<PAGE>
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
_________________________________
[x] Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the period ended June 30, 1997
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from
-------------to--------------
_______________________________________
Commission file number 0-13093
I.R.S. Employer Identification Number 36-3131704
PC QUOTE, INC.
(a Delaware Corporation)
300 S. WACKER
CHICAGO, ILLINOIS 60606
TELEPHONE (312) 913-2800
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve months, (or for such
shorter period that the Company was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes X No
--- ----
State the number of shares outstanding of each of the issuers classes of common
equity, as of the latest practicable date: 7,366,554 shares of the Company's
common stock ($.001 par value) were outstanding as of August 15, 1997.
Page 1
<PAGE>
PC QUOTE, INC.
INDEX
PAGE
PART I. FINANCIAL INFORMATION ----
Item 1. Balance Sheets as of June 30, 1997 and
December 31, 1996 3
Statements of Operations for the six month periods
ended June 30, 1997 and 1996 4
Statements of Operations for the quarters ended
ended June 30, 1997 and 1996 5
Statements of Cash Flows for six month periods
ended June 30, 1997 and 1996 6
Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of:
Results of Operations and Financial Condition 8
Liquidity and Capital Resources 10
PART II. OTHER INFORMATION
Item 2. Changes in Securities 11
Item 6. Exhibits and Reports on Form 8-K 13
Page 2
<PAGE>
PC QUOTE, INC.
Balance Sheets
June 30, 1997 and December 31, 1996
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
ASSETS (Unaudited) (Audited)
-------------- --------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $258,709 $1,321,512
Accounts receivable, net of allowance for doubtful
accounts of $300,000 (1997) and $234,000 (1996) 1,018,067 1,100,253
Income tax refunds receivable 40,000
Prepaid expenses and other current assets 167,296 185,071
-------------- --------------
Total current assets 1,444,072 2,646,836
-------------- --------------
PROPERTY AND EQUIPMENT
Satellite receiving equipment 865,454 865,454
Computer equipment 6,503,467 6,382,179
Communication equipment 2,669,721 2,656,057
Furniture and fixtures 293,240 293,240
Leasehold improvements 366,326 359,126
-------------- --------------
10,698,208 10,556,056
Less accumulated depreciation
and amortization 8,355,849 7,791,849
-------------- --------------
2,342,359 2,764,207
-------------- --------------
OTHER ASSETS
Software development costs, net of
accumulated amortization of
$3,966,542 (1997) and $3,600,204 (1996) 5,170,896 5,789,845
Deposits and other assets 353,263 353,182
-------------- --------------
TOTAL ASSETS $9,310,590 $11,554,070
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Note payable, bank, current $300,000 $300,000
Note payable, credit facility, net of deferred costs 447,830
Capital lease obligations 21,848 142,685
Accounts payable 3,802,676 1,774,390
Unearned revenue 1,238,583 995,600
Accrued expenses 1,773,421 918,918
Deferred tax liability 6,265 6,264
-------------- --------------
Total current liabilities 7,590,623 4,137,857
-------------- --------------
LONG-TERM LIABILITIES
Note payable to bank, noncurrent 950,000 1,100,000
Convertible Subordinated Debenture Bond Payable
Net of Unamortized Discount of $1,513,921 (1997) and
$-0- (1996) 986,079 850,000
Unearned revenue, noncurrent 48,406 134,636
-------------- --------------
Total liabilities 1,984,485 6,222,493
-------------- --------------
STOCKHOLDERS' EQUITY
Common stock, par value $.001; 10,000,000
shares authorized: 7,365,254 (1997) and 7,355,621
(1996) shares issued and outstanding 7,365 7,356
Paid in capital 12,636,166 12,615,995
Paid in capital-Convertible Subordinated Debenture
and Warrants 2,120,000 1,650,000
Accumulated deficit (15,028,049) (8,941,774)
-------------- --------------
Total stockholders' equity (264,518) 5,331,577
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,310,590 $11,554,070
-------------- --------------
-------------- --------------
</TABLE>
The accompanying notes are an integral part of the financial statements
Page 3
<PAGE>
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS
ENDED JUNE 30,
--------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
--------------------------------
NET REVENUES
Services $8,226,404 $8,422,311
Direct costs of services 7,326,226 4,512,274
----------- ----------
900,178 3,910,037
----------- ----------
OPERATING COSTS AND EXPENSES
Amortization of software development 831,114 493,000
Research and development 552,709 346,010
Selling and marketing 1,969,876 1,447,560
General and administrative 1,945,153 1,521,777
Restructure expense 1,146,677
------------ ----------
6,445,529 3,808,347
------------ ----------
OPERATING INCOME (LOSS) (5,545,351) 101,690
OTHER INCOME (EXPENSE)
Interest income 13,134 4,112
Interest expense (554,059) (61,161)
------------ -----------
Net income(loss) ($6,086,276) $44,641
------------ -----------
------------ -----------
NET INCOME(LOSS) PER
COMMON SHARE ------------ -----------
($0.83) $0.01
------------ -----------
------------ -----------
The accompanying notes are an integral part of the financial statements.
Page 4
<PAGE>
PC QUOTE, INC.
STATEMENTS OF OPERATIONS
FOR QUARTER ENDED JUNE 30,
-------------------------------
1997 1996
(UNAUDITED) (UNAUDITED)
---------------------------------
NET REVENUES
Services $4,171,337 $4,447,828
Direct costs of services 3,887,527 2,670,504
-------------- ----------
283,810 1,777,324
-------------- ----------
OPERATING COSTS AND EXPENSES
Amortization of software development 426,114 253,000
Research and development 316,013 194,284
Selling and marketing 1,138,862 728,517
General and administrative 1,054,676 826,981
Restructure expense 1,146,677
-------------- -----------
4,082,342 2,002,782
-------------- -----------
OPERATING INCOME (LOSS) (3,798,532) (225,458)
OTHER INCOME (EXPENSE)
Interest income 3,792 2,885
Interest expense (390,781) (37,562)
-------------- -----------
NET INCOME(LOSS) ($4,185,521) ($260,135)
-------------- -----------
-------------- -----------
NET INCOME(LOSS) PER -------------- -----------
COMMON SHARE ($0.57) ($0.04)
-------------- -----------
-------------- -----------
The accompanying notes are an integral part of the financial statements.
Page 5
<PAGE>
PC QUOTE, INC
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
For The Six Months
Ended June 30
1997 1996
----------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(6,086,276) $44,641
----------- -------
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities
Depreciation and amortization of property and equipment 564,000 605,720
Amortization of software development cost 831,114 493,000
Amortization of discount on convertible subordinated
debenture bond payable 136,079
Amortization of deferred debt on warrants 177,830
Changes in assets and liabilities:
Accounts receivable, net of allowance 82,186 423,580
Prepaid expenses and other current assets 17,775 150,887
Deposits and other assets (81) 9,432
Accounts payable 2,028,286 (222,030)
Unearned revenue 156,753 (213,681)
Accrued expenses 854,503 90,024
Income tax refund 40,000
----------- ---------
Total adjustments (1,197,831) 1,381,573
----------- ---------
Net cash provided by (used in) operating activities (1,197,831) 1,381,573
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (142,152) (452,447)
Software development costs capitalized (1,129,920) (1,640,165)
---------- ---------
Net cash used in investing activities (1,272,072) (2,092,612)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 20,180 172,705
Principal payments under capital leases obligations (120,837) (313,879)
Principal payments on note payable to banks (150,000) (50,050)
Net borrowings under line of credit-Bank 500,000
Net borrowings under credit facility, PICO 740,000
---------- ---------
Net cash provided by financing activities 489,343 308,776
---------- ---------
----------- -------
NET CHANGE IN CASH AND CASH EQUIVALENTS (1,062,803) (402,263)
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE PERIOD 1,321,512 1,043,478
---------- ---------
CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD $258,709 $641,215
---------- ---------
---------- ---------
- - - ----------------------------------------------------------------------------- ---------
- - - ----------------------------------------------------------------------------- ---------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest Paid $142,149 $61,161
Income taxes paid None None
SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS:
Issuance of warrants $470,000 None
- - - ----------------------------------------------------------------------------- ---------
- - - ----------------------------------------------------------------------------- ---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
Page 6
<PAGE>
PC QUOTE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(1) BASIS OF PRESENTATION
The accompanying interim financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and in conjunction with the rules and regulations of the Securities and Exchange
Commission. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. The interim financial statements include all adjustments
that, in the opinion of management, are necessary in order to make the financial
statements not misleading. The amounts indicated as "audited" have been
extracted from the Company's December 31, 1996 annual report. For further
information, refer to the consolidated financial statements and footnotes
included in PC Quote's annual report on Form 10-K for the year ended December
31, 1996. Certain reclassifications have been made to conform to the current
presentation.
Costs associated with the planning and designing phase of software development,
including coding and testing activities necessary to establish technological
feasibility of computer software products to be sold, leased or otherwise
marketed, are charged to research and development costs as incurred. Once
technological feasibility has been determined, costs incurred in the
construction phase of software development, including coding, testing and
product quality assurance, are capitalized.
Amortization is provided over an estimated life of the software products and
commences when the product is available for general release to customers.
Unamortized capitalized costs determined to be in excess of the net realizable
value of the product are expensed at the date of such determination. The
anticipated future gross revenues and remaining economic life of the products
are based on estimates which are subject to change. Accumulated amortization
and related software development costs are removed in the year following full
amortization.
(2) INCOME TAXES
At December 31, 1996, the Company had federal income tax net operating loss
carryforwards of approximately $12,059,000 for federal income tax purposes and
approximately $9,794,000 for alternative minimum tax purposes. The net
operating loss carryforwards will expire in the years 1999 to 2011.
Page 7
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
The statements made herein that are not historical facts may contain
forward-looking information that involve substantial risks and uncertainties.
The Company's actual results, performance or achievements could differ
materially from the results, performance or achievements expressed in, or
implied by, these forward-looking statements. Among the factors that could
cause or contribute to such differences include the Company's ability to
(i) obtain adequate financing to fund its current and future business
strategies, (ii) refinance, extend or pay the up to $2 million loan from PICO
Holdings on or before September 30, 1997, (iii) attract and retain its key
employees, (iv) compete successfully against competitive products and services
and (v) the effect of economic and business conditions generally.
RESULTS OF OPERATIONS:
FOR THE SIX MONTHS AND QUARTER ENDED JUNE 30, 1997
Service revenue for the six months and quarter ended June 30,1997 decreased
2% and 6%, respectively, from the same periods of 1996. The decrease is due
to the loss of two major customers in the Company's traditional direct data
feed business. The lost revenue, $3.4 million and $1.4 million for the six
months and quarter respectively, was substantially offset by increases in
service revenue in the Company's traditional and internet businesses, as well
as revenue from the sale of advertising on the internet.
Direct costs of services increased 62% and 46% for the six months and
quarters ended June 30, 1997, respectively, over the same periods in 1996.
Principal components of these increases were royalties, leased equipment,
communication costs, and compensation directly attributable to internet
operations and sales of PCW6.0, as well as maintenance of and enhancements to
the Company's traditional direct data feed systems.
Page 8
<PAGE>
Amortization of software development for the six months and quarter ended
June 30, 1997 increased 69% and 68%, respectively, from the same periods of
the prior year, reflecting the investment in internet and direct data feed
products and delivery mechanisms
Similarly, research and development costs increased 60% and 63%,
respectively, for the six months and quarter ended June 30, 1997 as compared
to the same periods in 1996. The increase was due to additional charges for
equipment leased to upgrade systems' design and testing equipment, in
addition to costs of maintaining and enhancing previously developed products
and services.
Selling and marketing costs increased 36% and 56%, respectively, for the six
months and quarter ended June 30, 1997 over the same periods in 1996. The
increase was mainly due to commissions.
General and administrative expenses increased 28% for both the six months and
the quarter ended June 30, 1997 from the same periods in 1996. The main
increases were principally due to increases in the provision for doubtful
accounts and an increase in professional fees.
In June 1997, the Company underwent a significant management reorganization
and restructuring of operations. As a result, the Company wrote off
approximately $572,000 of unamortized software development costs for
previously capitalized software projects that were discontinued. The
management reorganization resulted in the Company incurring termination costs
of $425,000 and $150,000 was paid to terminate a contractual arrangement
related to unprofitable operations.
Interest expense increased 806% and 940%, respectively, for the six months
and quarter ended June 30. 1997 over the same periods in 1996. This reflects
the increase in the term loan amount outstanding and the $2.5 million
convertible debenture issued in December 1996. Also included is monthly
amortization beginning in May and ending September 30, 1997 of an aggregate
of $470,000 for warrants issued in connection with a May 1997 financing
arrangement and interest on financing arrangement borrowings. See Part II
for additional information with respect to the debenture and financing
arrangement.
Page 9
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSIONS AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES:
FOR THE SIX MONTHS AND QUARTER ENDED JUNE 30, 1997
Net cash declined by 80% for the six months ended June 30, 1997 as compared
to 39% for the six months ended June 30, 1996. New equipment and capitalized
software costs were 39% lower than last year. New direct borrowings of
$740,000 from the May 1997 loan facility with PICO Holdings, discussed below,
were also incurred. Agreements were reached with various vendors to extend
payments under negotiated payment plans.
The Company's $1.0 million line of credit with Lakeside Bank expired in
February 1997. The Company is experiencing working capital constraints which
has placed limitations on management's flexibility. To lessen such
constraints, on May 5, 1997 the Company entered into a loan and security
agreement with its principal shareholder, PICO Holdings ("PICO"), to provide
working capital loans of up to $1.0 million. In connection with the
extension by PICO of such $1.0 million facility, the Company and PICO
restructured the terms of its $2.5 million subordinated convertible debenture
("Debenture") and agreed to postpone the previously contemplated rights
offering to a time, and upon such terms, as PICO and the Company shall agree.
Additionally, in August 1997, the Company and PICO amended the loan and
security agreement increasing the facility by $1.0 million to $2.0 million.
See Part II of this report for additional information regarding the loan
facility and debenture. All borrowings on the facility, plus accrued
interest, are due on September 30, 1997. The Company will enter into
discussions with PICO to extend the due date if it is unable to obtain
alternative sources of capital with which to repay the amounts due.
The Company believes general inflation does not materially impact its sales
and operating results nor is it expected that the effect of existing tax
reform will significantly affect the Company's future position, liquidity or
operating results.
Page 10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a. The following Exhibits are filed herein:
Exhibit 10.1
Form of Loan and Security Agreement dated as of May 5, 1997
between the Company and PICO Holdings, Inc.
