2. M-24 Multiplexing Office Functions
3. Domestic 56/64 kbps ACCUNET Spectrum of Digital Services Access
Connections (ASDS)
4. Domestic ACCUNET T45 Service Access Connections
5. M-28 Multiplexing Office Functions
B. AT&T Local Channel Services (AT&T Tariff F.C.C. No. 11)
1. AT&T Terrestrial 1.544 Mbps Local Channels and Access
Coordination Functions
2. 56/64 kbps ACCUNET Generic Digital Access Local Channels and
Coordination Functions (GDA)
3. AT&T Terrestrial 45 Mbps Local Channels and Access Coordination
Functions
1.1. Initial Quantities - The Customer has 3 months from the Customer's
Initial Service Date (CISD) to achieve the following Initial Quantities of AT&T
Private Line and Local Channel Service components:
A. AT&T Private Line Services
1 ACCUNET T1.5 Service Access Connection or 1 56/64 kbps ACCUNET Spectrum of
Digital Service Access Connection or 1 ACCUNET T45 Service Access Connection.
B. AT&T Local Channels and associated service components
1 AT&T Terrestrial 1.544 Mbps Local Channel Access Coordination Function or 1
ACCUNET Generic Digital Access Local Channel Access Coordination Function or 1
AT&T Terrestrial 45 Mbps Local Channel Access Coordination Function.
2. Contract Term; Renewal Options - The term of this Contract Tariff is 18, 24
or 36 months beginning with the CISD. No renewal option is available for this
Contract Tariff.
3. Volume Commitments - The Minimum Monthly Volume Commitment (MMVC) for the
AT&T Private Line and Local Channel Services provided under this Contract Tariff
is a minimum of one Access Connection and one Access Coordination Function.
4. Contract Price
A. AT&T Private Line and Local Channel Services
1. The Contract Price for the AT&T Private Line and Local Channel.
Services provided under this Contract Tariff is the same as the undiscounted
Recurring and Nonrecurring Rates and Charges specified in AT&T Tariff F.C.C.
Nos. 9 and 11, as amended from time to time.
<PAGE>
Adm. Rates and Tariffs Original Page 4
Bridgewater, NJ 08807
Issued: September 21, 1998 Effective: September 22, 1998
5. Discounts - The following discounts are the only discounts for the Services
Provided under this Contract Tariff. No other discounts apply. Unless modified
below, the Base Discounts listed in this section are the same discounts as
specified in the AT&T Tariffs referenced in Section 1., preceding, as amended
from time to time.
A. AT&T Local Channel Services
1. Based on the Contract Tariff term commitment, the Customer will
receive one of the following discounts which will be applied to the AT&T
Terrestrial 1.544 Mbps, Terrestrial 45 Mbps and 56/64 kbps GDA l Channels
provided under this Contract Tariff when they are not used exclusively for AT&T
Switched Services as specified in AT&T Tariff F.C.C. Nos. 1, 2, 4, or
International Satellite Services as specified in AT&T Tariff F.C.C. No. 7, or
AT&T Private Line Service IOCs as specified in AT&T Tariff F.C.C. No. 9, as
amended from time to time. These discounts do not apply to Terrestrial 1.544
Mbps Local Channels under an AVA and/or AVP.
<TABLE>
<CAPTION>
Contract Tariff Monthly Monthly Monthly
Term 1.5 Mbps Local 56/64 kbps GDA Local 45 Mbps Local
Commitment Channel Discount Local Discount Channel Discount
---------- ---------------- -------------- -----------------
<S> <C> <C> <C>
18 months 5% 5% 5%
24 months 29% 15% 12%
36 months 34% 20% 15%
</TABLE>
6. Classifications, Practices and Regulations
A. Except as otherwise provided in this Contract Tariff, the rates 'and
regulations that apply to the Services Provided specified in Section 1.,
preceding, are as set forth in the AT&T tariffs that are referenced in Section
1., preceding, as such tariffs are amended from time to time.
B. Promotions, Credits and Waivers
The Customer is ineligible for any promotions or credits for the Services
Provided under this Contract Tariff, which are filed or which may be filed in
the AT&T tariffs specified in Section 1., preceding.
The following credits and waivers will be applied to the Customer's bill. If at
the end of the Contract Tariff Term the Customer has not fully used any or ail
of the waiver(s) specified in this Section, the residual value of any such
waiver (s) will he set to zero and will not be applied to any other AT&T
services.
<PAGE>
AT&T COMMUNICATIONS CONTRACT TARIFF NO. 10358
Adm. Rates and Tariffs Original Page 5
Bridgewater, NJ 08807
Issued: September 21, 1998 Effective: September 22, 1998
** All material on this page is new. **
6.B.1. AT&T Private Line and Local Channel Services
(a) AT&T will waive the nonrecurring Installation Charges as specified in AT&T
Tariff F.C.C. Nos. 9 and 11, as amended from time to time, for the installation
of new MSVPP-eligible 56/64 kbps ASDS, ACCUNET T45 and ACCUNET T1.5 Access
Connections, ACCUNET T45 --28 and ACCUNET T1.5 --24 Multiplexing Office
Functions, and associated 56/64 kbps GDA Local Channels and Access Coordination
Functions, AT&T Terrestrial 1.544 Mbps Local provided: (1) the Access
Connections, M-24 and M-28 Multiplexing Office Functions and Access Coordination
Functions are associated directly with AT&T 56/64 kbps GDA Local Channel or AT&T
Terrestrial 1.544 Mpbs Local Channel or AT&T Terrestrial 45 Mbps Local Channel
Services not used exclusively for AT&T Switched Services as specified in AT&T
Tariff F.C.C. Nos. 1, 2, 4, or International Satellite Services as specified in
AT&T Tariff F.C.C. No. 7, or AT&T Private Line Service IOCs as specified in AT&T
Tariff F.C.C. No. 9, as amended from time to time; (2) are ordered and
installed on or after the CISD and (3) remain in service for at least 12 months.
Except for upgrades to higher speeds, if the Access Connections, M-24 and M-28
Multiplexing Office Functions, Local Channels and Access Coordination Functions
are disconnected for any reason prior to the 12 months, the waived nonrecurring
charges for the installation of the Access Connections, M-24 and M-28
Multiplexing Office Functions, Local Channels and Access Coordination Functions
will be billed to the Customer at the time of disconnect. If a service
component has not been in service for the minimum period of 12 months prior to
the expiration of the Contract Tariff Term, the Customer may elect to be billed
the waived nonrecurring charges at the end of the Contract Tariff Term or elect
to continue the services in another AT&T Contract Tariff or include the services
in either a new or existing term plan for AT&T Tariff F.C.C. Nos. 9 and 11,
services applicable to Contract Tariffs.
(b) AT&T will waive the discounted recurring charges for MSVPP-eligible
ACCUNET T1.5 Service Access Connections, M-24 Multiplexing Office Functions,
ACCUNET T45 Access Connections and 56/64 kbps ASDS Access Connections (excluding
Access Connections to AT&T Switched Services) as specified in AT&T Tariff F.C.C.
No. 9, as amended from time to time and associated 56/64 kbps GDA, AT&T
Terrestrial 45 Mbps and AT&T Terrestrial 1.544 Mbps Local Channel Access
Coordination Functions as specified in AT&T Tariff F.C.C. No. 11, as amended
from time to time, provided: (1) the Access Connections, M-24 Multiplexing
Office Functions and Access Coordination Functions are associated directly with
AT&T 56/64 kbps GDA Local Channels or AT&T Terrestrial 45 Mbps Local Channels or
AT&T Terrestrial 1.544 Mbps Local Channels not used exclusively for AT&T
Switched Services as specified in AT&T Tariff F.C.C. Nos. 1, 2 and 4, or
International Satellite Services as specified in AT&T Tariff F.C.C. No. 7, or
AT&T Private Line Service IOCs as specified in AT&T Tariff F.C.C. No. 9, as
amended from time to time and (2) remain in service for at least 12 months.
Except for upgrades to higher speeds and migration to an Access Value Plan, if a
service component is disconnected for any reason prior to the 12 months, the
waived recurring charges will be billed at the time of disconnect. If a service
component has not been in service for the minimum period of 12 months prior to
the expiration of the Contract Tariff Term, the Customer may elect to be billed
the waived recurring charges at the end of the Contract Tariff Term, elect to
continue the services in another AT&T Contract Tariff or include the services in
either a new or existing term plan for AT&T Tariff F.C.C. Nos. 9 and 11 services
applicable to Contract Tariffs.
C. Discontinuance - In lieu of any Discontinuance Without Liability provisions
that are specified in the AT&T Tariffs referenced in Section 1., preceding, the
following provisions shall apply.
The customer may discontinue this Contract Tariff prior to the end of the
contract Tariff Term, provided that the Customer replaces this Contract Tariff
with another AT&T Contract Tariff for AT&T F.C.C. Nos. 9 and 11 Services, with
equal or greater volume or revenue commitments and term commitments.
D. Availability - This Contract Tariff has been developed for Customers who:
(1) have received an offer for substantially similar services from another
provider at an equal or lower price in which the nonrecurring installation
charges have been waived; (2) will order this Contract Tariff only once, either
by the Customer or any Affiliate of the Customer, which is any entity that owns
a controlling interest in either the Customer or an Affiliate of the Customer,
or any entity in which a controlling interest is owned by either the Customer or
an Affiliate of the Customer. This Contract Tariff is available to any
similarly situated Customer who orders service within 270 days after the
effective date of this Contract Tariff for initial installation of the Services
Provided under this Contract Tariff within 60 days after the date ordered.