Exhibit 10.2
Form of First Amendment to Convertible Subordinated Debenture
and Debenture Agreement
Exhibit 10.3
Form of Common Stock Purchase Warrant for 640,000 shares of the
Company's Common Stock Issued to PICO Holdings, Inc.
Exhibit 10.4
Form of Promissory Note Made by the Company to the order of
PICO Holdings, Inc.
Exhibit 10.5
Form of Amendment to Loan and Security Agreement
Exhibit 10.6
Form of Common Stock Purchase Warrant for 500,000 shares of the
Company's Common Stock
Exhibit 27
Financial Data Schedule
b. No reports on Form 8-K were filed by the Company during the quarter
ended June 30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PC Quote, INC.
/s/ John E. Juska
- - - --------------- -----------------------------
August 19, 1997 By: John E. Juska
Chief Financial Officer
<PAGE>
PART II
ITEM 2. CHANGES IN SECURITIES
On November 14, 1996, the Company entered into an agreement (the "Debenture
Agreement") with the Physicians Insurance Company of Ohio, ("PICO"), which then
owned approximately 30% of the Company's outstanding shares of common stock.
Pursuant to the Debenture Agreement, PICO invested $2.5 million in the Company
in exchange for a Subordinated Convertible Debenture (the "Debenture") in the
principal amount of $2.5 million with interest at 1% over prime. PICO made the
investment and the Debenture was issued on December 2, 1996. The Debenture was
to mature on December 31, 2001 and is convertible at any time by PICO into 1.25
million shares of common stock of the Company (subject to adjustment in certain
cases).
On May 5, 1997, the Company and PICO entered into a Loan and Security Agreement
(the "Loan Agreement"), under which PICO agreed to make a secured loan to the
Company in an aggregate principal amount of up to $1.0 million at a fixed rate
equal to 14% per annum. Unless otherwise extended, the entire principal balance
and all accrued interest due under the Loan Agreement are payable on September
30, 1997. All advances under the loan agreement are secured by a pledge of
substantially all of the assets of the Company. These liens are subject to the
prior lien of the Company's primary lender, Lakeside Bank. PICO will be paid a
"facility fee" of $40,000, plus interest at a rate equal to 14% per annum, on
the maturity date of the loan contemplated by the Loan Agreement.
In connection with the Loan Agreement, the Company and PICO entered into a
First Amendment to the Debenture and Debenture Agreement (the "Debenture
Amendment"), pursuant to which the terms of the Debenture were restructured
as follows: (a) the maturity date of the Debenture is now April 30, 1999
instead of December 31, 2001; (b) the Debenture may not be prepaid or
redeemed without the consent of PICO; (c) the conversion rate on the
Debenture has been changed from $2.00 per share to the lower of (i) the mean
of the closing bid price per share for the 20 trading days preceding exercise
of the Debenture or (ii) $1.5625 per share (the market price of the Company's
common stock on the date of the Debenture Amendment); (d) certain negative
covenants were added to the Debenture Agreement; and (e) the rights offering
contemplated by the Debenture Agreement will be at such time and at a price
as PICO and the Company shall agree. Interest under the Debenture will
continue to be payable in cash or, at the option of PICO, in shares of the
Company's common stock at the market value of such shares at the time of
payment.
Also on May 5, 1997, in consideration of the loan by PICO to the Company, the
Company issued a Common Stock Purchase Warrant (the "Warrant") to PICO entitling
PICO to purchase a minimum of 640,000 shares of the Company's common stock at a
price per share (the "Warrant Price") equal to the lesser of (a) the mean of the
closing bid price per share for the 20 trading days preceding exercise of the
Warrant or (b) $1.5625 per share (the market value of the Company's common stock
on the date the Warrant was issued). The Warrant expires on April 30, 2000. In
lieu of exercising the Warrant for cash, PICO may elect to receive shares of the
<PAGE>
Company's common stock equal to the "value" of the Warrant determined in
accordance with a formula specified in the Warrant (the "Conversion Value").
The number of shares of the Company's common stock subject to the Warrant and
the Warrant Price will be adjusted to reflect stock dividends; reclassifications
or changes of outstanding securities of the Company; any consolidation, merger
or reorganization of the Company; stock splits; issuances of rights, options or
warrants to all holders of shares of the Company's common stock exercisable at
less than the current market price per share; and other distributions to all
holders of shares of the Company's common stock. In the event of any sale,
license or other disposition of all or substantially all of the assets of the
Company or any reorganization, consolidation or merger involving the Company in
which the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity (an "Acquisition"), if the successor entity does not assume the
obligations of the Warrant and PICO has not fully exercised the Warrant, the
unexercised portion of the Warrant will be deemed automatically converted into
shares of the Company's common stock at the Conversion Value. Alternatively,
PICO may elect to cause the Company to purchase the exercised portion of the
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received had
PICO exercised the unexercised portion of the Warrant immediately before the
record date for determining stockholders entitled to particpate in the proceeds
of the Acquisition, less (b) the aggregate Warrant Price. The Warrant also
provides for certain piggyback registration rights and a one-time demand
registration right.
In August 1997, the Company and PICO agreed to amend the Loan Agreement and
related documents to increase the amount of the secured loan from PICO to the
Company from $1.0 million up to $2.0 million. The terms of the Loan
Agreement otherwise remained substantially the same, except that the
"facility fee" of $40,000 was eliminated for new advances. In connection
with the increase of the loan amount pursuant to such amendment, the Company
granted PICO an additional Common Stock Purchase Warrant for a minimum of
500,000 shares of the Company's common stock. The Warrant terms are
substantially the same as those contained in the May 1997 Warrant, except
that the conversion price is the lesser of (a) $2.00 per share or (b) the
mean of the closing bid price per share for the 20 trading days preceding
exercise of the additional Warrant. The additional Warrant also provides for
certain piggyback registration rights and a one-time demand registration
right.
<PAGE>
- - - --------------------------------------------------------------------------------
PICO HOLDINGS, INC., A CALIFORNIA CORPORATION
LOAN TO
PC QUOTE, INC., A DELAWARE CORPORATION
LOAN AND SECURITY AGREEMENT
- - - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS AND CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Accounting Terms . . . . . . . . . . . . . . . . . . . . . . . . . 6
2. LOAN AND TERMS OF PAYMENT . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Overadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Interest Rates and Payments. . . . . . . . . . . . . . . . . . . . 6
2.4 Crediting Payments . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3. CONDITIONS OF LOANS . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.1 Conditions Precedent to Initial Advance. . . . . . . . . . . . . . 7
3.2 Conditions Precedent to all Advances . . . . . . . . . . . . . . . 8
4. CREATION OF SECURITY INTEREST . . . . . . . . . . . . . . . . . . . . . 8
4.1 Grant of Security Interest . . . . . . . . . . . . . . . . . . . . 8
4.2 Delivery of Additional Documentation Required. . . . . . . . . . . 8
4.3 Lender's Rights Upon Default . . . . . . . . . . . . . . . . . . . 9
4.4 Right to Inspect . . . . . . . . . . . . . . . . . . . . . . . . . 9
5. REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . . . . . . . . . . . 9
5.1 Due Organization and Qualification . . . . . . . . . . . . . . . . 9
5.2 Due Authorization; No Conflict . . . . . . . . . . . . . . . . . . 9
5.3 No Prior Encumbrances. . . . . . . . . . . . . . . . . . . . . . . 9
5.4 Name; Location of Chief Executive Office . . . . . . . . . . . . . 9
5.5 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.6 No Material Adverse Change in Financial Statements . . . . . . . . 9
5.7 Regulatory Compliance. . . . . . . . . . . . . . . . . . . . . . . 10
5.8 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.9 Government Consents. . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Full Disclosure. . . . . . . . . . . . . . . . . . . . . . . . . . 10
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.1 Good Standing. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.2 Government Compliance. . . . . . . . . . . . . . . . . . . . . . . 10
6.3 Financial Statements, Reports, Certificates. . . . . . . . . . . . 11
6.4 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.5 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Principal Depository . . . . . . . . . . . . . . . . . . . . . . . 12
6.7 Quick Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.8 Current Ratio. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.9 Registration of Intellectual Property Rights . . . . . . . . . . . 12
6.10 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . 12
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7. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.1 Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
7.2 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . 13
7.3 Mergers or Acquisitions. . . . . . . . . . . . . . . . . . . . . . 13
7.4 Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.5 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.6 Investments. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.7 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . 13
7.8 Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . . . 13
7.9 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.1 Payment Default. . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.2 Covenant Default . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.3 Budget Default . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.4 Material Adverse Change. . . . . . . . . . . . . . . . . . . . . . 14
8.5 Attachment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
8.6 Insolvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.8 Subordinated Debt. . . . . . . . . . . . . . . . . . . . . . . . . 15
8.9 Judgments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.10 Misrepresentations . . . . . . . . . . . . . . . . . . . . . . . . 15
9. LENDER'S RIGHTS AND REMEDIES. . . . . . . . . . . . . . . . . . . . . . 15
9.1 Rights and Remedies. . . . . . . . . . . . . . . . . . . . . . . . 15
9.2 Power of Attorney. . . . . . . . . . . . . . . . . . . . . . . . . 16
9.3 Accounts Collection. . . . . . . . . . . . . . . . . . . . . . . . 16
9.4 Lender Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 16
9.5 Lender's Liability for Collateral. . . . . . . . . . . . . . . . . 17
9.6 Remedies Cumulative. . . . . . . . . . . . . . . . . . . . . . . . 17
9.7 Demand; Protest. . . . . . . . . . . . . . . . . . . . . . . . . . 17
10. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. . . . . . . . . . . . . . . 18
12. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.1 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 18
12.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.3 Time of Essence. . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.4 Severability of Provisions . . . . . . . . . . . . . . . . . . . . 18
12.5 Amendments in Writing, Integration . . . . . . . . . . . . . . . . 18
12.6 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
12.7 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
12.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . 19
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT ("Agreement") is entered into as of May 5,
1997, by and between PICO HOLDINGS, INC., a California corporation ("Lender")
and PC QUOTE, INC., a Delaware corporation ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Lender, and Lender
desires to extend credit to Borrower. This Agreement sets forth the terms on
which Lender will extend credit to Borrower in a principal amount of up to One
Million Dollars ($1,000,000), and Borrower will repay the amounts owing to
Lender.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods (including, without limitation, the
licensing of software and other technology) or the rendering of services by
Borrower, whether or not earned by performance, and any and all credit
insurance, guaranties, and other security therefor, as well as all merchandise
returned to or reclaimed by Borrower and Borrower's Books relating to any of the
foregoing.
"Advance" or "Advances" means an Advance under the Revolving
Facility.
"Affiliate" means, with respect to any Person, any Person that
owns or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of such
Person's senior executive officers, directors, and partners.
"Borrower's Books" means all of Borrower's books and records
including: ledgers; records concerning Borrower's assets or liabilities, the
Collateral, business operations or financial condition; and all computer
programs, or tape files, and the equipment, containing such information.
"Business Day" means any day that is not a Saturday, Sunday, or
other day which is a legal holiday in the State of Illinois.
"Closing Date" means the date of this Agreement.
"Code" means the Illinois Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached
hereto.
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"Committed Line" means the credit available to Borrower under the
Revolving Facility in an amount of up to One Million Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Current Assets" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current liabilities
on the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding Advances
made under this Agreement, including all Indebtedness that is payable upon
demand or within one year from the date of determination thereof unless such
Indebtedness is renewable or extendable at the option of Borrower or any
Subsidiary to a date more than one year from the date of determination, but
excluding Subordinated Debt.
"Daily Balance" means the amount of the Obligations owed at the
end of a given day.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and attachments
in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of
1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in
effect from time to time.
"Indebtedness" means (a) all indebtedness for borrowed money or
the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes,
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bonds, debentures or similar instruments, (c) all capital lease obligations
and (d) all Contingent Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency law, including
assignments for the benefit of creditors, formal or informal moratoria,
compositions, extension generally with its creditors, or proceedings seeking
reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above, and Borrower's Books relating
to any of the foregoing.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other agreement entered into between
Borrower and Lender in connection with this Agreement, all as amended or
extended from time to time.
"Material Adverse Effect" means a material adverse effect on (i)
the business operations or condition (financial or otherwise) of Borrower and
its Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means September 30, 1997.
"Negotiable Collateral" means all of Borrower's present and
future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper, and Borrower's
Books relating to any of the foregoing.
"Obligations" means all debt, principal, interest, Expenses and
other amounts owed to Lender by Borrower pursuant to this Agreement or any other
agreement, whether absolute or contingent, due or to become due, now existing or
hereafter arising, including any interest that accrues after the commencement of
an Insolvency Proceeding and including any debt, liability, or obligation owing
from Borrower to others that Lender may have obtained by assignment or
otherwise.
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<PAGE>
"Periodic Payments" means all installments or similar recurring
payments that Borrower may now or hereafter become obligated to pay to Lender
pursuant to the terms and provisions of any instrument, or agreement now or
hereafter in existence between Borrower and Lender.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Lender arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt; and
(d) Indebtedness to trade creditors incurred in the ordinary
course of business.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or unconditionally
guaranteed by the United States of America or any agency or any State thereof
maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and
(iii) certificates of deposit maturing no more than one (1) year from the date
of investment therein issued by Lender.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in the
Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings, PROVIDED the same have no priority over any of Lender's
security interests;
(c) Liens (i) upon or in any equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
equipment or indebtedness incurred solely for the purpose of financing the
acquisition of such equipment, or (ii) existing on such equipment at the time of
its acquisition, PROVIDED that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment;
(d) Liens incurred in connection with the extension, renewal or
refinancing of the indebtedness secured by Liens of the type described in
clauses (a) through (c) above, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
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<PAGE>
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or governmental agency.
"Expenses" means all: reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred by Lender in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Lender's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, whether or not suit is
brought.
"Quick Assets" means, at any date as of which the amount thereof
shall be determined, the consolidated cash, cash-equivalents, accounts
receivable and investments, with maturities not to exceed 90 days, of Borrower
determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer,
the Chief Financial Officer and the Controller of Borrower.
"Revolving Facility" means the facility under which Borrower may
request Lender to issue cash advances, as specified in Section 2.1 hereof.
"Schedule" means the schedule of exceptions attached hereto.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Lender on terms acceptable to
Lender (and identified as being such by Borrower and Lender).
"Subsidiary" means any corporation in which one hundred percent
(100%) of the stock of which is, at the time as of which any determination is
being made, owned by Borrower.
"Tangible Net Worth" means at any date as of which the amount
thereof shall be determined, the consolidated total assets of Borrower and its
Subsidiaries MINUS, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, AND (ii) Total Liabilities.
"Total Liabilities" means at any date as of which the amount
thereof shall be determined, all obligations that should, in accordance with
GAAP be classified as liabilities on the consolidated balance sheet of Borrower,
including in any event all Indebtedness, but specifically excluding Subordinated
Debt.
"Weekly Budget" means the budget prepared weekly by Borrower, and
approved by Lender, setting forth (i) Borrower's income and expense projections
for a seven-day period commencing on a Sunday and ending on the following
Saturday, and (ii) adjustments or corrections as to income and expense
projections contained in the previous Weekly Budget for actual income received
and expenses incurred by Borrower. The Weekly Budget must be certified by Louis
Morgan, Michael Press and Howard Meltzer as being true, accurate and complete,
to the bet of their knowledge, exercise in good faith. In the event any of the
foregoing persons is no longer employed by Borrower, the
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<PAGE>
certification shall be made by the persons employed by Borrower performing
similar functions and duties.
1.2 ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with GAAP and all calculations made
hereunder shall be made in accordance with GAAP. When used herein, the terms
"financial statements" shall include the notes and schedules thereto.
2. LOAN AND TERMS OF PAYMENT
2.1 ADVANCES. Subject to and upon the terms and conditions of this
Agreement, and provided that no uncured Event of Default exists, Lender agrees
to make Advances to Borrower in an amount equal to the cash needed (such amount
not to exceed the difference by which disbursements exceed revenue) under the
applicable Weekly Budget, provided the Advances shall not exceed an aggregate
amount in excess of the Committed Line. Lender shall not be obligated to make
an Advance for any amount in excess of the cash needs of Borrower supported by
the applicable Weekly Budget. Subject to the terms and conditions of this
Agreement, amounts borrowed pursuant to this Section 2.1 may be repaid and
reborrowed at any time during the term of this Agreement.
Whenever Borrower desires an Advance, Borrower will notify Lender by
facsimile transmission or telephone no later than 10:00 a.m. California time, at
least two days prior to the Business Day upon which the Advance is to be made.
Each such notification shall be promptly confirmed by an Advance Request Form in
substantially the form of EXHIBIT B hereto. Lender is authorized to make
Advances under this Agreement based upon instructions received from a
Responsible Officer. Lender shall be entitled to rely on any telephonic notice
given by a person who Lender reasonably believes to be a Responsible Officer,
and Borrower shall indemnify and hold Lender harmless for any damages or loss
suffered by Lender as a result of such reliance. Lender will wire the amount of
Advances made under this Section 2.1 to Borrower's.
The Revolving Facility shall terminate on the Maturity Date, at which
time all Advances under this Section 2.1 and other amounts due under this
Agreement shall be immediately due and payable.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Lender pursuant to Section 2.1 of this Agreement
is greater than the Committed Line, Borrower shall immediately pay to Lender, in
cash, the amount of such excess.
2.3 INTEREST RATES AND PAYMENTS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any
Advances shall bear interest, on the Daily Balance, at a fixed rate equal to
fourteen percent (14%) per annum.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to nineteen percent
(19%) per annum.
(c) PAYMENTS. Interest hereunder shall be due and payable on
the Maturity Date. Lender shall, at its option, charge all Expenses against the
Committed Line, in which case those amounts shall thereafter accrue interest at
the rate then applicable hereunder. Any interest not paid
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when due shall be compounded by becoming a part of the Obligations, and such
interest shall thereafter accrue interest at the rate then applicable
hereunder.
(d) COMPUTATION. All interest chargeable under the Loan
Documents shall be computed on the basis of a three hundred sixty (360) day year
for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Any wire transfer or payment received by
Lender after 12:00 noon California time shall be deemed to have been received by
Lender as of the opening of business on the immediately following Business Day.
Whenever any payment to Lender under the Loan Documents would otherwise be due
(except by reason of acceleration) on a date that is not a Business Day, such
payment shall instead be due on the next Business Day, and additional interest
shall accrue and be payable for the period of such extension.
2.5 FEES. Borrower shall pay to Lender the following:
(a) FACILITY FEE. A Facility Fee equal to Forty Thousand
Dollars ($40,000.00), which fee shall be due on the Closing Date and shall be
fully earned and nonrefundable. Borrower may defer payment of the Facility Fee
until the Maturity Date in which case the Facility Fee shall become part of the
Obligations and bear interest as set forth in Section 2.3 above from the Closing
Date until paid.
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Lender's out-of-
pocket expenses for Lender's audits of Borrower's Accounts, and for each
appraisal of Collateral and financial analysis and examination of Borrower
performed from time to time by Lender or its agents;
(c) EXPENSES. Upon the date hereof, all Expenses incurred by
Lender through the Closing Date, including reasonable attorneys' fees and
expenses, and, after the date hereof, all Expenses incurred by Lender, including
reasonable attorneys' fees and expenses, as and when they become due.
2.6 TERM. This Agreement shall become effective on the Closing Date
and, subject to Section 12.7, shall continue in full force and effect for a term
ending on the Maturity Date. Notwithstanding the foregoing, Lender shall have
the right to terminate its obligation to make Advances under this Agreement
immediately and without notice upon the occurrence and during the continuance of
an Event of Default. Notwithstanding termination, Lender's Lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
Lender to make the initial Advance is subject to the condition precedent that
Lender shall have received, in form and substance satisfactory to Lender, the
following:
(a) this Agreement and any other loan documents contemplated by
this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
incumbency and resolutions authorizing the execution and delivery of this
Agreement;
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(c) a warrant to purchase stock of Borrower, duly executed, in
the form of Exhibit E attached hereto.
(d) financing statements (Forms UCC-1);
(e) a first amendment in form and substance acceptable to
Lender, amending a certain Subordinated Debenture in favor of Physicians
Insurance Company of Ohio, an Ohio corporation;
(f) payment of the Lender Expenses then due specified in
Section 2.5 hereof; and
(g) such other documents, and completion of such other matters,
as Lender may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of Lender
to make each Advance, including the initial Advance, is further subject to the
following conditions:
(a) timely receipt by Lender of the Advance Request Form as
provided in Section 2.1; and
(b) timely receipt by Lender of the Weekly Budget, on or before
the first day of the week covered by any such Weekly Budget;
(c) the representations and warranties contained in Section 5
shall be true and correct in all material respects on and as of the date of such
Advance Request Form and on the effective date of each Advance as though made at
and as of each such date, and no Event of Default shall have occurred and be
continuing, or would result from such Advance. The making of each Advance shall
be deemed to be a representation and warranty by Borrower on the date of such
Advance as to the accuracy of the facts referred to in this Section 3.2(b).
4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to
Lender a continuing security interest in all presently existing and hereafter
acquired or arising Collateral in order to secure prompt repayment of any and
all Obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid security interest in the
presently existing Collateral, junior in priority only to Permitted Liens and
such security interest will constitute a valid security interest in Collateral
acquired after the date hereof, junior in priority only to Permitted Liens.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall
from time to time execute and deliver to Lender, at the request of Lender, all
Negotiable Collateral, all financing statements and other documents that Lender
may reasonably request, in form satisfactory to Lender, to perfect and continue
perfected Lender's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 LENDER'S RIGHTS UPON DEFAULT. In the event of a default by the
Borrower under this Agreement, Lender shall be entitled to exercise any and all
rights and remedies available to Lender
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under the Illinois Uniform Commercial Code and all other rights and remedies
at law in equity available to secured creditors in the State of Illinois.
Borrower further acknowledges that five (5) days' notice of any public or
private sale of the Collateral is commercially reasonable under all
circumstances.
4.4 RIGHT TO INSPECT. Lender (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrower's usual business hours, to inspect Borrower's Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify Borrower's financial condition or the amount, condition of, or
any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary
is a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership of
property requires that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been duly
authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles of Incorporation or Bylaws, nor will
they constitute an event of default under any material agreement to which
Borrower is a party or by which Borrower is bound.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title
to the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business under any name other than that
specified on the signature page hereof. The chief executive office of Borrower
is located at the address indicated in Section 10 hereof.
5.5 LITIGATION. Except as set forth in the Schedule and as disclosed
in Borrower's most recent Form 10K filing with the Securities and Exchange
Commission and in its 1996 audited statement, there are no actions or
proceedings pending by or against Borrower or any Subsidiary before any court or
administrative agency in which an adverse decision could have a Material Adverse
Effect or a material adverse effect on Borrower's interest or Lender's security
interest in the Collateral. Borrower does not have knowledge of any such
pending or threatened actions or proceedings.
5.6 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Lender fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof and
Borrower's consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of Borrower since the date of the most recent of such financial statements
submitted to Lender. The representations and warranties contained in this
Section 5.6 are made to the best of Borrower's knowledge exercised in good
faith.
5.7 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit plans
subject to ERISA. No event
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has occurred resulting from Borrower's failure to comply with ERISA that is
reasonably likely to result in Borrower's incurring any liability that could
have a Material Adverse Effect. Borrower is not an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. Borrower is not engaged principally, or as
one of the important activities, in the business of extending credit for the
purpose of purchasing or carrying margin stock (within the meaning of
Regulations G, T and U of the Board of Governors of the Federal Reserve
System). Borrower has complied with all the provisions of the Federal Fair
Labor Standards Act. Borrower has not violated any statutes, laws,
ordinances or rules applicable to it, violation of which could have a
Material Adverse Effect.
5.8 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed, and has paid, or has made adequate
provision for the payment of, all taxes reflected therein.
5.9 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained
all consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are necessary
for the continued operation of Borrower's business as currently conducted.
5.10 FULL DISCLOSURE. To the best of Borrower's knowledge, exercised
in good faith, no representation, warranty or other statement made by Borrower
in any certificate or written statement furnished to Lender contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained in such certificates or statements not
misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Lender may have any commitment to
make an Advance hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on the
Collateral or the priority of Lender's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall
deliver to Lender: (a) as soon as available, but in any event within forty (40)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period; (b) as soon as available, but in any event within ninety (90) days after
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the end of Borrower's fiscal year, audited consolidated financial statements of
Borrower prepared in accordance with GAAP, consistently applied, together with
an unqualified opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Lender; (c) within five (5) days
upon becoming available, copies of all statements, reports and notices sent or
made available generally by Borrower to its security holders or to any holders
of Subordinated Debt and all reports on Form 10-K and 10-Q filed with the
Securities and Exchange Commission; (d) promptly upon receipt of notice thereof,
a report of any legal actions pending or threatened against Borrower or any
Subsidiary that could result in damages or costs to Borrower or any Subsidiary
of Fifty Thousand Dollars ($50,000) or more; and (e) such budgets, sales
projections, operating plans or other financial information as Lender may
reasonably request from time to time. Any and all financial information to be
provided hereunder by Borrower to Lender shall be certified by Louis Morgan,
Michael Press and Howard Meltzer, as true, accurate and complete, to the best of
their knowledge, exercise in good faith. In the event that one or more of the
foregoing persons is no longer employed by Borrower, the certification shall be
made by the persons employed by the Borrower performing similar duties and
functions.
On the first business day of each week in which this Revolving Facility is
outstanding, Borrower shall deliver to Lender a Weekly Budget signed by a
Responsible Officer in substantially the form of EXHIBIT C hereto.
Borrower shall deliver to Lender with the monthly financial statements a
Compliance Certificate signed by a Responsible Officer in substantially the form
of EXHIBIT D hereto.
Lender shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every two (2) months unless an Event of Default has occurred and
is continuing.
6.4 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Lender, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Lender with
proof satisfactory to Lender indicating that Borrower or a Subsidiary has made
such payments or deposits; provided that Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is contested in good faith
by appropriate proceedings and is reserved against (to the extent required by
GAAP) by Borrower.
6.5 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by other
owners in similar businesses conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in amounts
and of a type that are customary to businesses similar to Borrower's.
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(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as reasonably satisfactory to Lender. All
such policies of property insurance shall contain a lender's loss payable
endorsement, in a form satisfactory to Lender, showing Lender as an additional
loss payee thereof and all liability insurance policies shall show the Lender as
an additional insured, and shall specify that the insurer must give at least
twenty (20) days notice to Lender before canceling its policy for any reason.
Upon Lender's request, Borrower shall deliver to Lender certified copies of such
policies of insurance and evidence of the payments of all premiums therefor.
All proceeds payable under any such policy shall, at the option of Lender, be
payable to Lender to be applied on account of the Obligations.
6.6 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal
depository and operating accounts with Lakeside Bank, an Illinois banking
corporation.
6.7 QUICK RATIO. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities of at least .1 to
1.0.
6.8 CURRENT RATIO. Borrower shall maintain, as of the last day of
each calendar month, a ratio of Current Assets to Current Liabilities of at
least .12 to 1.0.
6.9 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS. If Borrower
registers or causes to be registered with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, any intellectual
property rights covered by the blanket description contained in Exhibit A,
Borrower shall notify Lender in writing before the effective date of such
registration, and Borrower shall execute and deliver such additional instruments
and documents from time to time as Lender shall reasonably request to perfect
Lender's security interest in such additional intellectual property rights.
6.10 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further instruments and take such further action
as may reasonably be requested by Lender to effect the purposes of this
Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any credit hereunder
shall be available and until payment in full of the outstanding Obligations or
for so long as Lender may have any commitment to make any Advances, Borrower
will not do any of the following:
7.1 DISPOSITIONS. Without the prior written consent of Lender, which
shall not be unreasonably withheld, convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than: (i) Transfers
of non-exclusive licenses and similar arrangements for the use of the property
of Borrower or its Subsidiaries; or (ii) Transfers of worn-out or obsolete
Equipment.
7.2 CHANGE IN BUSINESS. Engage in any business, or permit any of its
Subsidiaries to engage in any business, other than the businesses currently
engaged in by Borrower and any business substantially similar or related thereto
(or incidental thereto), or suffer a material change in Borrower's ownership.
Borrower will not, without thirty (30) days prior written notification to
Lender, relocate its chief executive office.
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7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person.
7.4 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien
with respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries so to do, except for Permitted Liens.
7.5 DISTRIBUTIONS. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock.
7.6 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any Person, or permit any of its Subsidiaries so to do,
other than Permitted Investments.
7.7 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's business,
upon fair and reasonable terms that are no less favorable to Borrower than would
be obtained in an arm's length transaction with a nonaffiliated Person.