<PAGE>
- --------------------------------------------------------------------------------
Page 1 of 4
CONTRACT TARIFF AUTHORITY TO QUOTE
[Logo] AT&T CT10358
Discounted Access to Worldnet MIS
================================================================================
SECTION 1: GENERAL INFORMATION
- --------------------------------------------------------------------------------
Marketing Objective:
- -------------------
This CT is for purchasing access for use with AT&T WorldNet services (i.e.
services other than Tariff 1, Tariff 2, Tariff 4, Tariff 7, Tariff 12, Tariff 16
and Tariff 9 IOC's). This offer waives the AC, M24 and ACF charges for T1.5
Local Channels, AC and ACF charges for T45 Local Channels and AC and ACF charges
for 56/64 GDA Local Channels connected to AT&T WorldNet services. It also
----
provides recurring discounts on 56/64k GDA Local Channels, T1.5 Local Channels
- ------------------------------------------------------------------------------
and T45 Local Channels.
- -----------------------
General:
- -------
Deal Offer Manager Information: Steven Boyce, Strategic Pricing
- ---------------------------------------------------------------
Requester: Rosemarie Egan Requester Phone:
- --------- ---------------
Requester Org: WorldNet MIS Requester Fax:
- ------------- -------------
- --------------------------------------------------------------------------------
Instructions to Account Team:
- ----------------------------
. Non-Disclosure: This offer requires a current Non-Disclosure Agreement to be
--------------
executed before presentation as per AT&T form AIS-3057. The following offer
provides a platform for use in the negotiations by the account team. The
initial offer to the customer should allow room to concede to the maximum
price discounts authorized in this ATQ.
. Disclaimers: This offer is contingent upon the expressed understanding that
-----------
additional terms and conditions including, but not limited to billing,
provisioning, maintenance, shortfall charges, termination liabilities, and
minimum service requirements will apply to a Contract Tariff arrangement. Any
changes, additions to or deletions of these products and services may result
in a change to the rates and/or discounts quoted.
. Alterations: The prices described in this offer require successful
-----------
application and approval of a contract tariff with the appropriate regulating
agencies and are subject to the regulations of the F.C.C. and/or P.U.C.
. Billing Effective Dates: Each service will be billed using their respective
--------------
vertical billers.
. Tariff filing: Maximum of 30 days from AT&T contract signature and
--------------
acceptance.
. Tariff Approval: Maximum of 1 day from filing (subject to F.C.C. review)
--------------
Type of Offer: SSA
- -------------
Offer Expiration Date: 6/21/99
- ---------------------
Revisions or extensions of ATQ must be authorized by the deal offer manager
listed above.
Term Term (Months) Renewal (Yes/No) Extension Period
- --- ------------- ---------------- ----------------
. DCS 18, 24 or 36 No N/A
<PAGE>
- --------------------------------------------------------------------------------
Page 2 of 4
CONTRACT TARIFF AUTHORITY TO QUOTE
[Logo] AT&T CT10358
Discounted Access to Worldnet MIS
================================================================================
SECTION 2: DCS SERVICE SPECIFIC MODULE
- -----------------------------------------------------------
2.2 SERVICES PROVIDED
- -----------------------------------------------------------
T9 Domestic ACCUNET T45 IOCs, mT1.5 IOCs and 56/64K IOCs
- -----------------------------------------------------------
T9 Domestic ACCUNET T1.5 M24
- -----------------------------------------------------------
T9 Domestic ACCUNET T45 aCs, T1.5 aCs and ASDS aCs
- -----------------------------------------------------------
T11 Domestic T45 Mbps, T1.5 Mbps and GDA 56/64K GDA ACF
- -----------------------------------------------------------
T11 Domestic T45 Mbps, T1.5 Mbps and GDA 56/64K GDA Local
Channel Service
- -----------------------------------------------------------
- --------------------------------------------------------------------------------
DCS BILLING: The effective billing date for DCS service components will be the
Customer's Initial Service Date (CISD) unless otherwise negotiated.
- --------------------------------------------------------------------------------
DCS COMMITMENTS:
- ---------------
None. This is a circuit-specific, service component-specific CT.
- --------------------------------------------------------------------------------
Revenue Shortfall Charges:
- -------------------------
Not applicable.
DCS CONTRACT PRICE (e.g. Undiscounted Monthly Rate):
- ---------------------------------------------------
The AT&T regulations and rates for the services and term plans as specified in
AT&T's Tariffs F.C.C. Nos. 9 and 11 as amended from time to time are applicable
to this CT unless modified by this ATQ and filed in the Contract Tariff.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Term Commitment 56/64 Kbps GDA Local Channel T1.5 Local Channel Discount % T45 Local Channel Discount %
(months) Base Discount %
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
18 5% 5% 5%
- -------------------------------------------------------------------------------------------------------------------------
24 15% 29% 12%
- -------------------------------------------------------------------------------------------------------------------------
36 20% 34% 15%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
DCS SUPPLEMENTAL DISCOUNTS (e.g., incremental discounts to BAT):
- ---------------------------------------------------------------
None.
DCS CREDITS:
- -----------
None.
WAIVERS:
- -------
Non-Recurring Charge Waivers:
- ----------------------------
Waive T9 and T11 non-recurring Installation charges for new 56/64 Kbps GDA AC
and ACF, T1.5 M24, Access Connection and ACF, and T45 Access Connection and ACF
MSVPP-eligible service components and associated new 56/64 Kbps GDA, T1.5 and
T45 Local Channels, including function connections, subject to the following
conditions:
1. Service components must be associated exclusively with AT&T WorldNet MIS
2. Service components must be ordered and installed on or after CISD.
----------------
<PAGE>
- --------------------------------------------------------------------------------
Page 3 of 4
CONTRACT TARIFF AUTHORITY TO QUOTE
[Logo] AT&T CT10358
Discounted Access to Worldnet MIS
================================================================================
3. Customer must subscribe to the service components receiving waiver for at
least 12 months. Excluding upgrades to higher speed services, if the
Customer discontinues any of these service components prior to the 12 month
period, the customer will be liable for the non-recurring charges that
would otherwise have applied to the installation of these service
components at time of discontinuance.
4. This waiver does not apply to non-recurring charges that are incurred for
cancellation charges, overtime, rearrangements, and any other non-recurring
charge not directly associated with the installation of service components
or services not specified in the tariff.
Recurring Charge Waivers:
- ------------------------
Waiver of 56/64 Kbps GDA AC and ACF, T1.5 AC, M24 and T45 AC and ACF discounted
recurring charges associated with new 56/64 Kbps GDA, T1.5 and T45 Local
Channels subject to the following conditions:
1. Service components must be associated exclusively with AT&T WorldNet MIS.
2. Customer must subscribe to the service components receiving waiver for at
least 12 months. Excluding upgrades to higher speed services, if the
Customer discontinues any of these service components prior to the 12 month
period, the customer will be liable for the non-recurring charges that
would otherwise have applied to the installation of these service
components at time of discontinuance.
- --------------------------------------------------------------------------------
DCS PROMOTIONS:
- --------------
The customer is EXCLUDED from using other generally available promotions for
Private Line and Local Channel Services in lieu of waivers and/or credits in
this Contract Tariff.
- --------------------------------------------------------------------------------
DCS MONITORING CONDITIONS:
- -------------------------
Minimum service retention period must be met per service component.
SECTION 3: DEAL INFORMATION SECTION
- --------------------------------------------------------------------------------
AVAILABILITY REQUIREMENTS:
- -------------------------
1. Access purchased outside of this CT is only for use with AT&T Services
Other Than Tariff 1, Tariff 2, and Tariff 9 IOC's, i.e. AT&T WorldNet MIS.
2. Customer can order a minimum of one 56 Kpbs GDA Local Channel and/or T1.5
and/or T45 Local Channel per this contract tariff.
3. This Contract Tariff Offer has been developed for Customers that have
received an offer from another carrier that offered to provide services
comparable in nature and quantity to the Initial Service Quantities
provided under this Contract at prices that are equal to or lower than
prices offered by AT&T .
4. This Offer Cannot be combined with any Contract Tariffs.
-------------------------------------------------------
5. Customer must sign a contract for AT&T Worldnet Services concurrent with
this Contract tariff or have an existing agreement in place on CISD.
- -------------------------------------------------------------------------------
Availability Window: 270 days (September 22, 1998 - June 21, 1999)
- -------------------------------------------------------------------------------
DISCONTINUANCE WITHOUT LIABILITY:
- --------------------------------
<PAGE>
- --------------------------------------------------------------------------------
Page 4 of 4
CONTRACT TARIFF AUTHORITY TO QUOTE
[Logo] AT&T CT10358
Discounted Access to Worldnet MIS
================================================================================
The customer may terminate this contract in its entirety prior to the end of the
term, if the customer enters into a replacement Contract Tariff for AT&T Tariff
9 and 11 services applicable to Contract Tariffs, with an equal or greater term
commitment and a greater volume and/or revenue commitment. AT&T will confirm
that the customer is in compliance with their current Contract Tariff and
whether any penalties or repayment of credits are applicable before migration to
a new Contract Tariff is authorized.
SECTION 4: ATQ APPROVAL SECTION
CONCURRED BY: _______________________________________
DATE: 8/4/98
-----------------------------------
<PAGE>
EXHIBIT 10.21
AT&T WORLDNET(SM) SERVICES AGREEMENT
This Agreement ("Agreement") is between AT&T Corp., a New York corporation with
an office at 55 Corporate Drive, Bridgewater, NJ 08807 ("AT&T"), and Law Office
Information Systems, Inc., with offices at 105 N. 28th Street, Van Buren,
Arkansas 72956 ("Customer").
AT&T and Customer agree that the following terms and conditions apply to the
provision and use, within the United States, of the AT&t WorldNet(SM) services
and related products ("Services") referenced in any Attachments to this
Agreement signed by Customer and accepted in writing by AT&T. Such attachments
are an integral part of this Agreement.
1. CONTRACT PERIOD
This Agreement is effective when signed by Customer and accepted in writing by
AT&T ("Effective Date"). The Contract Period commences on the Effective Date
and, unless terminated in accordance with the provisions herein, will continue
in effect for as long as any Service period as defined in an Attachment to this
Agreement remains in effect.
2. BILLING AND PAYMENT
A. Customer shall pay AT&T all charges due under this Agreement, without
deduction or setoff. All payments shall be mailed to the address stated on the
bill. Bills will be issued monthly and are payable within thirty (30) days from
the date shown on the invoice.
B. Customer agrees to pay any taxes due on the services, however designated
(excluding taxes on AT&T's net income), unless Customer provides a valid tax
exemption certificate.
3. TERMINATION
A. If Customer fails to pay any outstanding charges within ten (10) days after
receipt of written notice from AT&T of delinquency, or if Customer fails to
perform or observe any other material term or condition of this Agreement within
thirty (30) days after receipt of written notice from AT&T of such failure, AT&T
may terminate this Agreement. Customer shall then be liable for all charges
incurred as of the date of termination and, if applicable, any termination
charges associated with termination of the Attachments. All such charges that
are not previously due and payable shall be payable within thirty (30) days from
the date shown on AT&T's invoice.
B. If AT&T fails to perform or observe any material term or condition of this
Agreement within thirty (30) days after receipt of written notice from Customer
of such failure, Customer may terminate the Attachments materially affected by
the breach. Except for charges incurred as of the date of termination, Customer
shall have no further financial obligations to AT&T for such terminated
Attachments.
4. CUSTOMER RESPONSIBILITIES
A. customer shall ensure that all Customer-provided equipment on its premises
that connects to the Services will perform according to published technical
specifications for such equipment and AT&T's interface specifications and
otherwise complies with AT&T's specifications for the Services.
Page 1
<PAGE>
B. In cases in which Customer and AT&T agree to have AT&T act as Customer's
authorized agent for ordering and coordinating local access circuits for a
Service outside of this Agreement, a separate Agency Agreement will be executed.
C. Customer is solely responsible for the content of any transmissions using
the Services, or any other use of the services, by Customer or by any person or
entity Customer permits to access the Services (a "User"). Customer agrees that
it and any User will not use the Services for illegal purposes, or to interfere
with or disrupt other network users, network services or network equipment.
Disruptions include, but are not limited to, distribution of unsolicited
advertising or chain letters, propagation of computer worms and viruses, and
using the network to make unauthorized entry to any other machine accessible via
the network. Customer shall defend, indemnify, and hold harmless AT&T (as
defined in Paragraph 7.A.) from and against all liabilities and costs (including
reasonable attorneys' fees) arising from any and all claims by any person based
upon the content of any transmissions by Customer or any User using the services
or any other use of the Services by Customer or any User.
D. Customer shall limit access to and use of the Services to its employees
(and, in the case of a Customer that is a nonprofit educational institution, to
employees and students), shall not authorize any person to use the Services
other than for Customer's business purposes, and shall not resell or otherwise
generate income by providing access to the Services to any User. If Customer
permits Users to access the Services, Customer shall defend, indemnify, and hold
harmless AT&T (as defined in Paragraph 7.A.) from and against all liabilities
and costs (including reasonable attorneys' fees) arising from any and all claims
by any such Users in connection with the Services, regardless of the form of
action, whether in contract, tort (including AT&T's active or passive
negligence), warranty, or strict liability. However, Customer shall have no
obligation to indemnify and defend AT&T against claims for direct damages to
real or tangible personal property, or for bodily injury or death, proximately
caused by AT&T's negligence.
E. To the extent deemed necessary by Customer, customer shall implement
security procedures necessary to limit access to the Services to Customer's
authorized users and shall maintain a procedure external to the Services for
reconstruction of lost or altered files, data or programs.
F. Customer is responsible for establishing designated points of contact to
interface with AT&T.
G. Customer agrees to comply, and to cause any User to comply, with United
States law with regard to the transmission of technical data which is exported
from the United States using the Services.
H. Customer understands that Services provided under this Agreement (including
Internet use) may require registrations and related administrative reports that
are public in nature. In addition, Customer agrees that AT&T may include its
name; IP, electronic mail, street, and other addresses; and telephone
information in directories.
5. AT&T RESPONSIBILITIES
AT&T will provide the Services as described in the Attachments. However, AT&T's
policy is to continually improve its products and services, and so may from time
to time change the Services as provided to Customer under this Agreement. In the
event that AT&T changes the Services in any way that materially decreases the
level of the Services available to customer, customer shall have a one time
right to terminate this Agreement within the thirty (30) day period following
receipt of notice of such change by giving AT&T seven (7) days' written notice
of termination and payment of all charges incurred as of the termination date,
but without any termination liability to AT&T.
Page 2
<PAGE>
6. LICENSES
AT&T hereby grants to Customer a personal, nonexclusive, nontransferable license
during the term of this Agreement to use, in object code form, all software and
documentation ("Licensed Material") which may be furnished to Customer under
this Agreement. Customer agrees to use its best efforts to ensure that its
employees and users of all Licensed Material hereunder comply with the terms and
conditions set out in this Agreement. Customer also agrees to refrain from
taking any steps, such as reverse assembly or reverse compilation, to derive a
source code equivalent to the software. All Licensed Material furnished to
Customer under this Agreement shall be used by Customer only to support
Customer's use of the Services, shall not be reproduced or copied in whole or in
part, shall not be removed from the United States, and shall be returned to AT&T
at the conclusion of the term of this Agreement. In addition, to the extent
Licensed Material includes software or documentation provided by any third party
pursuant to a sublicense from AT&T ("Third Party Material"), Customer agrees, as
a condition to the right to use such Third Party Material, to abide by the terms
and conditions of such sublicense (including such additional end user terms and
conditions as shall be required by such sublicense), and Customer shall be bound
by such terms and conditions by virtue of its use of such Third Party Material
following notice of such terms and conditions.
7. WARRANTY AND LIMITATION OF LIABILITY
A. FOR PURPOSES OF THIS PARAGRAPH 7, "AT&T" INCLUDES AT&T, ANY AFFILIATED AND
SUBSIDIARY COMPANIES OF AT&T, ANY SUBCONTRACTORS AND SUPPLIERS OF THE FOREGOING,
AND THE DIRECTORS, EMPLOYEES, OFFICERS, AGENTS, SUBCONTRACTORS AND SUPPLIERS OF
ALL OF THEM.
B. NO TARIFFED SERVICES ARE PROVIDED UNDER THIS AGREEMENT. PRODUCTS OR SERVICES
SOLD OR PROVIDED UNDER ANOTHER CONTRACT OR UNDER TARIFF ARE GOVERNED SOLELY BY
THE TERMS OF THAT CONTRACT OR TARIFF, INCLUDING ANY WARRANTIES, GUARANTEES, OR
OTHER OBLIGATIONS OF AT&T UNDER THAT CONTRACT OR TARIFF. AT&T MAKES NO WARRANTY
OR GUARANTEE, EXPRESS OR IMPLIED, WITH RESPECT TO ANY SERVICES OR PRODUCTS
PROVIDED UNDER THIS AGREEMENT, AND AT&T EXPRESSLY DISCLAIMS ANY IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
C. AT&T'S LIABILITY TO CUSTOMER ON ACCOUNT OF ANY ACTS OR OMISSIONS RELATING TO
THIS AGREEMENT SHALL BE LIMITED TO PROVEN DIRECT DAMAGES IN AN AGGREGATE AMOUNT
NOT TO EXCEED THE GREATER OF (A) $25,000 FOR EACH SITE PROVISIONED FOR SERVICES
UNDER THIS AGREEMENT OR (B) THE AMOUNTS PAID BY CUSTOMER FOR SERVICES DURING THE
TWELVE (12) MONTH PERIOD PRECEDING THE INCIDENT GIVEN RISE TO THE CLAIM FOR
DAMAGES, IN NO EVENT TO EXCEED AN AGGREGATE OF $50,000 IN THE CASE OF (A) OR
(B). HOWEVER, NOTHING IN THIS SUBPARAGRAPH 7.C. LIMITS AT&T'S LIABILITY FOR
DIRECT DAMAGES TO REAL OR TANGIBLE PERSONAL PROPERTY, OR FOR BODILY INJURY OR
DEATH, PROXIMATELY CAUSED BY AT&T'S NEGLIGENCE.