7.8 SUBORDINATED DEBT. Make any payment in respect of any
Subordinated Debt, or permit any of its Subsidiaries to make any such payment,
except in compliance with the terms of such Subordinated Debt, or amend any
provision contained in any documentation relating to the Subordinated Debt
without Lender's prior written consent.
7.9 COMPLIANCE. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply
with the Federal Fair Labor Standards Act or violate any law or regulation,
which violation could have a Material Adverse Effect or a material adverse
effect on the Collateral or the priority of Lender's Lien on the Collateral, or
permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay the principal of, or
any interest on, any Advances when due and payable; or fails to pay any portion
of any other Obligations not constituting such principal or interest, including
without limitation Lender Expenses, within thirty (30) days of receipt by
Borrower of an invoice for such other Obligations;
8.2 COVENANT DEFAULT. If Borrower fails to perform any obligation
under Article 6 or violates any of the covenants contained in Article 7 of this
Agreement, or fails or neglects to perform, keep, or observe any other material
term, provision, condition, covenant, or agreement contained in this Agreement,
in any of the Loan Documents, or in any other present or future agreement
between Borrower and Lender and as to any default under such other term,
provision,
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condition, covenant or agreement that can be cured, has failed to cure such
default within ten (10) days after Borrower receives notice thereof or any
officer of Borrower becomes aware thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or
cannot after diligent attempts by Borrower be cured within such ten (10) day
period, and such default is likely to be cured within a reasonable time, then
Borrower shall have an additional reasonable period (which shall not in any
case exceed thirty (30) days) to attempt to cure such default, and within
such reasonable time period the failure to have cured such default shall not
be deemed an Event of Default (provided that no Advances will be required to
be made during such cure period);
8.3 BUDGET DEFAULT. Borrower's actual weekly cash flow shall be more
than $20,000 less than that set forth in any Weekly Budget. Such Event of
Default shall not be curable.
8.4 MATERIAL ADVERSE CHANGE. If there occurs a material adverse
change in Borrower's business or financial condition, or if there is a material
impairment of the prospect of repayment of any portion of the Obligations or a
material impairment of the value or priority of Lender's security interests in
the Collateral;
8.5 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any trustee, receiver or person acting in a similar
capacity and such attachment, seizure, writ or distress warrant or levy has not
been removed, discharged or rescinded within ten (10) days, or if Borrower is
enjoined, restrained, or in any way prevented by court order from continuing to
conduct all or any material part of its business affairs, or if a judgment or
other claim becomes a lien or encumbrance upon any material portion of
Borrower's assets, or if a notice of lien, levy, or assessment is filed of
record with respect to any of Borrower's assets by the United States Government,
or any department, agency, or instrumentality thereof, or by any state, county,
municipal, or governmental agency, and the same is not paid within ten (10) days
after Borrower receives notice thereof, provided that none of the foregoing
shall constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by Borrower (provided
that no Advances will be required to be made during such cure period);
8.6 INSOLVENCY. If an Insolvency Proceeding is commenced by
Borrower, or if an Insolvency Proceeding is commenced against Borrower and is
not dismissed or stayed within ten (10) days (provided that no Advances will be
made prior to the dismissal of such Insolvency Proceeding);
8.7 LITIGATION. If Borrower is named as a defendant in any legal
action that could result in damages or costs to Borrower or any Subsidiary of
One Hundred Thousand Dollars ($100,000.00) or more;
8.8 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Lender;
8.9 JUDGMENTS. If a judgment or judgments for the payment of money
in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no
Advances will be made prior to the satisfaction or stay of such judgment); or
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8.10 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate delivered to Lender by any Responsible
Officer pursuant to this Agreement or to induce Lender to enter into this
Agreement or any other Loan Document.
9. LENDER'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Lender may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Lender);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Lender;
(c) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Lender reasonably
considers advisable;
(d) Without notice to or demand upon Borrower, make such
payments and do such acts as Lender considers necessary or reasonable to protect
its security interest in the Collateral. Borrower agrees to assemble the
Collateral if Lender so requires, and to make the Collateral available to Lender
as Lender may designate. Borrower authorizes Lender to enter the premises where
the Collateral is located, to take and maintain possession of the Collateral, or
any part of it, and to pay, purchase, contest, or compromise any encumbrance,
charge, or lien which in Lender's determination appears to be prior or superior
to its security interest (other than Permitted Liens) and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's owned
premises, Borrower hereby grants Lender a license to enter into possession of
such premises and to occupy the same, without charge, in order to exercise any
of Lender's rights or remedies provided herein, at law, in equity, or otherwise;
(e) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Lender is hereby granted a license or other right,
solely pursuant to the provisions of this Section 9.1, to use, without charge,
Borrower's labels, patents, copyrights, rights of use of any name, trade
secrets, trade names, trademarks, service marks, and advertising matter, or any
property of a similar nature, as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Lender's exercise of its rights under this Section 9.1,
Borrower's rights under all licenses and all franchise agreements shall inure to
Lender's benefit;
(f) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrower's premises) as Lender
determines is commercially reasonable, and apply any proceeds to the Obligations
in whatever manner or order Lender deems appropriate;
(g) Lender may credit bid and purchase at any public sale; and
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(h) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrower.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Lender (and any of Lender's designated officers, or employees) as Borrower's
true and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Lender's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Lender's possession; (c) sign Borrower's name on any invoice
or bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to Borrower's policies of insurance; and (e) settle and adjust
disputes and claims respecting the accounts directly with account debtors, for
amounts and upon terms which Lender determines to be reasonable; provided Lender
may exercise such power of attorney to sign the name of Borrower on any of the
documents described in Section 4.2 regardless of whether an Event of Default has
occurred. The appointment of Lender as Borrower's attorney in fact, and each
and every one of Lender's rights and powers, being coupled with an interest, is
irrevocable until all of the Obligations have been fully repaid and performed
and Lender's obligation to provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. At any time from the date of this
Agreement, Lender may notify any Person owing funds to Borrower of Lender's
security interest in such funds and verify the amount of such Account. Borrower
shall collect all amounts owing to Borrower for Lender, receive in trust all
payments as Lender's trustee, and immediately deliver such payments to Lender in
their original form as received from the account debtor, with proper
endorsements for deposit.
9.4 LENDER EXPENSES. If Borrower fails to pay any amounts or furnish
any required proof of payment due to third persons or entities, as required
under the terms of this Agreement, then Lender may do any or all of the
following: (a) make payment of the same or any part thereof; or (b) set up such
reserves under the Revolving Facility as Lender deems necessary to protect
Lender from the exposure created by such failure. Any amounts so paid or
deposited by Lender shall constitute Lender Expenses, shall be immediately due
and payable, and shall bear interest at the then applicable rate hereinabove
provided, and shall be secured by the Collateral. Any payments made by Lender
shall not constitute a waiver by Lender of any Event of Default under this
Agreement.
9.5 LENDER'S LIABILITY FOR COLLATERAL. Lender shall not in any way
or manner be liable or responsible for: (a) the safekeeping of the Collateral;
(b) any loss or damage thereto occurring or arising in any manner or fashion
from any cause; (c) any diminution in the value thereof; or (d) any act or
default of any carrier, warehouseman, bailee, forwarding agency, or other person
whomsoever. All risk of loss, damage or destruction of the Collateral shall be
borne by Borrower.
9.6 REMEDIES CUMULATIVE. Lender's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Lender shall have all other rights and remedies not inconsistent herewith as
provided under the Code, by law, or in equity. No exercise by Lender of one
right or remedy shall be deemed an election, and no waiver by Lender of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Lender shall constitute a waiver, election, or acquiescence by it. No
waiver by Lender shall be effective unless made in a written document signed on
behalf of Lender and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
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9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment, notice
of any default, nonpayment at maturity, release, compromise, settlement,
extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees at any time held by Lender on which Borrower may in any way be
liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements and
other informational documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, certified mail, postage prepaid, return receipt requested, or
by telefacsimile to Borrower or to Lender, as the case may be, at its addresses
set forth below:
If to Borrower: PC QUOTE, INC.
300 South Wacker Drive, Suite 300
Chicago, IL 60606
Att'n: Louis J. Morgan
Fax: (312) 913-2959
If to Lender: PICO HOLDINGS, INC.
6101 Camino de la Costa
La Jolla, CA 92037
Att'n: John R. Hart
Fax: (619) 454-1170
The parties hereto may change the address at which they are to receive notices
hereunder, by notice in writing in the foregoing manner given to the other.
11. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER
This Agreement shall be governed by, and construed in accordance with,
the internal laws of the State of Illinois, without regard to principles of
conflicts of law. BORROWER AND LENDER EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS
TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY
OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
Lender's Initials ______ Borrower's Initials ______
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights hereunder
may be assigned by Borrower without Lender's prior written consent, which
consent may be granted or withheld in Lender's sole discretion.
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12.2 INDEMNIFICATION. Borrower shall defend, indemnify and hold
harmless Lender and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any other
party in connection with the transactions contemplated by this Agreement; and
(b) all losses or Lender Expenses in any way suffered, incurred, or paid by
Lender as a result of or in any way arising out of, following, or consequential
to transactions between Lender and Borrower whether under this Agreement, or
otherwise (including without limitation reasonable attorneys fees and expenses),
except for losses caused by Lender's gross negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated orally. All prior agreements, understandings,
representations, warranties, and negotiations between the parties hereto with
respect to the subject matter of this Agreement, if any, are merged into this
Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, shall be deemed to be an original, and all of
which, when taken together, shall constitute but one and the same Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in
this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrower to indemnify Lender
with respect to the expenses, damages, losses, costs and liabilities described
in Section 12.2 shall survive until all applicable statute of limitations
periods with respect to actions that may be brought against Lender have run,
provided that so long as the obligations set forth in the first sentence of this
Section 12.7 have been satisfied, and Lender has no commitment to make any
Advances or to make any other loans to Borrower, Lender shall release all
security interests granted hereunder and redeliver all Collateral held by it in
accordance with applicable law.
12.8 CONFIDENTIALITY. In handling any confidential information Lender
shall exercise the same degree of care that it exercises with respect to its own
proprietary information of the same types to maintain the confidentiality of any
non-public information thereby received or received pursuant to this Agreement
except that disclosure of such information may be made (i) to the subsidiaries
or affiliates of Lender in connection with their present or prospective business
relations with Borrower, (ii) to prospective transferees or purchasers of any
interest in the Loans, provided that they have entered into a comparable
confidentiality agreement in favor of Borrower and have delivered a copy to
Borrower, (iii) as required by law, regulations, rule or order, subpoena,
judicial order or similar order, (iv) as may be required in connection with the
examination, audit or similar investigation of Lender and (v) as Lender may
determine in connection with the enforcement of any remedies hereunder.
Confidential information hereunder shall not include information that either:
(a) is in the public domain or in the knowledge or possession of Lender when
disclosed to Lender, or becomes part of the public domain after disclosure to
Lender through no fault of Lender; or (b) is disclosed to Lender by a third
party, provided Lender does not have actual knowledge that such third party is
prohibited from disclosing such information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
PC QUOTE, INC., PICO HOLDINGS, INC., a California
a Delaware corporation corporation
By: ____________________________________
By: ________________________________
_________________________________________
_____________________________________ [Print Name and Office of Person Signing]
[Print Name and Office of Person
Signing]
By: ________________________________
_____________________________________
[Print Name and Office of Person
Signing]
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FIRST AMENDMENT
TO CONVERTIBLE SUBORDINATED
DEBENTURE DUE 2001
AND DEBENTURE AGREEMENT
PC QUOTE, INC., a corporation duly organized and existing under the laws of
Delaware (the "Company"), and PHYSICIANS INSURANCE COMPANY OF OHIO, a
corporation duly organized and existing under the laws of Ohio ("PICO"), for
value received, hereby amend and modify that certain Convertible Subordinated
Debenture Due 2001 issued by the Company to PICO on or about November 27, 1996
(the "Debenture") and the Debenture Agreement described below.
RECITALS
A. Any defined terms used in this First Amendment shall have the same
meaning as ascribed to such terms in the Debenture.
B. Pursuant to a certain Agreement dated November 14, 1996, by and
between the Company and PICO (the "Debenture Agreement"), PICO agreed to
purchase from the Company the Debenture in the principal amount of $2,500,000
due December 31, 2001, with interest at an annual rate of 1% over the Prime Rate
as announced from time to time by THE WALL STREET JOURNAL. The Debenture and
the Debenture Agreement are attached hereto as Exhibits A and B, respectively.
C. Pursuant to Paragraph 7 of the Debenture Agreement, the Company agreed
to prepare and file with the Securities & Exchange Commission a Registration
Statement for a rights offering to be made pro rata to all its shareholders
except PICO consisting of 1,250,000 shares of common stock at an exercise price
of $2 per share, and PICO agreed to exercise for $2 cash per share any such
right which expires unexercised (the "Rights Offering"). For various reasons,
PICO asserts that it is not required to underwrite the Rights Offering.
NOW, THEREFORE, for good and valuable consideration, receipt of which is
hereby acknowledged, the Company and PICO amend and modify the Debenture and the
Debenture Agreement as follows:
A. Add the following provisions to the Debenture:
1. DUE DATE. The principal portion of the Debenture, along with all
accrued but unpaid interest, shall be fully due and payable on April 30, 1999
(the "Due Date").
2. NO PREPAYMENT. The principal portion of the Debenture may not be
paid, in whole or in part, prior to the Due Date, as amended herein, without the
written consent of PICO.
3. CONVERSION RATE. The first sentence of the fourth full paragraph on
page 2 of the Debenture shall be amended to read:
The registered holder of this Debenture has the right, at
its sole option, at any time on or prior to the later to
occur of the close of business on April 30, 1999 or the full
payment of this debenture, to convert the
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principal amount of the Debenture plus any accrued, but
unpaid, interest into fully paid and nonassessable shares
of Common Stock at the conversion price of the lesser of
(a) the mean of the closing bid price per share for the
twenty (20) preceding trading days (or such fewer number
of days as such public market has existed (as reported by
NASDAQ or such national securities exchange as the Common
Stock is traded on)), or (b) $1.5625 per share (as
adjusted in accordance with this paragraph ), upon
surrender of this Debenture to the Company at its
executive offices, accompanied by written notice of
conversion duly executed.
4. ADDITIONAL EVENT OF DEFAULT. The occurrence of an "Event of Default"
under any Senior Indebtedness shall constitute an "Event of Default" under the
Debenture.