D. AT&T SHALL NOT BE LIABLE FOR INDIRECT, INCIDENTAL, CONSEQUENTIAL, RELIANCE
OR SPECIAL DAMAGES, INCLUDING WITHOUT LIMITATION DAMAGES FOR HARM TO BUSINESS,
LOST PROFITS, LOST SAVINGS OR LOST REVENUES, WHETHER OR NOT AT&T HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. AT&T SHALL NOT BE LIABLE FOR ANY
DAMAGE THAT CUSTOMER MAY SUFFER ARISING OUT OF USE, OR INABILITY TO USE, THE
SERVICES OR PRODUCTS PROVIDED HEREUNDER UNLESS SUCH DAMAGE IS CAUSED BY AN
INTENTIONAL ACT OF AT&T. AT&T SHALL NOT BE LIABLE FOR UNAUTHORIZED ACCESS BY
THIRD PARTIES TO CUSTOMER'S TRANSMISSION FACILITIES OR PREMISE EQUIPMENT OR FOR
UNAUTHORIZED
Page 3
<PAGE>
ACCESS TO OR ALTERATION, THEFT, LOSS OR DESTRUCTION OF CUSTOMER'S NETWORK,
SYSTEMS, APPLICATIONS, DATA FILES, PROGRAMS, PROCEDURES OR INFORMATION THROUGH
ACCIDENT, FRAUDULENT MEANS OR DEVICES, OR ANY OTHER METHOD. EXCEPT AS EXPRESSLY
SET FORTH IN OR CONTEMPLATED BY THIS AGREEMENT, IN ANY INSTANCE INVOLVING
PERFORMANCE OR NONPERFORMANCE BY AT&T WITH RESPECT TO SERVICES OR PRODUCTS
PROVIDED HEREUNDER, CUSTOMER'S SOLE REMEDY SHALL BE (A) IN THE CASE OF SERVICES,
REFUND OF A PRO RATA PORTION OF THE PRICE PAID FOR SERVICES WHICH WERE NOT
PROVIDED, OR (B) IN THE CASE OF PRODUCTS, REPAIR OR RETURN OF THE DEFECTIVE
PRODUCT TO AT&T FOR REFUND. AT THE OPTION OF AT&T, EXCEPT AS EXPRESSLY SET FORTH
IN OR CONTEMPLATED BY THIS AGREEMENT, IN THE CASE OF REFUND FOR LOST SERVICES,
CREDIT WILL BE ISSUED ONLY FOR PERIODS OF LOST SERVICE GREATER THAN TWENTY-FOUR
(24) HOURS.
E. THESE LIMITATIONS OR LIABILITY SHALL APPLY REGARDLESS OF THE FORM OF ACTION,
WHETHER IN CONTRACT, WARRANTY, STRICT LIABILITY OR TORT, INCLUDING WITHOUT
LIMITATION NEGLIGENCE OF ANY KIND, WHETHER ACTIVE OR PASSIVE, AND SHALL SURVIVE
FAILURE OF AN EXCLUSIVE REMEDY.
F. AT&T SHALL NOT BE RESPONSIBLE FOR (1) SERVICE IMPAIRMENTS CAUSED BY ACTS
WITHIN THE CONTROL OF CUSTOMER, ITS EMPLOYEES, AGENTS, SUBCONTRACTORS, SUPPLIERS
OR LICENSEES, (2) INTEROPERABILITY OF SPECIFIC CUSTOMER APPLICATIONS, (3)
INABILITY OF CUSTOMER TO ACCESS OR INTERACT WITH ANY OTHER SERVICE PROVIDER
THROUGH THE INTERNET, OTHER NETWORKS OR USERS THAT COMPRISE THE INTERNET OR THE
INFORMATIONAL OR COMPUTING RESOURCES AVAILABLE THROUGH THE INTERNET, (4)
INTERACTION WITH OTHER SERVICE PROVIDERS, NETWORKS, USERS OR INFORMATIONAL OR
COMPUTING RESOURCES THROUGH THE INTERNET, (5) SERVICES PROVIDED BY OTHER SERVICE
PROVIDERS, OR (6) PERFORMANCE IMPAIRMENTS CAUSED ELSEWHERE ON THE INTERNET.
8. CONFIDENTIALITY
A. All tangible technical or business information disclosed by one party to the
other party and marked as proprietary shall be deemed the property of the
disclosing party and shall be returned upon request. The receiving party shall:
(1) hold such information in confidence for three (3) years after any
termination of this Agreement; (2) restrict disclosure of such information
solely to its employees and employees of its affiliated companies with a need to
know; (3) and use a reasonable degree of care (in no event less than the same
degree of care as it uses for its own proprietary information) to prevent the
unauthorized disclosure, use or publication of such proprietary information.
B. The receiving party shall have no obligation to preserve the confidentiality
of any information which: (1) was previously known to the receiving party or any
of its affiliated companies free of any confidentiality obligation; (2) is
disclosed to third parties by the disclosing party without restrictions; (3)
becomes publicly available by other than unauthorized disclosure; (4) was not
identified as confidential or proprietary; or (5) is independently developed by
the receiving party.
C. The pricing, terms and conditions of this Agreement are proprietary
information and shall be treated in confidence.
Page 4
<PAGE>
9. GENERAL
A. IF A DISPUTE ARISES WITH RESPECT TO THIS AGREEMENT, OR ANY SERVICES PROVIDED
OR WORK PERFORMED HEREUNDER, EITHER PARTY MAY SUBMIT THE DISPUTE TO A SOLE
MEDIATOR SELECTED BY THE PARTIES OR, AT ANY TIME, TO MEDIATION BY THE AMERICAN
ARBITRATION ASSOCIATION ("AAA"). IF NOT THUS RESOLVED, IT MAY BE REFERRED BY
EITHER PARTY TO A SOLE ARBITRATOR SELECTED BY THE PARTIES OR TO AAA ARBITRATION.
THE ARBITRATION SHALL BE GOVERNED BY THE UNITED STATES ARBITRATION ACT AND
JUDGMENT ON THE AWARD MAY BE ENTERED BY ANY COURT HAVING JURISDICTION. THE
PARTIES SHALL AGREE ON WHAT, IF ANY, DISCOVERY SHALL BE MADE AVAILABLE; IF THE
PARTIES FAIL TO AGREE ON THE FORM OF DISCOVERY WITHIN 30 DAYS AFTER THE
APPOINTMENT OF THE ARBITRATOR, THERE SHALL BE NO DISCOVERY OR ISSUANCE OF ANY
SUBPOENAS. THE ARBITRATOR SHALL NOT LIMIT, EXPAND, OR MODIFY THE TERMS OF THIS
AGREEMENT NOR AWARD DAMAGES IN EXCESS OF COMPENSATORY DAMAGES PERMITTED UNDER
THIS AGREEMENT, AND EACH PARTY WAIVES ANY CLAIM TO SUCH EXCESS DAMAGES. THE
ARBITRATOR SHALL NOT HAVE ANY ABILITY TO AWARD ANY EQUITABLE REMEDIES, AND SHALL
BE LIMITED TO REMEDIES AVAILABLE AT LAW. THE ARBITRATOR SHALL NOT HAVE THE RIGHT
TO AWARD ANY DAMAGES IN EXCESS OF DAMAGES THAT COULD LAWFULLY BE AWARDED BY A
COURT OF COMPETENT JURISDICTION. THE ARBITRATOR SHALL ISSUE A WRITTEN DECISION
CONTAINING FINDINGS AND CONCLUSIONS ON ALL SIGNIFICANT ISSUES. A REQUEST BY A
PARTY TO A COURT FOR INTERIM PROTECTION SHALL NOT AFFECT EITHER PARTY'S
OBLIGATION HEREUNDER TO MEDIATE AND ARBITRATE. EACH PARTY SHALL BEAR ITS OWN
EXPENSES AND AN EQUAL SHARE OF ALL COSTS AND FEES OF THE MEDIATION AND/OR
ARBITRATION. ANY MEDIATOR OR ARBITRATOR SELECTED SHALL BE COMPETENT IN THE LEGAL
AND TECHNICAL ASPECTS OF THE SUBJECT MATTER OF THIS AGREEMENT. THE CONTENT AND
RESULT OF MEDIATION AND/OR ARBITRATION SHALL BE HELD IN CONFIDENCE BY ALL
PARTICIPANTS. EACH OF WHOM WILL BE BOUND BY AN APPROPRIATE CONFIDENTIALITY
AGREEMENT.
B. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED UNDER THE LAWS OF THE
STATE OF NEW YORK, WITHOUT GIVING EFFECT TO ITS CONFLICTS OF LAW PRINCIPLES.
EXCEPT THAT PARAGRAPH 9.A. SHALL BE INTERPRETED AND ENFORCED IN ACCORDANCE WITH
THE UNITED STATES ARBITRATION ACT.
C. Any legal action arising from or in connection with this Agreement, or any
Services provided or work performed hereunder, must be brought within two (2)
years after the cause of action arises.
D. Neither party shall publish or use any advertising, sales promotions, press
releases or other publicity which use the other party's name, logo, trademarks
or service marks without the prior written approval of the other party.
E. Nothing in this Agreement shall create or vest in Customer any right, title,
or interest in the Services, other than the right to use the Services under the
terms and conditions of this Agreement.
F. If any portion of this Agreement is found to be invalid or unenforceable,
the remaining portions shall remain in effect and the parties will begin
negotiations for a replacement of the invalid or unenforceable portion.
G. This Agreement may not be assigned by either party without the prior written
consent of the other. However, AT&T may, without Customer's consent, assign this
Agreement or its right to receive payments
Page 5
<PAGE>
hereunder to an affiliate or subsidiary. AT&T may subcontract any or all of the
work to be performed by it under this Agreement, but shall retain responsibility
for the work that is subcontracted.
H. AT&T's performance obligations under this Agreement shall be solely to
Customer and not to any third party. Other than as expressly set forth herein,
this Agreement shall not be deemed to provide third parties with any remedy,
claim, right of action, or other right.
I. AT&T SHALL NOT HAVE ANY LIABILITY FOR DAMAGES OR DELAYS DUE TO FIRE,
EXPLOSION, LIGHTNING, POWER SURGES OR FAILURES, STRIKES OR LABOR DISPUTES,
WATER, ACTS OF GOD, THE ELEMENTS, WAR, CIVIL DISTURBANCES, ACTS OF CIVIL OR
MILITARY AUTHORITIES OR THE PUBLIC ENEMY, INABILITY TO SECURE PRODUCTS OR
TRANSPORTATION FACILITIES, FUEL OR ENERGY SHORTAGES, ACTS OR OMISSIONS OF
COMMUNICATIONS CARRIERS OR SUPPLIERS, OR OTHER CAUSES BEYOND ITS CONTROL WHETHER
OR NOT SIMILAR TO THE FOREGOING.
J. All formal notices, requests, demands and other communications required or
permitted under this Agreement shall be in writing unless otherwise specified in
this Agreement and shall be deemed to have been duly made and received when
personally served, or when mailed by first class mail, postage prepaid, to the
addresses indicated on Page 1 of this Agreement. The parties may change the
addresses on ten (10) days' prior written notice. In addition, the parties may
provide other notices in connection with the provision of the Services under
this Agreement (such as notices relating to service outages and maintenance) by
other means, including by telephone, facsimile or electronic mail.
K. THIS IS THE ENTIRE AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE
SERVICES PROVIDED HEREUNDER AND IT SUPERSEDES ALL PRIOR AGREEMENTS, PROPOSALS,
REPRESENTATIONS, STATEMENTS, OR UNDERSTANDINGS, WHETHER WRITTEN OR ORAL,
CONCERNING SUCH SERVICES. No change, modification, or waiver of any of the
terms of this Agreement shall be binding unless included in a written agreement
and signed by both parties.
================================================================================
CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS
EACH OF THE TERMS AND CONDITIONS OF THIS AGREEMENT AND AGREES TO BE BOUND BY
THEM.
================================================================================
LAW OFFICE INFORMATION SYSTEMS, INC. AT&T CORP.
By: /s/ Kyle D. Parker By:_____________________________________
---------------------------------
(Authorized Signature) (Authorized Signature)
Kyle D. Parker
- ------------------------------------ ________________________________________
(Typed or Printed Name) (Typed or Printed Name)
President
- ------------------------------------ ________________________________________
(Title) (Title)
9/28/95
- ------------------------------------ ________________________________________
(Date) (Date)
Page 6
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Cover Sheet
Page 1
This Attachment to the AT&T WorldNet(SM) Services Agreement between Customer and
AT&T Corp. ("Agreement") covers AT&T WorldNet(SM) Managed Internet Service
(Plus) ("MIS Plus") and is an integral part of the Agreement. This Attachment
consists of:
. Cover Sheet
. Appendix 1
MIS Plus Service Description
. Appendix 2
MIS Plus Pricing
. Appendix 3
MIS Plus Additional Terms and Conditions
. Appendix 4 (If Applicable)
Agency Agreement authorizing AT&T to act as
Customer's agent to order access circuits for
connection to MIS Plus
Service Period
This Attachment is effective when signed by Customer and accepted in writing by
AT&T ("Attachment Effective Date"). The Service Period will commence on the
Attachment Effective Date and, unless terminated in accordance with the
provisions in the Agreement, will continue in effect for a period of
Thirty-six (36) months. At the end of the Service Period, this Attachment will
continue in effect on a month-to-month basis until terminated by either party
giving the other party at least thirty (30) days prior written notice.
Check all options that apply to this Attachment
[X] Customer elects Option A -Premises Equipment Package (up to 15 zones/150
Kbytes)
[_] Customer elects Option B - Primary Domain Name Service Administration
[X] Customer elects Option C - Network News Feed Service
[_] Customer Elects Option D - Packet Filtering
[X] Customer Elects Option E - Usage Reports
[_] Customer elects Option F -Additional secondary DNS (up to 30 zones/100
Kbytes)
- --------------------------------------------------------------------------------
CUSTOMER'S SIGNATURE BELOW ACKNOWLEDGES THAT CUSTOMER HAS READ AND UNDERSTANDS
EACH OF THE TERMS AND CONDITIONS IN THIS ATTACHMENT AND AGREES TO BE BOUND BY
THEM.
- --------------------------------------------------------------------------------
LAW OFFICE INFORMATION SYSTEMS, INC. AT&T CORP.
By: /s/ Kyle D. Parker Accepted:_______________________________
---------------------------------
(Authorized Signature) (Authorized Signature)
Kyle D. Parker
--------------------------------- ________________________________________
(Typed or Printed Name) (Typed or Printed Name)
President
--------------------------------- ________________________________________
(Title) (Title)
9/28/95
--------------------------------- ________________________________________
(Date) (Date)
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 1
MIS Plus Service Description
Page 1-1
1. Service Description
AT&T WorldNet(SM) Managed Internet Service (Plus) ("MIS Plus") is an enhanced
service providing managed connectivity to the Internet and other value-added
features. MIS Plus is provided in conjunction with BBN Planet.
MIS Plus provides managed Internet access, along with the following optional
advanced services:
. Premises Equipment Package
. Primary Domain Name Service ("DNS")
Administration (up to 15 zones/150 Kbytes)
. Network News Feed
. Packet Filtering
. Usage Reports
. Additional Secondary DNS (up to 30
zones/300 Kbytes)
The Service Description includes Implementation Support, Network Operations and
Services, Technical Services and Support, and Advanced Services.
MIS Plus is available at port sizes ranging from 56 kbps to 45 Mpbs. and will be
provisioned to ensure adequate throughput for MIS Plus on a shared-facilities
basis consistent with the selected port size. Access options include Digital
Private Line (Accunet(R) Digital Services) and Frame Relay (AT&T InterSpan(R)
Frame Relay Service).
Under this Attachment, MIS Plus is available only within the 50 states of the
United States.
2. Implementation Support
MIS Plus is a complete set of Internet access services and support. MIS Plus
includes everything necessary to assure that a business customer will establish
and maintain a successful connection to the Internet. MIS Plus includes expert
implementation support, pro-active monitoring of service levels, and problem
diagnosis and resolution.
Implementation support, including Option "A" for customer premises equipment, is
described below.
2.1 Site Planning and Preparation
AT&T will provide site planning information to Customer's designated point of
contact in order to assist Customer in preparing for installation of MIS Plus.
Customer will be responsible for providing space and power for a dedicated
router and other premises equipment, an attachment to Customer's internal
network, and at least one computer with TCP/IP support.
MIS Plus includes the registration and propagation of network numbers, domain
names, and routing information as required for Customer's environment.
2.2 Communications Circuit Ordering
AT&T will (on behalf of Customer) order and arrange for installation of the
Digital Private Line or other circuit necessary to connect Customer's location
to the designated AT&T Point of Presence ("Access Facilities"). AT&T arranged
for termination of the circuit in proximity to the planned location of the
premises equipment. Any inside wiring charges shall be the responsibility of
Customer.
2.3 Equipment Provisioning and Staging
Customer may purchase and own premises equipment used in connection with MIS
Plus, but shall assign full management and operational control of that equipment
to AT&T. MIS Plus customers must maintain the premises equipment to current
hardware and software revision levels to make sure that AT&T continues to be
able to exercise operational control. An MIS Implementation Engineer will work
with Customer's implementation coordinator to assure that the proper equipment
is used and configured correctly.
With or without Option "A", customers may select remote installation, referred
to as Tele-Install (via telephone), of premises equipment, or, for an additional
charge, on-site installation. Tele-install is included in MIS Plus and entails
having MIS technicians remotely assist Customer's technical liaison in the
configuration of the premises equipment as necessary to ensure that the premises
equipment is configured properly to work with MIS Plus and validate the
integration of Customer's existing internal network with MIS Plus. In the case
of the on-site implementation option, an MIS technician is dispatched to
Customer's premises to perform the installation.
2.4 Acceptance Testing
The MIS Network Operations Center ("NOC") conducts tests to Customer's site to
ensure that the on-site router can successfully communicate over MIS Plus. The
acceptance test verifies the proper operation of the on-site equipment package,
the local access facility, and the AT&T access infrastructure.
2.5 Initial Integration Service
MIS Plus includes Internet integration support. This includes consultation and
assistance towards performance of the following initial configuration and
orientation tasks on Customer's fully-installed Internet host:
. TCP/IP software configuration
. SMTP mail host configuration
Such activities will be undertaken on AT&T-approved computing systems with
suitable TCP/IP software.
The integration phase of implementation is considered complete when the criteria
defined in Section 2.6 are met.
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 1
MIS Plus Service Description
Page 1-2
2.6 Acceptance Criteria
Project implementation for Customer shall be considered complete and service
billing will be initiated when the following criteria have been met.
1. The access router and associated premises equipment is correctly configured
and installed at Customer site, and IP connectivity to the Internet (including
routing outside the MIS network) exists. MIS technical staff verifies IP
connectivity through a test which sends repeated pings through the Internet to
Customer site and verifies that the pings were received. In cases when the
premises equipment configuration supports it, technical staff verifies IP
routing through a trace route test.
2. If Customer has its own domain, Customer's domain is registered with
InterNIC (a process which is managed by AT&T) and any AT&T-supplied primary and
secondary DNS servers are operational for Customer's domain.