5. AFFIRMATIVE COVENANTS.
The Company covenants and agrees that, until payment in full of this
Debenture, it shall do all of the following:
5.1 GOOD STANDING. The Company shall maintain its and each of its
subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. "Material Adverse
Effect" means a material adverse effect on (i) the business operations or
condition (financial or otherwise) of the Company and its subsidiaries taken as
a whole or (ii) the ability of the Company to pay this Debenture or otherwise
perform its obligations under this Debenture. The Company shall maintain, and
shall cause each of its subsidiaries to maintain, to the extent consistent with
prudent management of the Company's business, in force all licenses, approvals
and agreements, the loss of which could have a Material Adverse Effect.
5.2 GOVERNMENT COMPLIANCE. The Company shall meet, and shall
cause each subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. The Company shall
comply, and shall cause each subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which could have a Material Adverse Effect.
5.3 PRINCIPAL DEPOSITORY. The Company shall maintain its principal
depository and operating accounts with Lakeside Bank, an Illinois banking
corporation.
5.4 QUICK RATIO. The Company shall maintain, as of the last day of
each calendar month, a ratio of Quick Assets to Current Liabilities of at least
.1 to 1.0. From and after December 31, 1997, the Company shall maintain, as of
the last day of each calendar month, a ratio of Quick Assets to Current
Liabilities of at least 1.15 to 1.0.
5.5 CURRENT RATIO. The Company shall maintain, as of the last day of
each calendar month, a ratio of Current Assets to Current Liabilities of at
least .12 to 1.0. From and after December 31, 1997, the Company shall maintain,
as of the last day of each calendar month, a ratio of Current Assets to Current
Liabilities of at least 1.15 to 1.0.
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5.6 DEBT-NET WORTH RATIO. From and after December 31, 1997, the
Company shall maintain, as of the last day of each calendar month, a ratio of
Total Liabilities less Subordinated Debt to Tangible Subordinated Debt of not
more than 1.0 to 1.0.
5.7 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. The Company shall
deliver to PICO: (a) as soon as available, but in any event within forty (40)
days after the end of each month, a company prepared consolidated balance sheet
and income statement covering the Company consolidated operations during such
period; (b) as soon as available, but in any event within ninety (90) days after
the end of the Company's fiscal year, audited consolidated financial statements
of the Company prepared in accordance with GAAP, consistently applied, together
with an unqualified opinion on such financial statements of an independent
certified public accounting firm reasonably acceptable to PICO; (c) within five
(5) days upon becoming available, copies of all statements, reports and notices
sent or made available generally by the Company to its security holders and all
reports on Form 10-K and 10-Q filed with the Securities and Exchange Commission;
(d) promptly upon receipt of notice thereof, a report of any legal actions
pending or threatened against the Company or any subsidiary that could result in
damages or costs to the Company or any subsidiary of Fifty Thousand Dollars
($50,000) or more; and (e) such budgets, sales projections, operating plans or
other financial information as PICO may reasonably request from time to time.
Any and all financial information to be provided hereunder by the Company to
PICO shall be certified by Louis Morgan, Michael Press and Howard Meltzer, as
true, accurate and complete, to the best of their knowledge, exercise in good
faith. In the event that one or more of the foregoing persons is no longer
employed by the Company, the certification shall be made by the persons employed
by the Company performing similar duties and functions.
PICO shall have a right from time to time hereafter to audit the Company's
accounts at the Company's expense, provided that such audits will be conducted
no more often than every two (2) months unless an Event of Default has occurred
and is continuing.
6. NEGATIVE COVENANTS. The Company covenants and agrees that so long as
any principal and interest on this Debenture is unpaid and outstanding, the
Company will not do any of the following:
6.1 DISPOSITIONS. Without the prior written consent of PICO, such
consent not to be unreasonably withheld, convey, sell, lease, transfer or
otherwise dispose of (collectively, a "Transfer"), or permit any of its
subsidiaries to Transfer, all or any part of its business or property, other
than: (i) Transfers of non-exclusive licenses and similar arrangements for the
use of the property of the Company or its subsidiaries; or (ii) Transfers of
worn-out or obsolete equipment.
6.2 CHANGE IN BUSINESS. Engage in any business, or permit any of its
subsidiaries to engage in any business, other than the businesses currently
engaged in by the Company and any business substantially similar or related
thereto (or incidental thereto), or suffer a material change in the Company's
ownership. The Company will not, without 30 days prior written notification to
PICO, relocate its chief executive office.
6.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of
its subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its subsidiaries to acquire, all or
substantially all of the capital stock or property of another entity.
6.4 ENCUMBRANCES. Create, incur, assume or suffer to exist any lien
or encumbrance with respect to any of its property, or assign or otherwise
convey any right to receive income, including the sale of any accounts, or
permit any of its subsidiaries so to do, except for an
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existing blanket lien in favor of Lakeside Bank on all personal property of
the Company and a blanket lien in favor of PICO Holdings, Inc., a California
corporation, on all personal property of the Company.
6.5 DISTRIBUTIONS. Pay any dividends or make any other distribution
or payment on account of or in redemption, retirement or purchase of any capital
stock.
6.6 INVESTMENTS. Directly or indirectly acquire or own, or make any
Investment in or to any entity, or permit any of its subsidiaries so to do,
other than Permitted Investments (as defined in the Loan and Security Agreement
of even date herewith between the Company, as borrower, and PICO Holdings, Inc.,
as lender).
6.7 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into
or permit to exist any material transaction with any affiliate of the Company
except for transactions that are in the ordinary course of the Company's
business, upon fair and reasonable terms that are no less favorable to the
Company than would be obtained in an arm's length transaction with a
nonaffiliated party.
6.8 COMPLIANCE. Become an "investment company" controlled by an
"investment company," within the meaning of the Investment Company Act of 1940,
or become principally engaged in, or undertake as one of its important
activities, the business of extending credit for the purpose of purchasing or
carrying margin stock, or use the proceeds of any Advance for such purpose.
Fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur, fail to comply
with the Federal Fair Labor Standards Act or violate any law or regulation,
which violation could have a Material Adverse Effect, or permit any of its
subsidiaries to do any of the foregoing.
7. FULL FORCE AND EFFECT. Except as expressly amended hereby, the
Debenture shall remain unaltered and in full force and effect.
B. Delete the following provisions of the Debenture:
1. REDEMPTION BY THE COMPANY. Delete the first full paragraph of page 4
of the Debenture concerning the Company's ability to redeem the Debenture with
stock at the closing of the Rights Offering (as defined in the Debenture
Agreement). Accordingly, it is the intent of the parties that the Company shall
not have the right to redeem the Debenture for stock at any time, except upon
the option of PICO.
C. Amend the Debenture as follows:
1. AMEND DUE DATE. Delete December 31, 2001 as the date on which the
Debenture matures and replace such date with April 30, 1999, hereinbefore
defined as the Due Date.
2. AMEND DEFINITION OF SENIOR INDEBTEDNESS. The first sentence of the
first paragraph of page 3 is amended to read as follows: "The Indebtedness
evidenced by this Debenture is expressly subordinated and subject to the prior
payment in full of all secured indebtedness of the Company to Lakeside Bank and
PICO Holdings, Inc. whether outstanding at the date hereof or incurred after the
date hereof ("Senior Indebtedness")."
D. Amend the Debenture Agreement as follows:
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1. EXTINGUISHMENT OF UNDERWRITING OF RIGHTS OFFERING. Paragraph 7 of the
Debenture Agreement is hereby amended to read as follows:
RIGHTS OFFERING: PC Quote and PICO each agree as follows:
A. PC Quote may, at its option, prepare and file with the
Securities and Exchange Commission a Registration Statement
(the "Registration Statement"), and have such Registration
Statement declared effective, for a Rights offering to be
made pro rata to all its Shareholders except PICO consisting
of 1,250,000 shares of Common Stock at an exercise price per
share to be determined by PICO in its sole and absolute
discretion (the "Price"). Such Rights will be
nontransferable, exercisable solely in cash, will expire 30
days after issuance, and will provide that PICO shall, at no
cost to PICO, exercise for cash per share in an amount equal
to the Price any such Right which expires unexercised.
B. PICO agrees within three (3) business days from receipt
of written notice from PC Quote to such effect, to purchase
for cash in an amount equal to the Price all shares of
Common Stock deliverable upon the exercise of all Rights
which have expired unexercised.
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C. To the extent permissible under applicable federal and
state securities laws, PC Quote agrees to include in the
Registration statement those shares of Common Stock issuable
to PICO upon conversion or redemption of the Debenture and
any other shares of PC Quote common stock then owned by
PICO.
The Company has caused this instrument to be signed manually or by
facsimile by the duly authorized officers.
Dated: May 5, 1997.
Attest: P C QUOTE, INC.,
a Delaware corporation
By:__________________________________ By:____________________________________
, Secretary Title:____________________________
Attest: PHYSICIANS INSURANCE COMPANY OF OHIO,
an Ohio corporation
By:__________________________________ By:____________________________________
, Secretary Title:____________________________
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Common Stock Warrant
Minimum 640,000 Shares
(subject to adjustment)
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT
COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH RULE 144 UNDER THE
ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Void after April 30, 2000
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, PICO HOLDINGS, INC., a California
corporation, is entitled to purchase a minimum of Six Hundred Forty Thousand
(640,000) shares of Common Stock ("Warrant Shares") of PC QUOTE, INC., a
Delaware corporation, at a price per share equal to the mean of the closing bid
price per share for the twenty (20) preceding trading days (or such fewer number
of days as such public market has existed) as reported by NASDAQ or such
national securities exchange as the Common Stock (as defined below) is traded
on, but in no event shall the price be greater than $1.5625 per share ("Warrant
Price"), subject to adjustments and all other terms and conditions set forth in
this Warrant.
1. DEFINITIONS. As used herein, the following terms, unless the context
otherwise requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
(b) "Acquisition" shall mean any sale, license, or other disposition
of all or substantially all of the assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
(c) "Commission" shall mean the Securities and Exchange Commission,
or any other Federal agency at the time administering the Act.
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(d) "Common Stock" shall mean shares of the Company's presently or
subsequently authorized Common Stock, and any stock into which such Common Stock
may hereafter be exchanged.
(e) "Company" shall mean PC QUOTE, INC., a Delaware corporation, and
any corporation which shall succeed to or assume the obligations of PC QUOTE,
INC., under this Warrant.
(f) "Date of Grant" shall mean May 5, 1997.
(g) "Exercise Date" shall mean the effective date of the delivery of
the Notice of Exercise pursuant to Sections 4 and 11 below.
(h) "Holder" shall mean any person who shall at the time be the
registered holder of this Warrant.
(i) "Notes" shall mean (i) the Convertible Subordinated Debenture, as
amended, held by Physicians Insurance of Ohio, and (ii) other indebtedness of
the Company in the aggregate principal amount of up to $1,000,000, owed to PICO
HOLDINGS, INC., which credit shall have been extended concurrently with the
issuance of this Warrant.
(j) "Shares" shall mean shares of the Company's Common Stock, as
described in the Company's Certificate of Incorporation.
2. ISSUANCE OF WARRANT AND CONSIDERATION THEREFOR. This Warrant is
issued in consideration of the loan by PICO HOLDINGS, INC. to the Company as
described in the Notes issued concurrently with this Warrant by the Company.
3. TERM. The purchase right represented by this Warrant is exercisable
only during the period commencing upon the Date of Grant and ending on April 30,
2000.
4. METHOD OF EXERCISE AND PAYMENT.
(a) METHOD OF EXERCISE. Subject to Section 3 hereof and compliance
with all applicable Federal and state securities laws, the purchase right
represented by this Warrant may be exercised, in whole or in part and from time
to time, by the Holder by (i) surrender of this Warrant and delivery of the
Notice of Exercise (the form of which is attached hereto as Exhibit A), duly
executed, at the principal office of the Company and (ii) payment to the Company
of an amount equal to the product of the then applicable Warrant Price
multiplied by the number of Shares then being purchased pursuant to one of the
payment methods permitted under Section 4(b) below.
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(b) METHOD OF PAYMENT. Payment shall be made either (1) by check
drawn on a United States bank and for United States funds made payable to the
Company, or (2) by wire transfer of United States funds for the account of the
Company.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to the
contrary, in lieu of exercising this Warrant for cash, the Holder may elect to
receive shares equal to the value (as determined below) of this Warrant (or the
portion thereof being canceled) by surrender of this Warrant at the principal
office of the Company together with a properly endorsed notice of exercise and
notice of such election in which event the Company shall issue to the Holder a
number of shares of Common Stock computed using the following formula:
Y (A-B)
X = -------
A
Where X = the number of shares of Common Stock to be issued to the Holder,
Y = the number of shares of Common Stock purchasable under the Warrant
or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being canceled (at the date of such
calculation),
A = the fair market value of one share of the Company's Common Stock
(at the date of such calculation), and
B = the Warrant Price (as adjusted to the date of such calculation).
For purposes of the above calculation, fair market value of one share of Common
Stock shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the Company's
Common Stock at the time of such exercise, fair market value shall mean the
average over the preceding twenty trading days (or such fewer number of days as
such public market has existed) of the mean of the closing bid and asked prices
on the over-the-counter market as reported by Nasdaq, or if the Common Stock is
then traded on a national securities exchange or the Nasdaq National Market, the
average over the preceding twenty trading days (or such fewer number of days as
the Common Stock has been so traded) of the closing sale prices on the principal
national securities exchange or the National Market on which it is so traded.
(d) DELIVERY OF CERTIFICATE. In the event of any exercise of the
purchase right represented by this Warrant, certificates for the Shares so
purchased shall be delivered to the Holder within ten days of delivery of the
Notice of Exercise and, unless this Warrant has been fully exercised or has
expired, a new warrant representing the portion of the Shares with respect to
which this Warrant shall not then have been exercised shall also be issued to
the Holder within such ten day period.
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(e) NO FRACTIONAL SHARES. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the fair market
value per Share as of the date of exercise.
(f) COMPANY'S REPRESENTATIONS.