3. Any required packet filtering, if Option "D" is selected, has been
installed in the MIS router.
2.7 New Customer Training
Installation includes classroom training on networking topics such as
establishing domain name servers, configuring gateways, implementing subnetting
schemes and processing electronic mail addresses. The two days of training for
two people will be offered at a designated MIS Training Facility.
3. Network Operations and Services
MIS network operations and technical support staff is dedicated to providing
high network availability and performance. MIS is monitored 24 hours per day,
365 days a year by experienced operators and technicians.
The NOC will coordinate operations with Customer's designated points of contact,
hardware vendors and operators of other networks.
The NOC will perform proactive operations support and trouble shooting of
network and service infrastructure and provide pro-active monitoring of service
levels and problem diagnosis and resolution. In addition, AT&T will regularly
generate and store premises router performance information in the NOC for
Customer's retrieval and use.
3.1 Network Monitoring
The NOC uses SNMP-based software to monitor the network. This software is
coupled with additional tools to monitor non-SNMP equipment, domain name
servers, NNTP news feeds, and other network services. The monitoring software
reports the status of the network to a display that is monitored throughout the
day. Changes in the network status are logged to provide the NOC with the
ability to evaluate staff responsiveness and network availability.
3.2 Communication Link Maintenance
The NOC is responsible for maintaining the communications link between Customer
and the MIS network. This includes problem diagnosis, and any necessary vendor
interaction for dispatch and repair.
3.3 Premises Equipment Maintenance
MIS Plus includes maintenance for dedicated premises equipment for MIS Plus
customers. The MIS operations staff shall diagnose failures with the assistance
of Customer's designated point of contact designated by Customer at the site,
and determine whether equipment replacement is required. Customer's designated
point of contact shall perform the actual replacement with telephone assistance
(as necessary) from the NOC.
If Customer has selected Option "A" (Premises Equipment Package), Customer shall
receive replacement equipment via next-business-day courier.
4. Technical Services and Support
4.1 Software and Configuration Support
MIS technical staff will coordinate software updates and configuration changes
as required for the router and CSU/DSU. AT&T will notify the Customer's
designated point of contact of software changes, and will seek where feasible to
perform maintenance during off-hours.
4.2 24-hour Hotline
All hotline calls will be answered by a touch-tone menu system. The hotline will
be staffed on a 24-hour basis.
4.3 Trouble Ticket System
The Network Operations Trouble Ticket System allows the NOC to track problems
from initial report through satisfactory resolution. As the MIS staff works to
resolve problems, the current status is always entered in the Trouble Ticket
System. The system's electronic mail and fax interfaces allow these entries to
be provided automatically to interested customer technical contacts.
4.4 Fault Isolation and Problem Resolution
Fault isolation involves coordination among network operators and technicians,
staff at the affected site and other vendors. Depending on the specific
technologies used, the process may involve testing equipment, reconfiguring
routers, or diagnosing communications link problems. The MIS operations staff
will also seek to keep AT&T customers informed of any widespread outages on
connection networks.
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 1
MIS Plus Service Description
Page 1-3
4.5 Security Procedures
MIS security procedures include keeping customers informed of known and
suspected security breaches. Information about security problems will be
reviewed and may be distributed to customer sites by the MIS operations staff.
Fax, phone calls and E-Mail will be employed, based on the urgency and nature of
the problem. MIS Plus customers may designate a list of up to 5 contacts who
will be authorized to request site disconnection or reconnection as necessary.
The security procedures employed with MIS Plus constitute only part of a
comprehensive security plan for any user of Internet services, and do not
guarantee network security or prevent security incidents. Customer is
responsible for implementing security measures to protect its network, systems,
applications, data files, programs, procedures and information from unauthorized
access, alteration, theft, loss or destruction.
4.6 Secondary Domain Name Service (DNS)
AT&T provides MIS Plus customers with secondary domain name service as necessary
for successful presence on the network (up to 10 zones and 100 Kbytes of zone
file data). Secondary DNS service is maintained on multiple servers which are
physically diverse and connected to the MIS network at different points. DNS
administration is performed during normal business hours and changes are limited
to an average of one per week.
5. Optional Services
MIS Plus customers may subscribe to the following optional advanced services.
Option "A" - Premises Equipment Package
MIS Plus customers may choose to obtain pre-configured customer premises
equipment from AT&T as part of the service for an additional monthly fee, or on
a purchase basis at a one-time cost. AT&T will replace equipment in need of
repair under this Option as provided in Section 3.3 of Appendix 1, Service
Description.
The premises equipment package consists of a TCP/IP router, CSU/DSU, loopback
connector, transceiver, and associated cables. Customers may choose between AUI
or 10BASE-T an 10BASE-2 transceiver types. Where a different type of transceiver
is required, Customer is responsible for providing it. The package of service
equipment utilized by each customer is pre-assembled and subjected to a hardware
quality acceptance test by MIS technical staff before delivery to Customer site.
To ease installation, equipment is either pre-configured before delivery to
Customer or remotely configured by MIS technical stall after it is connected to
the network.
Option "B" - Primary Domain Name Service (DNS) Administration (up to 15
zones/150 Kbytes)
The translation of domain names (e.g., xxx.com) to underlying Internet addresses
is performed by primary domain name servers. Therefore, establishment of a
Primary DNS is a prerequisite for each Internet presence.
Secondary DNS backup is part of MIS Plus (up to 10 zones and 100 Kbytes of
associated zone file data). By purchasing Option "B", Customers may have MIS
provide primary DNS service rather than incurring the cost of setting up and
managing a primary DNS system in-house. This option provides Primary DNS for up
to 15 zones and 150 Kbytes of associated zone file data.
MIS engineers work with Customer to develop and implement a DNS strategy. This
includes working with InterNIC to register Customer's domain name. Once in
place, changes to the DNS data base are performed during normal business hours
and limited to an average of one request per week.
Option "C" - Network News Feed Service
Network News is a forum of groups that conduct national and international
dialogues on thousands of topics. Hundreds of thousands of people throughout the
world participate in this "bulletin board." The forum allows people to post and
read about new findings, products, services, or commentary within a special
interest group or a wider audience. Under Option "C," MIS Plus offers
comprehensive or selective access to these news groups, as chosen by the
Customer. AT&T IS NOT RESPONSIBLE IN ANY WAY FOR THE CONTENT OF ANY NEWS GROUPS
THAT MAY BE ACCESSED BY CUSTOMER THROUGH THIS FEATURE.
As a prerequisite to Network News Feed Service, Customer must install a news
server provided by Customer. Once the server is in place and the service is
established, MIS Plus feeds selected news information from the MIS central news
server to Customer's server via NNTP (network news transfer protocol) making it
available to all authorized users on Customer's private network. MIS staff will
track evolving use of news feed service and make recommendations on upgrading
access line speed to keep pace with news feed requirements.
Customers may request changes to the list of news groups fed from the MIS server
during normal business hours at a frequency averaging up to one change request
per week.
Option "D" - Packet Filtering
Packet Filtering is a useful component of a comprehensive security plan. Under
Option "D," AT&T oversees implementation and ongoing management of packet
filtering tables resident in the premises router. These filters help control
which outside addresses can enter a customer's internal network and help screen
internal users from connecting with predesignated outside destinations via the
Internet.
The MIS engineering staff works with Customer to develop a customized packet
filtering plan. Once this design phase is complete, AT&T builds the filtering
tables in the router and maintains the filtering tables as Customer's
environment evolves. Routine changes to filters are limited to an average of one
request per week.
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 1
MIS Plus Service Description
Page 1-4
Option "E" - Usage Reports
Network Usage Reports are a traffic summary that allows customers to track
access line utilization and peak activity periods. With this information,
customers can proactively plan access line bandwidth upgrades as overall
utilization grows. The usage report is provided weekly and details utilization
as a percentage of available bandwidth across the week. This information is
collected from Customer premises equipment using SNMP (Simple Network Management
Protocol) tools.
Option "F" - Additional Secondary DNS (up to 30 zones/300 Kbytes)
Secondary DNS, as back-up to the Primary DNS, is included as part of MIS Basic
for up to 10 zones and 100 Kbytes of associated zone file data. By selecting
this option, Customer can choose to increase that coverage to up to 30 zones and
300 Kbytes of associated zone file data.
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 2
MIS Plus Pricing
Page 2-1
Pricing
The prices specified in this Appendix 2 apply to each location provisioned for
MIS Plus and, other than Access Facilities Charges under Section IV, are
guaranteed for the Service Period only and only for services initially purchased
under this Attachment. At the end of the Service Period, all discounts and
discount plans will cease, and AT&T may amend the prices from time-to-time
provided that AT&T gives Customers at least sixty (60) days prior written
notice. Different prices may also apply to services, features, options and
locations selected after the Attachment Effective Date.
Schedule I: Implementation Support Fees
Service Level
- -------------
Tele-Install $1000
- ------------------
Notes:
(1) Implementation support fees are a one-time charge due within 30 days
of service commencement.
(2) Travel expenses also apply to on-site installations more than 125
miles from any MIS service center: Dallas, Chicago, Atlanta,
Cambridge, New York City, Palo Alto and Washington, D.C.
(**) 45 Mbps installation costs will be provided to the customer on a case
by case basis.
Schedule II: AT&T WorldNet(SM) Managed Internet Service (Plus)
Port Rate and Monthly service fee
---------------------------------
768 Kbps (15% discount) - $1955
Notes:
(**) 45 Mbps Service costs will be quoted on a case by case basis.
Additional charges may apply for services or features not specified herein,
including location changes and professional services.
Schedule III: Optional Services
Options
- -------
Option "A"
Premises Equipment Package
128 Kbps - T1 Outright Purchase - $5000
Notes:
(**) 45 Mbps prices will be quoted on a case by case basis.
<TABLE>
<CAPTION>
Installation
Monthly (One-Time)
------- ------------
<S> <C> <C>
Option "B"
Primary DNS Administration
(Up to 15 Zones/150 Kbytes) -NA- -NA-
</TABLE>
Notes:
(1) Secondary DNS Administration included in MIS Plus includes up to 10
zones and 100 Kbytes of associated zone file data. Primary DNS
Administration includes up to 15 zones and 150 Kbytes of associated
zone file data.
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 2
MIS Plus Pricing
Page 2-2
<TABLE>
<CAPTION>
Installation
Monthly (One-Time)
------- -------------
<S> <C> <C>
Option "C"
Network News Feed
Service -NA- -NA-
Option "D"
Packet Filtering -NA- -NA-
Option "E"
Usage Reports $50 -NA-
Option "F"
Additional Secondary DNS
(up to 30 Zones/300 Kbytes) -NA- -NA-
</TABLE>
Schedule IV: Access Facilities Charges
Access Facilities will be priced on an individual case basis by your AT&T
Representative from Customer location to the point where service availability
has been defined. The following access types will be supported:
Digital Private Line (ACCUNET(R) Digital Services)
Frame Relay (AT&T InterSpan(R) Frame Relay Service)
Others (including Integrated Access) as approved by AT&T on a case-by-case
basis.
Service will be available at all AT&T InterSpan and ACCUNET Points of Presence
within the 50 states of the United States.
Schedule V: Special Options
Special Options include Redundant Configurations. With this Special Option,
available to MIS Plus customers that select Option "A," Premises Equipment
Package, dual premises equipment is provided to the customer, and each router
and CSU/DSU pair is homed into a different AT&T POP. This Special Option does
not include loadsharing of outbound traffic across the Access Facilities (which
is the responsibility of the customer's host) or inbound traffic balancing
across the Access Facilities (which cannot be assured in this configuration).
Special Options also include the following services offered by BBN Planet: Web
Advantage(SM) Service and Site Patrol(SM) Service. See you AT&T Representative
for descriptions and terms and conditions relating to these services.
Special Options will be priced out of an individual basis by your AT&T
Representative.
The total monthly price is the sum of applicable portions of Schedules II, III
and IV.
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 3
MIS Plus Additional Terms and Conditions
Page 3-1
1. Implementation
Customer and AT&T will mutually agree upon a Scheduled Network Activation
Date ("SNA") for each location site. AT&T will use all reasonable efforts
to ensure that service is provided by that date.
2. Billing
Billing for each location shall begin on the earlier of (i) the Actual
Network Activation Date ("ANAD") for that location or (ii) if
implementation is postponed beyond the SNAD at the request of Customer, due
to Customer's failure to meet its obligations under this agreement, or
otherwise due to circumstances within Customer's control, the SNAD as set
forth in Section 1, Implementation.
The ANAD for a Customer location is when Customer is notified by AT&T that
MIS Plus is being provided to that location.
3. Access Facilities
The following provisions shall apply to Access Facilities provided by AT&T
under this Attachment.
A. Customer understands and agrees that AT&T, in order to provision MIS
Plus, will be obtaining the required access facilities necessary to connect
Customer's locations to the designated AT&T Point of Presence ("Access
Facilities"). AT&T will obtain Access Facilities from interexchange
carriers, local exchange carriers, alternate access vendors and/or others
("Access Suppliers"). AT&T shall use reasonable efforts to work with the
Access Suppliers to resolve problems with Access Facilities, but AT&T shall
not be responsible for interruptions to MIS Plus caused by Access
Facilities or installation delays caused by Access Suppliers.
B. Access Facilities provided by AT&T under this Attachment shall be
governed by this Attachment and not by tariff. Under this Attachment, AT&T
will only provide Access Facilities to be used solely for the provision of
MIS Plus. If Customer wishes to use integrated access facilities, i.e.,
facilities used for the provision of MIS Plus and tariffed services,
Customer must obtain directly out of tariff or under a separate agreement
such facilities and the network multiplexing functionality required to
support the MIS Plus configuration.
C. If Customer, with approval from AT&T, subsequently wishes to obtain
Access Facilities directly out of tariff or under a separate agreement (and
not through AT&T under this Attachment), Customer shall give AT&T ninety
(90) days' advance written notice and pay all Access Facilities related
charges incurred under this Attachment as of the effective date of such
change.
D. In cases where Access Facilities are purchased outside of this
Attachment, arrangements shall be made for AT&T to be given operational
control over such Access Facilities as necessary in connection with AT&T's
provision of MIS Plus.
4. Termination
If a 12-month Service Period is selected, the following applies:
Customer may terminate this Attachment by thirty (30) days' prior written
notice to AT&T and payment of all charges incurred as of the termination
ate and a Termination Charge. The Termination Charge will consist of 100%
of the scheduled payments for each of the months remaining through month 12
of the Service Period.
If a 36-month Service Period is selected, the following applies:
Customer may terminate this Attachment by thirty (30) days' prior written
notice to AT&T and payment of all charges incurred as of the termination
date and a Termination Charge. The Termination Charge will consist of (1)
100% of the scheduled payments for each of the months remaining through
month 12 of the then-current annual period at the time the termination
becomes effective, plus (2) all multi-year discounts (if any) received by
Customer and an additional charge of five percent (5%) of the value of any
canceled portion of the Service Period, and (3) any Access Facilities
cancellation charges or other charges incurred by AT&T as a result of such
termination.
Thirty (30) days after the ANAD of the first location, Customer shall have
a one time right to terminate this Attachment within the ten (10) day
period thereafter by giving AT&T seven (7) days' written notice of
termination and payment of all charges incurred as of the termination date,
but without payment of any Termination Charges other than as provided under
item (3) in the preceding paragraph.
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 3
MIS Plus Additional Terms and Conditions
Page 3-2
Customer may terminate this Attachment at any time during the Service
Period without liability, provided that Customer replaces this Attachment
with a new Attachment or Agreement with AT&T for MIS of equal or greater
term and revenue commitment at the same locations.
5. AT&T-Provided Equipment on Customer's Premises
The following applies to any AT&T provided equipment located on Customer's
premises.
AT&T will deliver, install, and maintain the equipment, as more
specifically described in Appendix 1, Service Description.
Customer, at its own expense, will provide (i) an equipment room
environmentally compliant with local laws of each country and other
environmental conditions as specified by AT&T; (ii) reasonable access to
the equipment at times specified by AT&T; and (iii) adequate work space,
heat, light, ventilation and electrical outlets.
Customer is responsible for removal of any hazardous material (e.g.,
asbestos) or correction of any hazardous condition on Customer's premises
that affects AT&T's performance.
The equipment shall not be removed, relocated, modified, or attached to
non-AT&T equipment by Customer without prior written authorization from
AT&T, which shall not be unreasonably withheld.
Except for equipment subject to the Purchase Option under Option "A"
(Premises Equipment Package), title to the equipment will remain with AT&T.
Customer will, however, be liable for repair charges or the replacement
cost of the equipment if it is damaged or lost due to theft, negligence,
intentional acts, unauthorized acts or other causes within the reasonable
control of Customer, its agents or employees. Customer will bear all risk
of loss to equipment subject to the Purchase Option under Option "A"
(Premises Equipment Package).
Except for equipment subject to the Purchase Option under Option "A"
(Premises Equipment Package), upon termination of this Agreement, or
earlier termination of the applicable AT&T provided equipment option,
Customer will make the equipment available for removal or return it in the
same condition as originally installed, ordinary wear and tear excepted or
Customer will pay for restoration of the equipment to such condition. AT&T
shall not be obligated to restore thepremises to its original condition. If
Customer does not return the equipment or make it available for removal by
AT&T, then Customer shall be liable for its then-current market value.
EQUIPMENT PROVIDED TO CUSTOMER SUBJECT TO THE PURCHASE OPTION UNDER OPTION
"A" IS PROVIDED BY AT&T "AS IS," WITH NO EXPRESS OR IMPLIED REPRESEN
TATIONS OR WARRANTIES OF ANY KIND (SUCH AS MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE). AT&T'S SOLE OBLIGATION WITH RESPECT TO SUCH EQUIPMENT
SHALL BE AS PROVIDED UNDER SECTION 3.3 OF APPENDIX 1, SERVICE DESCRIPTION.
<PAGE>
AT&T WorldNet(SM) Managed Internet Service (Plus) Attachment
Appendix 4
MIS Plus Additional Terms and Conditions
Page 4-1
This Agency Agreement is between AT&T Corp. ("AT&T") and Customer.
1. EFFECTIVE DATE
This Agreement is effective upon execution of the AT&T WorldNet(SM) Managed
Internet Service (Plus) Attachment and shall continue in effect as long as
the MIS Attachment is in effect.
2. SERVICES
Customer authorizes AT&T to arrange for and coordinate installation and
disconnection of tariffed and other communications services as required by
Customer for its MIS Plus configuration.
3. PAYMENT OF CHARGES
All recurring and non-recurring charges made by vendors for service ordered
on Customer's behalf shall be paid by Customer directly and are not the
responsibility of AT&T.