(i) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer under applicable federal
and state securities laws. During the period within which the purchase right
represented by this Warrant may be exercised, the Company shall at all times use
its best efforts to have authorized, and reserved for the purpose of issuance
upon exercise of the purchase right represented by this Warrant, a sufficient
number of Shares to provide for the exercise of the purchase right represented
by this Warrant;
(ii) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights;
(iii) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be inconsistent with the Company's Certificate of
Incorporation or Bylaws, do not and will not contravene any law, governmental
rule or regulation, judgment or order applicable to the Company, and do not and
will not conflict with or contravene any provision of, or constitute a default
under, any material indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound, or require the registration or
filing with or the taking of any action in respect of or by, any federal, state
or local government authority or agency (other than such consents, approvals,
notices, actions, or filings as have already been obtained or made, as the case
may be).
5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number of
securities issuable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) ADJUSTMENT FOR DIVIDENDS IN STOCK. In case at any time or from
time to time on or after the date hereof the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefor, other or additional stock of the
Company by way of dividend then, and in each case, the Holder of this Warrant
shall, upon the exercise hereof, be entitled to receive, in addition to the
number of shares of Common Stock receivable thereupon, and without payment of
any additional
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consideration therefor, the amount of such other or additional stock of the
Company which such Holder would hold on the date of such exercise had it been
the holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date
of such exercise, retained such shares and/or all other additional stock
receivable by it as aforesaid during such period, giving effect to all
adjustments called for during such period by paragraphs (b) and (c) of this
Section 5.
(b) ADJUSTMENT FOR RECLASSIFICATION OR REORGANIZATION. In case of
any reclassification or change of the outstanding securities of the Company or
of any consolidation, merger or reorganization of the Company on or after the
date hereof, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, consolidation, merger or reorganization, shall be entitled to receive,
in lieu of or in addition to the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities to which such Holder would have been entitled upon such
consummation if such Holder had exercised this Warrant immediately prior
thereto, all subject to further adjustment as provided in subparagraphs (a) and
(c); in each such case, the terms of this Paragraph 5 shall be applicable to the
shares of stock or other securities property receivable upon the exercise of
this Warrant after such consummation.
(c) STOCK SPLITS AND REVERSE STOCK SPLITS. If, at any time on or
after the date hereof, the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of this Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Common Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall thereby be proportionately increased and the number of
shares receivable upon exercise of the Warrant shall be proportionately
decreased.
(d) RIGHTS, OPTIONS OR WARRANTS. If the Company issues rights,
options or warrants to all holders of its shares of Common Stock, without any
charge to such holders, entitling them (for a period expiring within 45 days
after the record date mentioned below in this paragraph (d)) to subscribe for or
to purchase shares of Common Stock at a price per share lower than the then
current market price per share of Common Stock at the record date mentioned
below (as defined in paragraph (f) below), the number of Shares thereafter
purchasable upon exercise of each Warrant shall be determined by multiplying the
number of Shares theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered for subscription or purchase, and of which the denominator shall
be the number of shares of Common Stock outstanding on such record date plus the
number of shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the then current market
price per share of Common Stock. Such adjustment shall be made whenever such
rights,
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options or warrants are issued, and shall become effective retroactively to
immediately after the record date for the determination of stockholders
entitled to receive such rights, options or warrants.
(e) OTHER DISTRIBUTIONS. If the Company distributes to all holders
of its shares of Common Stock shares of stock other than Common Stock or
evidences of its indebtedness or assets (excluding cash dividends payable out of
consolidated earnings or retained earnings and dividends or distributions
referred to in paragraph (a) above) or rights, options or warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding those referenced in paragraph (2)
above), then in each case the number of Shares thereafter issuable upon the
exercise of each warrant shall be determined by multiplying the number of Shares
theretofore issuable upon the exercise of each Warrant, by a fraction, of which
the numerator shall be the current market price per share of Common Stock (as
defined in paragraph (f) below) on the record date mentioned below in this
paragraph (e), and of which the denominator shall be the current market price
per share of Common Stock on such record date, less the then fair value (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the shares of stock other
than the Common Stock or assets or evidences of indebtedness so distributed or
of such subscription rights, options or warrants, or of such convertible or
exchangeable securities applicable to one share of Common Stock. Such
adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution retroactive to immediately after
the record date for the determination of stockholders entitled to receive such
distribution.
(f) CURRENT MARKET PRICE. For the purposes of any computation under
paragraphs (d) and (c) of this Section 5, the current market price per share of
Common Stock at any date shall be the average of the daily closing prices for
fifteen consecutive trading days commencing twenty trading days before the date
of such computation. The closing price for each day shall be the closing sale
price or in case no such reported sale takes place on such day, the average of
the closing bid and asked prices for such day, in either case on the principal
national securities exchange or the Nasdaq National Market on which the shares
are listed or admitted to trading, or if they are not listed or admitted to
trading on any national securities exchange or the Nasdaq National Market, but
are traded in the over-the-counter market, the average of the representative
closing bid and asked quotations for the Common Stock, on the NASDAQ system or
any comparable system, or if the Common Stock or, in case no sale is publicly
reported, the average of the closing bid and asked prices as furnished by two
members of the NASD selected from time to time by the Company for that purpose.
(g) ADJUSTMENTS TO WARRANT PRICE. Whenever the number of Shares
purchasable upon exercise of each Warrant is adjusted, as herein provided, the
Warrant Price shall be adjusted by multiplying the Exercise Price in effect
immediately prior to such adjustment by a fraction, of which the numerator shall
be the number of Shares purchasable upon the exercise of each Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Shares so purchasable immediately thereafter.
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(h) CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish the Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish the Holder a
certificate setting forth the Warrant Price in effect upon the date thereof and
the series of adjustments leading to such Warrant Price.
6. ACQUISITIONS
(a) ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing.
(b) NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and the Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warrant shall be deemed to have been automatically converted pursuant to
Section 4(c) and thereafter the Holder shall participate in the acquisition on
the same terms as other holders of the same class of securities of the Company.
(c) PURCHASE RIGHT. Notwithstanding the foregoing, at the election
of the Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to
(a) the fair market value of any consideration that would have been received by
the Holder in consideration of the Shares had the Holder exercised the
unexercised portion of this Warrant immediately before the record date for
determining the stockholders entitled to participate in the proceeds of the
Acquisition, less (b) the aggregate Warrant Price of the Shares, but in no event
less than zero.
7. NOTICES; INFORMATION; REGISTRATION.
(a) NOTICE OF CERTAIN EVENTS. If the Company proposes at any time
(a) to declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series or
other rights; (c) to effect any reclassification or recapitalization of Common
Stock; (d) to merge or consolidate with or into any other corporation, or sell,
lease, license, or convey all or substantially all of its assets, or to
liquidate, dissolve or wind up; or (e) offer holders of registration rights the
opportunity to participate in an underwritten public offering of the company's
securities for cash, then, in connection with each such event, the Company shall
give the Holder (1) at least 20 days prior written notice of the date on which a
record will be taken for such dividend, distribution, or subscription rights
(and specifying the date on which the holders of Common Stock will be entitled
thereto) or in respect of the
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matters referred to in (c) and (d) above for determining rights to vote, if
any; (2) in the case of the matters referred to in (c) and (d) above at least
20 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of Common Stock will be entitled to
exchange their Common Stock for securities or other property deliverable upon
the occurrence of such event); and (3) in the case of the matter referred to
in (e) above, the same notice as is given to the holders of such registration
rights.
(b) INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
stockholders of the Company, (b) within ninety days after the end of each fiscal
year of the Company, the annual audited financial statements of the Company
audited by independent public accountants of recognized standing and (c) within
forty-five days after the end of each of the first three quarters of each fiscal
year, the Company's quarterly, unaudited financial statements.
(c) REGISTRATION UNDER SECURITIES ACT OF 1933. The Company agrees
that the Shares shall be subject to the registration rights set forth on
Exhibit B.
8. COMPLIANCE WITH ACT; TRANSFERABILITY AND NEGOTIABILITY OF WARRANT;
DISPOSITION OF SHARES.
(a) COMPLIANCE WITH ACT. The Holder, by acceptance hereof, agrees
that this Warrant and the Shares to be issued upon the exercise hereof are being
acquired solely for its own account and not as a nominee for any other party and
not with a view toward the resale or distribution thereof and that it will not
offer, sell or otherwise dispose of this Warrant or any Shares to be issued upon
the exercise hereof except under circumstances which will not result in a
violation of the Act. This Warrant and the Shares to be issued upon the
exercise hereof (unless registered under the Act) shall be imprinted with a
legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
In addition, this Warrant and the Shares to be issued upon the exercise hereof
shall bear any legends required by the securities laws of any applicable states.
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(b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant may
not be transferred or assigned in whole or in part without compliance with all
applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions satisfactory to the Company, if requested by the Company and the
transfer is to a person other than a general partner or affiliate of the initial
Holder). Subject to the provisions of this Warrant with respect to compliance
with the Act, title to this Warrant may be transferred by endorsement and
delivery in the same manner as a negotiable instrument transferable by
endorsement and delivery. The Company shall act promptly to record transfers of
this Warrant on its books, but the Company may treat the registered holder of
this Warrant as the absolute owner of this Warrant for all purposes,
notwithstanding any notice to the contrary.
(c) DISPOSITION OF SHARES. With respect to any offer, sale, transfer
or other disposition of any Shares acquired pursuant to the exercise of this
Warrant prior to registration of such Shares, except for any such offer, sale,
transfer or other disposition of Shares to an affiliate of the initial Holder,
the Holder and each subsequent holder of this Warrant agrees to give written
notice to the Company prior thereto, describing briefly the manner thereof, and
if such transfer is not pursuant to Rule 144, a written opinion of legal counsel
for such holder, if requested by the Company, to the effect that such offer,
sale or other disposition may be effected without registration or qualification
of such Shares. Notwithstanding the foregoing, such Shares may be offered, sold
or otherwise disposed of in accordance with Rule 144, provided that the Company
shall have been furnished with such information as the Company may reasonably
request to provide a reasonable assurance that the provisions of Rule 144 have
been satisfied. Each certificate representing the Shares thus transferred
(except a transfer pursuant to Rule 144) shall bear a restrictive legend as to
the applicable restrictions on transferability in order to insure compliance
with the Act, unless in the aforesaid opinion of legal counsel for the holder,
such legend is not required in order to insure compliance with the Act.
9. RIGHTS OF STOCKHOLDERS. No Holder shall be entitled to vote or
receive dividends or be deemed the holder of Shares or any other securities of
the Company which may at any time be issuable on the exercise of this Warrant
for any purpose, nor shall anything contained herein be construed to confer upon
the Holder, as such, any of the rights of a stockholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
stockholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, consolidation, merger, transfer of assets or
otherwise) or, except as expressly required herein, to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until this
Warrant shall have been exercised and the Shares issuable upon exercise hereof
shall have become deliverable, as provided herein.
10. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form
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and amount to the Company or, in the case of mutilation, on surrender and
cancellation of this Warrant, the Company at its expense shall execute and
deliver, in lieu of this Warrant, a new warrant of like tenor.
11. EXCHANGE OF WARRANT. Subject to the other provisions of this Warrant,
on surrender of this Warrant for exchange, and subject to the provisions of this
Warrant with respect to compliance with the Act, the Company at its expense
shall issue to or on the order of the Holder a new warrant or warrants of like
tenor, in the name of the Holder or as the Holder (on payment by the Holder of
any applicable transfer taxes) may direct, for the number of Shares issuable
upon exercise thereof.
12. NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
13. WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
14. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. TITLES AND SUBTITLES; FORMS OF PRONOUNS. The titles of the Sections
and Subsections of this Warrant are for convenience only and are not to be
considered in construing this Warrant. All pronouns used in this Warrant shall
be deemed to include masculine, feminine and neuter forms.
16. ATTORNEYS' FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
Dated: May , 1997. PC QUOTE, INC., a Delaware corporation
By: ____________________________________
, President
By: ____________________________________
, Secretary
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EXHIBIT A
NOTICE OF EXERCISE
------------------
TO: PC QUOTE, INC.
1. The undersigned Holder of the attached Common Stock Purchase Warrant
hereby elects to exercise its purchase right under such Warrant with respect to
________________ Shares, as defined in the Warrant.
2. The undersigned Holder elects to pay the aggregate Warrant Price for
such Shares (the "Exercise Shares") in the following manner:
[ ] by the enclosed check drawn on a United States bank and for
United States funds made payable to the Company in the amount of
$_____________;
[ ] by wire transfer of United States funds to the account of the
Company in the amount of $___________, which transfer has been
made before or simultaneously with the delivery of this Notice
pursuant to the instructions of the Company; or
[ ] pursuant to the Net Exercise provisions set forth in Section 4(c)
of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of Shares in the name of the undersigned or in such other
names as is specified below:
Name: ________________________________________________
Address: _____________________________________________
_____________________________________________
Tax Ident. No.: ______________________________________
HOLDER:
________________________________________
By: ____________________________________
Date: ________________________ Title: _____________________________
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EXHIBIT B
STATEMENT OF REGISTRATION RIGHTS
--------------------------------
1. DEFINITIONS. For purpose of the Warrant to which this Statement of
Registration Rights is attached as Exhibit B:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended (the
"Act"), and the declaration or ordering of effectiveness of such registration
statement or document;
(b) The term "Registrable Securities" means the shares of Common
Stock issued or issuable upon exercise of the Warrant;
(c) The term "Holder" means the original holder of the Warrant and
any transferee of the Warrant; and
(d) The term "Warrant" means the original Warrants issued in
connection with the Company's initial public offering and all Warrants issued as
a result of the transfer of such original Warrants.
2. COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes at any time before April 30, 2000 to register (including for
this purpose a registration effected by the Company for stockholders other than
Holder) any of its stock or other securities under the Act in connection with
the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give Holder written notice of such
registration. Upon the written request of Holder given within twenty days after
mailing of such notice by the Company, the Company shall, subject to the
provisions of Section 8 hereof and Section 5 of the Warrant, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
3. DEMAND REGISTRATION. In case the Company shall, at any time before
April 30, 2000, receive from Holders holding 40% or more of the outstanding
Registrable Securities a written request (to be exercised only once) that the
Company effect a registration and any related qualification or compliance with
respect to all or a part of the Registrable Securities (which registration shall
at the election of Holder either be for a registration for a primary issuance of
the Shares upon the exercise of the Warrant or the resale of the Shares
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previously issued upon exercise of the Warrant at the election of Holder) owned
by such Holder, the Company will promptly notify each other Holder (if any) of
such request and will:
(a) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of a Holder's
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other holder of registration
rights joining in such request as are specified in a written request given
within 20 days after receipt of such written notice from the Company; PROVIDED,
HOWEVER, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 3: (1) if
the Company has effected a registration of Registrable Securities pursuant to
this Section 3 within the preceding 12 months; (2) if the Company shall furnish
to Holder a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
to be effected at such time, in which event the Company shall have the right to
defer the filing of the registration statement for a period of not more than 60
days after receipt of the request of Holder under this Section 3; PROVIDED,
HOWEVER, that the Company shall not utilize this right more than once in any
twelve-month period; or (3) in any jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance; and,
(b) subject to the foregoing, file a registration statement covering
the Registrable Securities and other securities so requested to be registered
promptly after receipt of the request or requests of Holder, and in any event
within 30 days of receipt of such request.