4. LIMITATION OF LIABILITY
Customer's sole and exclusive remedies shall be: (a) in the event of breach
of this Agency Agreement by AT&T, Customer's right to terminate this Agency
Agreement; (b) Customer's right to direct damages for damage to real or
tangible personal property or damages for bodily injury or death,
proximately caused by AT&T's negligence; and (c) Customers right to receive
a credit for charges billed to Customer by vendors solely as a result of
negligence by AT&T. Except as provided in subparagraphs (b) and (c) above,
AT&T shall have no liability for either direct, indirect, incidental or
consequential damages (including lost profits) resulting from or arising in
connection with this Agency Agreement. AT&T shall not be responsible for
non-performance by any vendor from which AT&T orders service or equipment
on Customer's behalf.
5. COVERAGE
This Agency Agreement is in effect for all of Customer's MIS Plus locations
unless otherwise specified by Customer in writing.
THIS IS THE ENTIRE AGENCY AGREEMENT BETWEEN CUSTOMER AND AT&T WITH RESPECT TO
MIS PLUS. ANY AMENDMENTS, MODIFICATIONS OR CHANGES MUST BE IN WRITING AND SIGNED
BY CUSTOMER AND AT&T.
LAW OFFICE INFORMATION SYSTEMS, INC. AT&T
By: /s/ Kyle D. Parker By:_____________________________________
--------------------------------
(Authorized Signature) (Authorized Signature)
Kyle D. Parker
-------------------------------- _____________________________________
(Typed or Printed Name) (Typed or Printed Name)
President
-------------------------------- _____________________________________
(Title) (Title)
9/28/95
-------------------------------- _____________________________________
(Date) (Date)
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 10.22
LOIS INC. SUBSCRIPTION LICENSE AGREEMENT
<S> <C> <C>
----------------------------------------------------------------------------------------------------------------------------------
| | | CUSTOMER | [ ] |
| | | ACCOUNT | NEW |
| | COMPANY | NUMBER | |
| | NAME ______________________________________________________________________________________ |-------------|-----------|
| | | ORDER | |
| S | | DATE | |
| O | CUSTOMER | | |
| L | CONTACT ______________________________________________________________________________________ |-------------|-----------|
| D | | BAR | |
| | | MEMBER | |
| T | | NUMBER | |
| O | |-------------|-----------|
| | | LOIS | |
| | ADDRESS ______________________________________________________________________________________ | SALES | |
| | | REP. | |
| | CITY, |-------------|-----------|
| | STATE | | |
| | ZIP ______________________________________________________________________________________ | TERRITORY | |
| | | | |
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
| WORK PHONE | HOME PHONE | FAX | E MAIL |
|------------------------------------|----------------------------------|---------------------------|------------------------------|
| | | | |
----------------------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------------------------
| PRODUCT CODE | DESCRIPTION | QUANTITY | PRICE | EXT. PRICE |
|-----------------|--------------------------------------------------------------------------|----------|-------------|------------|
|(OFFICE USE ONLY)| | | | |
| | | | | |
|-----------------|--------------------------------------------------------------------------|----------|-------------|------------|
| | | | | |
| | | | | |
|-----------------|--------------------------------------------------------------------------|----------|-------------|------------|
| | | | | |
| | | | | |
|-----------------|--------------------------------------------------------------------------|----------|-------------|------------|
| | | | | |
| | | | | |
-------------------------------------------------------------------------------------------------------|-------------|------------|
---------------------------------------------------------------------------------------------------- | | |
| INITIAL SUBSCRIPTION TERM | | SUBTOTAL | |
|--------------------------------------------------------------------------------------------------- | | | |
| [ ] 1 YEAR [ ] 2 YEAR [ ] OTHER ______________ | |-------------|------------|
|--------------------------------------------------------------------------------------------------- | | | |
| INTERNET SUBSCRIBER INFORMATION | | DISCOUNT | |
|--------------------------------------------------------------------------------------------------- | | | |
| E MAIL ADDRESS | USER I.D. | PASSWORD | |-------------|------------|
|--------------------------------|---------------------------------|-------------------------------- | | | |
| | | | | ADJUSTMENTS | |
| | | | | | |
|--------------------------------|------------------------------------------------------------------ | |-------------|------------|
| OFFICE USE - CREDIT CARD | [ ] VISA [ ] MASTERCARD [ ] AMERICAN EXPRESS | | | |
| APPROVAL | | | S & H | |
| | | | | |
| | CARD | |-------------|------------|
| | NO. ________________________________________________________ | | UPFRONT | |
| | | | PAYMENT | |
| | | | TOTAL | |
| | | |-------------|------------|
| | EXP. | | | |
| | DATE ________________________________________________________ | | MONTHLY | |
| | | | EFT PAYMENT | |
---------------------------------------------------------------------------------------------------- --------------------------
----------------------------------------------------------------------------------------------------------------------------------
| NOTES | FOR OFFICE USE |
|----------------------------------------------------------------------------------------------------------------------------------|
| | |
| ___________________________________________________________________________________________________ | Invoice # ______________ |
|-------------------------------------------------------------------------------------------------------|------------------------- |
| | |
| ___________________________________________________________________________________________________ | Amt. $ _________________ |
---------------------------------------------------------------------------------------------------------------------------------
I understand that this LOIS Subscription License Agreement (SLA) comes with a 30-day money-back guarantee and that I can cancel
my SLA and receive a full refund of any monies that I have paid upon: (1) returning the products to LOIS, and; (2) informing LOIS
in writing within 30 days of the order date shown on this SLA of my intent to cancel. After the expiration of the 30-day period, I
hereby agree that I will pay LOIS the full amount of monies due under this SLA in a manner consistent with the terms herein.
At the end of the initial subscription term of this SLA, LOIS will automatically invoice me in an amount of the then existing
subscription pricing. I understand that if I do not wish to extend the automatic SLA I will provide LOIS written notice of my
intent not to automatically renew within 30 days of the invoice date.
In the event that I fail to make payment in full within 30 days of the receipt of the initial Invoice, or of any automatic SLA
Invoice, I agree that LOIS may accelerate the total amount due and payable under any SLA and declare the total amount due and owing.
Thereafter LOIS may collect said total amount and also charge me reasonable collection fees including a reasonable attorney's fee.
I understand that this and any automatic SLA contains the entire rights, duties, and understanding of the parties, and that no oral
communications that I may have had with any LOIS employee, agent, or representative shall alter its terms.
I have read the foregoing SLA. I agree that this SLA will become binding on both LOIS and myself only upon acceptance by LOIS,
Inc., at its corporate headquarters. In the event of a dispute as to the terms, conditions, or meaning of this SLA, I agree that
the validity and enforceability of this SLA shall be determined under the laws of Arkansas, and I also agree that the venue of
Crawford County, Arkansas is proper.
----------------------
Signature: __________________________________________________________ Date ______________ | Send Product |
(Your signature is necessary to activate your subscription) | |
| [ ] Yes |
LOIS, Inc. . 105 North 28th Street . Van Buren, Arkansas 72956 | [ ] No |
Phone: 501-471-5581 Ext. 159 . Fax: 501-471-9224 . Email: [email protected] ----------------------
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<PAGE>
EXHIBIT 21
SUBSIDIARIES OF LOISLAW.COM
None.
<PAGE>
Exhibit 23.2
When the transactions referred to in Note 7(c) of the Notes to the Financial
Statements have been consummated, we will then be in a position to render the
following report.
KPMG LLP
Little Rock, Arkansas
June 18, 1999
Independent Auditors' Consent
The audits referred to in our report dated May 29, 1999, except as to note
7(c) which is as of June , 1999, included the related financial statement
schedule for each of the years in the three-year period ended December 31,
1998, included in the registration statement. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based on our audits. In
our opinion, such financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
Little Rock, Arkansas
June 18, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE AUDITED
FINANCIAL STATEMENTS AS OF AND FOR THE YEAR ENDED DECEMBER 31,1998 AND THE
UNAUDITED FINANCIAL STATEMENTS AS OF AND FOR THE PERIOD ENDED MARCH 31, 1999 OF
LOISLAW.COM, INC.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999
<CASH> 99,042 20,031
<SECURITIES> 0 0
<RECEIVABLES> 2,153,633 2,169,323
<ALLOWANCES> 124,974 115,440
<INVENTORY> 0 0
<CURRENT-ASSETS> 2,186,257 2,850,855
<PP&E> 2,312,719 3,173,151
<DEPRECIATION> 866,260 939,979
<TOTAL-ASSETS> 17,012,244 22,016,652
<CURRENT-LIABILITIES> 6,937,140 9,192,293
<BONDS> 12,262,524 17,589,598
0 0
0 0
<COMMON> 1,642,658 1,642,658
<OTHER-SE> (15,742,957) (18,707,554)
<TOTAL-LIABILITY-AND-EQUITY> 17,012,244 22,016,652
<SALES> 5,024,179 1,335,881
<TOTAL-REVENUES> 5,024,179 1,335,881
<CGS> 0 0
<TOTAL-COSTS> 5,920,088 1,065,503
<OTHER-EXPENSES> 6,399,817 2,477,384
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,339,803 534,411
<INCOME-PRETAX> (8,593,576) (2,739,914)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (8,593,576) (2,739,914)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,593,576) (2,739,914)
<EPS-BASIC> (2.52) (0,75)
<EPS-DILUTED> (2.52) (0.75)
</TABLE>