4. OBLIGATION OF THE COMPANY. Subject to the terms of the Warrant, in
the event that the Company is to effect the registration of any Registrable
Securities pursuant to Section 2 or 3 hereof, the Company shall promptly:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the holders
of a majority of the securities registered thereunder, keep such registration
statement effective for up to one hundred twenty (120) days, or such shorter
period as is required to dispose of all securities covered by such registration
statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
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(c) Furnish to Holder such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as Holder may reasonably request in order to
facilitate the disposition of Registrable Securities owned by Holder.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by Holder, provided
that the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions or to agree to any restrictions as
to the conduct of its business in the ordinary course thereof.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Holder shall also enter
into and perform its obligations under such underwriting agreement.
(f) Notify Holder at any time when a prospectus relating to
Registrable Securities of Holder covered by such registration statement is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made.
(g) Furnish, at the request of Holder, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to the Warrant, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to Holder and (ii) a letter
dated such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and to Holder.
5. AVAILABILITY OF RULE 144. Notwithstanding anything in the Warrant or
this Statement of Registration Rights to the contrary, the Company shall not be
obligated to effect any such registration, qualification or compliance, pursuant
to Section 2 or 3, if application of Rule 144 would allow Holder requesting a
registration under Section 2 or 3 to dispose of the Registrable Securities for
which a registration is demanded within a single 90-day period.
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<PAGE>
6. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to the Warrant that the
selling Holder shall furnish to the Company such information regarding itself,
the Registrable Securities held by Holder, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities.
7. EXPENSES. The Company shall bear and pay all expenses (other than
underwriting discounts and commissions) incurred in connection with any
registration, filing or qualification of Registrable Securities, including
(without limitation) all registration, filing, and qualification fees, legal,
printers and accounting fees relating thereto, and the cost of any reasonable
fees or disbursements of counsel for Holder.
8. UNDERWRITING REQUIREMENTS. In connection with any registrations in
which Registrable Securities have a right to be included pursuant to Section 2
hereof and which involves an underwriting of securities being issued by the
Company, the Company shall not be required, under Section 2 hereof, to include
any of Holder's securities in such underwriting unless Holder accepts the terms
of the underwriting as agreed upon between the Company and the underwriters
selected by it, and then only in such quantity as will not, in the opinion of
the underwriters, jeopardize the success of the offering by the Company. If the
total amount of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters reasonably believe
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters believe will not jeopardize the
success of the offering, the securities so included to be apportioned pro rata
among the selling Holder and other shareholders holding contractual registration
rights according to the total amount of securities entitled to be included
therein owned by each selling stockholder or in such other proportions as shall
mutually be agreed to by Holder and each other selling stockholder.
9. INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement filed by the Company:
(a) The Company will indemnify and holder harmless Holder, its
officers, directors, and agents, any underwriter (as defined in the Act) for
Holder and each person, if any, who controls Holder or underwriter within the
meaning of the Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint or several)
asserted by a third party to which they may become subject under the Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages,
or liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading,
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<PAGE>
or (iii) any violation or alleged violation of the Company of the Act, the
1934 Act, any state securities law or any rule or regulation promulgated
under the Act, the 1934 Act or any state securities law; and the Company will
reimburse Holder, any of its officers or directors, underwriter or
controlling person for any legal or other expenses reasonably incurred by
them, as incurred, in connection with investigating or defending any such
loss, claim, damage, liability, or action; PROVIDED, HOWEVER, that the
indemnity agreement contained in this Section 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by such Holder, underwriter or
controlling person.
(b) Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company with the meaning of the Act, any
underwriter and any other shareholder selling securities in such registration
statement or any of its directors or officers or any person who controls such
shareholder, against any losses, claims, damages, or liabilities (joint or
several) asserted by a third party to which the Company or any such director,
officer, controlling person, or underwriter or controlling person, or other such
shareholder or director, officer or controlling person may become subject, under
the Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by Holder expressly for use in connection with
such registration; and Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or controlling person, other shareholder, officer, director,
or controlling person, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability, or action; PROVIDED, HOWEVER,
that the obligations of Holder hereunder shall be limited to an amount equal to
the net proceeds (equal to the offering price less the exercise price, expenses
and underwriting commissions and discounts) to such Holder of Shares sold as
contemplated herein. Notwithstanding the foregoing, the indemnity agreement
contained in this Section 9(b) shall not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is effected
without the consent of Holder, which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying part under this Section 9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the
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parties; PROVIDED, HOWEVER, that an indemnified party shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to
actual or potential differing interests between such indemnified party and
any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time
of the commencement of any such action, if prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section 9.
10. REPORTS UNDER THE 1934 ACT. With a view to making available to Holder
the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit Holder to sell securities of
the Company to the public without registration the Company will endeavor to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) take such action as is necessary to enable Holder to utilize an
abbreviated registration statement for the sale of its Registrable Securities;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to Holder, so long as Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144, the Act and the
1934 Act, or that it qualifies as a registrant whose securities may be resold
pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the
most recent annual or quarterly report of the Company and such other reports and
documents so filed by the Company, and (iii) such other information as may be
reasonably requested in availing Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration or
pursuant to such form.
11. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to the Warrant may be assigned by
Holder to a permitted transferee or assignee of the Warrant or of at least
400,000 Shares, provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
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PROMISSORY NOTE
U.S.$1,000,000 May 5, 1997
__________, __________
For value received, the undersigned ("Maker") promises to pay to the
order of PICO HOLDINGS, INC., a California corporation ("Payee"), at __________
_____________________________________________ , or at such other place as Payee,
or the holder hereof, may from time to time designate in writing, the
principal amount of up to One Million Dollars ($1,000,000) or so much thereof
as may be advanced by Payee to Maker under that certain Loan and Security
Agreement of even date herewith (the "Loan Agreement") together with interest
on unpaid principal from time to time outstanding hereunder at the rate of
interest set forth in the Loan Agreement. Principal and interest shall be
payable in lawful money of the United States.
Principal and interest shall be payable in accordance with the terms of
the Loan Agreement. The entire principal balance and all accrued interest
shall be due and payable September 30, 1997 (the "Maturity Date"), or at such
earlier date as all sums hereunder are declared due as a result of an Event of
Default. All payments shall be applied first to late charges and all other
charges due hereunder, then to accrued interest, then to the principal
balance.
At the option of Payee, it shall be an "Event of Default" hereunder if
(i) Maker fails to pay when due any sum payable under this Note, or (ii) any
default or Event of Default occurs under the Loan Agreement. Upon the
occurrence of an Event of Default, then at the option of Payee, the entire sum
of principal, interest and all other charges due under this Note and the Loan
Agreement shall become immediately due and payable.
Under no circumstances shall the amount paid or agreed to be paid to
Payee, or its successors or assigns, for the loan, use, forbearance or
detention of money exceed the maximum, if any, permissible under applicable
law. If, from any circumstances, Payee, or its successors or assigns, should
ever receive as interest an amount that would exceed the highest lawful rate,
such amount as would be excessive interest shall be applied to the reduction
of the unpaid principal balance of this Note and not the payment of interest.
This provision shall control every other provision of this Note and all
agreements between Maker and Payee and their successors and assigns.
Maker agrees: (i) to pay all costs of collection and reasonable
attorneys' fees incurred by Payee, or the holder hereof, on account of such
collection, whether or not suit is filed hereon, (ii) to waive presentment,
protest, notice of protest, demand, notice of dishonor and diligence in
collection, (iii) to waive the right to plead any statute of limitations as a
defense to the full extent permitted by law, (iv) that no failure on the part
of Payee, or the holder
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hereof, to exercise any power, right or privilege hereunder, or to insist
upon prompt compliance with the terms hereof, shall constitute a waiver
thereof, and (v) to releases of any party to or security for this Note.
No provision of this Note may be amended, modified, supplemented,
changed, waived, discharged or terminated unless Payee consents thereto in
writing. In case any one or more of the provisions contained in this Note
should be held to be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby. This Note shall
be binding upon and inure to the benefit of Maker, Payee and their respective
successors and assigns. Time is of the essence of this Note and the
performance of each of the covenants and agreements contained herein. This
Note shall be governed by and construed in accordance with the laws of the
State of Illinois.
Maker:
PC QUOTE, INC., a Delaware corporation
By: ____________________________________
Its: _____________________________
By: ____________________________________
Its: _____________________________
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JOINT AMENDMENT TO
AGREEMENT TO PROVIDE INSURANCE;
DISBURSEMENT REQUEST AND AUTHORIZATION;
PROMISSORY NOTE; AND
LOAN AND SECURITY AGREEMENT
This Joint Amendment to Agreement to Provide Insurance; Disbursement
Request and Authorization; Promissory Note; and Loan and Security Agreement is
entered into this ___ day of August, 1997, by and between PC Quote, Inc., a
Delaware corporation ("PC Quote") and PICO Holdings, Inc., a California
corporation ("PICO").
WHEREAS, PC Quote and PICO are parties to those certain Agreement to
Provide Insurance; Disbursement Request and Authorization; Promissory Note; and
Loan and Security Agreement all entered into in connection with that certain
Promissory Note dated May 5, 1997 in the amount of $1,000,000 payable to PICO
(collectively, the "Definitive Agreements").
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, PC Quote and PICO hereby agree to amend the Definitive
Agreements as follows:
I. AGREEMENT TO PROVIDE INSURANCE, DATED MAY 5, 1997.
The Agreement to Provide Insurance, dated May 5, 1997, is hereby amended to
add the following sentence immediately before the signature blocks: "Grantor
acknowledges that this Agreement applies to the loan made to Grantor by Lender
on August ___, 1997.
II. DISBURSEMENT REQUEST AND AUTHORIZATION, DATED MAY 5, 1997.
The section entitled "Loan Type" of the Disbursement Request and
Authorization, dated May 5, 1997 is amended to delete "$1,000,000" and insert
"$2,000,000."
III. PROMISSORY NOTE, DATED MAY 5, 1997.
The Promissory Note dated May 5, 1997 is hereby amended to delete all
references to "One Million Dollars" or "$1,000,000" and insert "Two Million
Dollars" or "$2,000,000," respectively.
IV. LOAN AND SECURITY AGREEMENT, DATED MAY 5, 1997.
The Loan and Security Agreement dated May 5, 1997 is hereby amended as
follows:
A. On page 1, in the third line of "RECITALS" delete "$1,000,000" and
insert "$2,000,000."
<PAGE>
B. On page 2, in the first paragraph delete "$1,000,000" and insert
"$2,000,000."
C. On page 7, add the following language at the end of Section 2.5:
"There shall be no Facility Fee owed by Borrower to Lender in
connection with Lender's $1,000,000 loan to Borrower on August
__, 1997."
V. Except as expressly provided herein, all of the terms and provisions of the
Definitive Agreements shall remain in full force and effect.
VI. This Joint Amendment may be executed in a multiple counterparts, each of
which shall be deemed an original and all of which together shall constitute one
and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Joint Amendment as of
the date first written above.
PC QUOTE, INC.
By:
-------------------------------------
Its:
-------------------------------------
PICO HOLDINGS, INC.
By:
------------------------------------
Its:
-----------------------------------
-2-
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Common Stock Warrant
Minimum 500,000 Shares
(subject to adjustment)
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN ACCORDANCE WITH
RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE
HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING
THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Void after April 30, 2000
COMMON STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, PICO HOLDINGS, INC., a
California corporation, is entitled to purchase a minimum of Five Hundred
Thousand (500,000) shares of Common Stock ("Warrant Shares") of PC QUOTE,
INC., a Delaware corporation, at a price per share equal to the mean of the
closing bid price per share for the twenty (20) preceding trading days (or
such fewer number of days as such public market has existed) as reported by
NASDAQ or such national securities exchange as the Common Stock (as defined
below) is traded on, but in no event shall the price be greater than $2.00
per share ("Warrant Price"), subject to adjustments and all other terms and
conditions set forth in this Warrant.
_1. DEFINITIONS. As used herein, the following terms, unless the
context otherwise requires, shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
(b) "Acquisition" shall mean any sale, license, or other
disposition of all or substantially all of the assets of the Company, or any
reorganization, consolidation, or merger of the Company where the holders of
the Company's securities before the transaction beneficially own less than
50% of the outstanding voting securities of the surviving entity after the
transaction.
(c) "Commission" shall mean the Securities and Exchange
Commission, or any other Federal agency at the time administering the Act.
(d) "Common Stock" shall mean shares of the Company's presently or
subsequently authorized Common Stock, and any stock into which such Common
Stock may hereafter be exchanged.
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(e) "Company" shall mean PC QUOTE, INC., a Delaware corporation,
and any corporation which shall succeed to or assume the obligations of PC
QUOTE, INC., under this Warrant.
(f) "Date of Grant" shall mean August 7, 1997.
(g) "Exercise Date" shall mean the effective date of the delivery
of the Notice of Exercise pursuant to Sections 4 and 11 below.
(h) "Holder" shall mean any person who shall at the time be the
registered holder of this Warrant.
(i) "Notes" shall mean (i) the Convertible Subordinated Debenture,
as amended, held by Physicians Insurance of Ohio, and (ii) other indebtedness
of the Company in the aggregate principal amount of up to $2,000,000, owed to
PICO HOLDINGS, INC., which credit shall have been extended concurrently with
the issuance of this Warrant.
(j) "Shares" shall mean shares of the Company's Common Stock, as
described in the Company's Certificate of Incorporation.
2. ISSUANCE OF WARRANT AND CONSIDERATION THEREFOR. This Warrant is
issued in consideration of the loan by PICO HOLDINGS, INC. to the Company as
described in the Notes issued concurrently with this Warrant by the Company.
3. TERM. The purchase right represented by this Warrant is
exercisable only during the period commencing upon the Date of Grant and
ending on April 30, 2000.
4. METHOD OF EXERCISE AND PAYMENT.
(a) METHOD OF EXERCISE. Subject to Section 3 hereof and
compliance with all applicable Federal and state securities laws, the
purchase right represented by this Warrant may be exercised, in whole or in
part and from time to time, by the Holder by (i) surrender of this Warrant
and delivery of the Notice of Exercise (the form of which is attached hereto
as Exhibit A), duly executed, at the principal office of the Company and (ii)
payment to the Company of an amount equal to the product of the then
applicable Warrant Price multiplied by the number of Shares then being
purchased pursuant to one of the payment methods permitted under Section 4(b)
below.
(b) METHOD OF PAYMENT. Payment shall be made either (1) by check
drawn on a United States bank and for United States funds made payable to the
Company, or (2) by wire transfer of United States funds for the account of
the Company.
(c) NET ISSUE EXERCISE. Notwithstanding any provisions herein to
the contrary, in lieu of exercising this Warrant for cash, the Holder may
elect to receive shares equal to the value (as determined below) of this
Warrant (or the portion thereof being canceled) by surrender of this Warrant
at the principal office of the Company together with a properly endorsed
notice
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<PAGE>
of exercise and notice of such election in which event the Company shall
issue to the Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)
---------
A
Where X = the number of shares of Common Stock to be issued to the Holder,
Y = the number of shares of Common Stock purchasableunder the Warrant or,
if only a portion of the Warrant is being exercised, the portion of
the Warrant being canceled (at the date of such calculation),
A = the fair market value of one share of the Company's Common Stock (at
the date of such calculation), and
B = the Warrant Price (as adjusted to the date of such calculation).
For purposes of the above calculation, fair market value of one share of Common
Stock shall be determined by the Company's Board of Directors in good faith;
provided, however, that where there exists a public market for the Company's
Common Stock at the time of such exercise, fair market value shall mean the
average over the preceding twenty trading days (or such fewer number of days as
such public market has existed) of the mean of the closing bid and asked prices
on the over-the-counter market as reported by Nasdaq, or if the Common Stock is
then traded on a national securities exchange or the Nasdaq National Market, the
average over the preceding twenty trading days (or such fewer number of days as
the Common Stock has been so traded) of the closing sale prices on the principal
national securities exchange or the National Market on which it is so traded.
(d) DELIVERY OF CERTIFICATE. In the event of any exercise of the
purchase right represented by this Warrant, certificates for the Shares so
purchased shall be delivered to the Holder within ten days of delivery of the
Notice of Exercise and, unless this Warrant has been fully exercised or has
expired, a new warrant representing the portion of the Shares with respect to
which this Warrant shall not then have been exercised shall also be issued to
the Holder within such ten day period.
(e) NO FRACTIONAL SHARES. No fractional shares shall be issued in
connection with any exercise hereunder, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the fair market
value per Share as of the date of exercise.
(f) COMPANY'S REPRESENTATIONS.
(i) All Shares which may be issued upon the exercise of the
purchase right represented by this Warrant shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer under applicable federal
and state securities laws. During the period within which the purchase right
represented by this Warrant may be exercised, the Company shall at all times use
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<PAGE>
its best efforts to have authorized, and reserved for the purpose of issuance
upon exercise of the purchase right represented by this Warrant, a sufficient
number of Shares to provide for the exercise of the purchase right represented
by this Warrant;
(ii) This Warrant has been duly authorized and executed by the
Company and is a valid and binding obligation of the Company enforceable in
accordance with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting the
enforcement of creditors' rights;
(iii) The execution and delivery of this Warrant are not, and
the issuance of the Shares upon exercise of this Warrant in accordance with the
terms hereof will not be inconsistent with the Company's Certificate of
Incorporation or Bylaws, do not and will not contravene any law, governmental
rule or regulation, judgment or order applicable to the Company, and do not and
will not conflict with or contravene any provision of, or constitute a default
under, any material indenture, mortgage, contract or other instrument of which
the Company is a party or by which it is bound, or require the registration or
filing with or the taking of any action in respect of or by, any federal, state
or local government authority or agency (other than such consents, approvals,
notices, actions, or filings as have already been obtained or made, as the case
may be).
5. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF SHARES. The number of
securities issuable upon the exercise of this Warrant and the Warrant Price
shall be subject to adjustment from time to time upon the occurrence of certain
events, as follows:
(a) ADJUSTMENT FOR DIVIDENDS IN STOCK. In case at any time or from
time to time on or after the date hereof the holders of the Common Stock of the
Company (or any shares of stock or other securities at the time receivable upon
the exercise of this Warrant) shall have received or, on or after the record
date fixed for the determination of eligible stockholders, shall have become
entitled to receive, without payment therefor, other or additional stock of the
Company by way of dividend then, and in each case, the Holder of this Warrant
shall, upon the exercise hereof, be entitled to receive, in addition to the
number of shares of Common Stock receivable thereupon, and without payment of
any additional consideration therefor, the amount of such other or additional
stock of the Company which such Holder would hold on the date of such exercise
had it been the holder of record of such Common Stock on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock receivable
by it as aforesaid during such period, giving effect to all adjustments called
for during such period by paragraphs (b) and (c) of this Section 5.
(b) ADJUSTMENT FOR RECLASSIFICATION OR REORGANIZATION. In case of
any reclassification or change of the outstanding securities of the Company or
of any consolidation, merger or reorganization of the Company on or after the
date hereof, then and in each such case the Holder of this Warrant, upon the
exercise hereof at any time after the consummation of such reclassification,
change, consolidation, merger or reorganization, shall be entitled to receive,
in lieu of or in addition to the stock or other securities and property
receivable upon the exercise hereof prior to such consummation, the stock or
other securities to which such Holder would
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<PAGE>
have been entitled upon such consummation if such Holder had exercised this
Warrant immediately prior thereto, all subject to further adjustment as
provided in subparagraphs (a) and (c); in each such case, the terms of this
Paragraph 5 shall be applicable to the shares of stock or other securities
property receivable upon the exercise of this Warrant after such consummation.
(c) STOCK SPLITS AND REVERSE STOCK SPLITS. If, at any time on or
after the date hereof, the Company shall subdivide its outstanding shares of
Common Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision shall thereby be proportionately reduced
and the number of shares receivable upon exercise of this Warrant shall thereby
be proportionately increased; and, conversely, if at any time on or after the
date hereof the outstanding number of shares of Common Stock shall be combined
into a smaller number of shares, the Warrant Price in effect immediately prior
to such combination shall thereby be proportionately increased and the number of
shares receivable upon exercise of the Warrant shall be proportionately
decreased.
(d) RIGHTS, OPTIONS OR WARRANTS. If the Company issues rights,
options or warrants to all holders of its shares of Common Stock, without any
charge to such holders, entitling them (for a period expiring within 45 days
after the record date mentioned below in this paragraph (d)) to subscribe for or
to purchase shares of Common Stock at a price per share lower than the then
current market price per share of Common Stock at the record date mentioned
below (as defined in paragraph (f) below), the number of Shares thereafter
purchasable upon exercise of each Warrant shall be determined by multiplying the
number of Shares theretofore purchasable upon exercise of each Warrant by a
fraction, of which the numerator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered for subscription or purchase, and of which the denominator shall
be the number of shares of Common Stock outstanding on such record date plus the
number of shares which the aggregate offering price of the total number of
shares of Common Stock so offered would purchase at the then current market
price per share of Common Stock. Such adjustment shall be made whenever such
rights, options or warrants are issued, and shall become effective retroactively
to immediately after the record date for the determination of stockholders
entitled to receive such rights, options or warrants.
(e) OTHER DISTRIBUTIONS. If the Company distributes to all holders
of its shares of Common Stock shares of stock other than Common Stock or
evidences of its indebtedness or assets (excluding cash dividends payable out of
consolidated earnings or retained earnings and dividends or distributions
referred to in paragraph (a) above) or rights, options or warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding those referenced in paragraph (2)
above), then in each case the number of Shares thereafter issuable upon the
exercise of each warrant shall be determined by multiplying the number of Shares
theretofore issuable upon the exercise of each Warrant, by a fraction, of which
the numerator shall be the current market price per share of Common Stock (as
defined in paragraph (f) below) on the record date mentioned below in this
paragraph (e), and of which the denominator shall be the current market price
per share of Common Stock on such record date, less the then fair value (as
determined in good faith by the Board of Directors of the Company, whose
determination shall be conclusive) of the portion of the shares of stock
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<PAGE>
other than the Common Stock or assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made,
and shall become effective on the date of distribution retroactive to
immediately after the record date for the determination of stockholders
entitled to receive such distribution.
(f) CURRENT MARKET PRICE. For the purposes of any computation
under paragraphs (d) and (c) of this Section 5, the current market price per
share of Common Stock at any date shall be the average of the daily closing
prices for fifteen consecutive trading days commencing twenty trading days
before the date of such computation. The closing price for each day shall be
the closing sale price or in case no such reported sale takes place on such
day, the average of the closing bid and asked prices for such day, in either
case on the principal national securities exchange or the Nasdaq National
Market on which the shares are listed or admitted to trading, or if they are
not listed or admitted to trading on any national securities exchange or the
Nasdaq National Market, but are traded in the over-the-counter market, the
average of the representative closing bid and asked quotations for the Common
Stock, on the NASDAQ system or any comparable system, or if the Common Stock
or, in case no sale is publicly reported, the average of the closing bid and
asked prices as furnished by two members of the NASD selected from time to
time by the Company for that purpose.
(g) ADJUSTMENTS TO WARRANT PRICE. Whenever the number of Shares
purchasable upon exercise of each Warrant is adjusted, as herein provided,
the Warrant Price shall be adjusted by multiplying the Exercise Price in
effect immediately prior to such adjustment by a fraction, of which the
numerator shall be the number of Shares purchasable upon the exercise of each
Warrant immediately prior to such adjustment, and of which the denominator
shall be the number of Shares so purchasable immediately thereafter.
(h) CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish the Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish the Holder a
certificate setting forth the Warrant Price in effect upon the date thereof and
the series of adjustments leading to such Warrant Price.
6. ACQUISITIONS
(a) ASSUMPTION OF WARRANT. If upon the closing of any Acquisition
the successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing.
(b) NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and the Holder
has not otherwise exercised this Warrant in full, then the unexercised portion
of this Warrant shall be deemed to have been
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<PAGE>
automatically converted pursuant to Section 4(c) and thereafter the Holder
shall participate in the acquisition on the same terms as other holders of
the same class of securities of the Company.
(c) PURCHASE RIGHT. Notwithstanding the foregoing, at the election
of the Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to
(a) the fair market value of any consideration that would have been received by
the Holder in consideration of the Shares had the Holder exercised the
unexercised portion of this Warrant immediately before the record date for
determining the stockholders entitled to participate in the proceeds of the
Acquisition, less (b) the aggregate Warrant Price of the Shares, but in no event
less than zero.
7. NOTICES; INFORMATION; REGISTRATION.
(a) NOTICE OF CERTAIN EVENTS. If the Company proposes at any time
(a) to declare any dividend or distribution upon its Common Stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class
or series of its stock any additional shares of stock of any class or series
or other rights; (c) to effect any reclassification or recapitalization of
Common Stock; (d) to merge or consolidate with or into any other corporation,
or sell, lease, license, or convey all or substantially all of its assets, or
to liquidate, dissolve or wind up; or (e) offer holders of registration
rights the opportunity to participate in an underwritten public offering of
the company's securities for cash, then, in connection with each such event,
the Company shall give the Holder (1) at least 20 days prior written notice
of the date on which a record will be taken for such dividend, distribution,
or subscription rights (and specifying the date on which the holders of
Common Stock will be entitled thereto) or in respect of the matters referred
to in (c) and (d) above for determining rights to vote, if any; (2) in the
case of the matters referred to in (c) and (d) above at least 20 days prior
written notice of the date when the same will take place (and specifying the
date on which the holders of Common Stock will be entitled to exchange their
Common Stock for securities or other property deliverable upon the occurrence
of such event); and (3) in the case of the matter referred to in (e) above,
the same notice as is given to the holders of such registration rights.
(b) INFORMATION RIGHTS. So long as the Holder holds this Warrant
and/or any of the Shares, the Company shall deliver to the Holder (a)
promptly after mailing, copies of all notices or other written communications
to the stockholders of the Company, (b) within ninety days after the end of
each fiscal year of the Company, the annual audited financial statements of
the Company audited by independent public accountants of recognized standing
and (c) within forty-five days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
(c) REGISTRATION UNDER SECURITIES ACT OF 1933. The Company agrees
that the Shares shall be subject to the registration rights set forth on
Exhibit B.
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8. COMPLIANCE WITH ACT; TRANSFERABILITY AND NEGOTIABILITY OF WARRANT;
DISPOSITION OF SHARES.
(a) COMPLIANCE WITH ACT. The Holder, by acceptance hereof, agrees
that this Warrant and the Shares to be issued upon the exercise hereof are
being acquired solely for its own account and not as a nominee for any other
party and not with a view toward the resale or distribution thereof and that
it will not offer, sell or otherwise dispose of this Warrant or any Shares to
be issued upon the exercise hereof except under circumstances which will not
result in a violation of the Act. This Warrant and the Shares to be issued
upon the exercise hereof (unless registered under the Act) shall be imprinted
with a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS MADE IN
ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
In addition, this Warrant and the Shares to be issued upon the exercise hereof
shall bear any legends required by the securities laws of any applicable states.
(b) TRANSFERABILITY AND NEGOTIABILITY OF WARRANT. This Warrant
may not be transferred or assigned in whole or in part without compliance
with all applicable federal and state securities laws by the transferor and
the transferee (including the delivery of investment representation letters
and legal opinions satisfactory to the Company, if requested by the Company
and the transfer is to a person other than a general partner or affiliate of
the initial Holder). Subject to the provisions of this Warrant with respect
to compliance with the Act, title to this Warrant may be transferred by
endorsement and delivery in the same manner as a negotiable instrument
transferable by endorsement and delivery. The Company shall act promptly to
record transfers of this Warrant on its books, but the Company may treat the
registered holder of this Warrant as the absolute owner of this Warrant for
all purposes, notwithstanding any notice to the contrary.
(c) DISPOSITION OF SHARES. With respect to any offer, sale,
transfer or other disposition of any Shares acquired pursuant to the exercise
of this Warrant prior to registration of such Shares, except for any such
offer, sale, transfer or other disposition of Shares to an affiliate of the
initial Holder, the Holder and each subsequent holder of this Warrant agrees
to give written notice to the Company prior thereto, describing briefly the
manner thereof, and if such transfer is not pursuant to Rule 144, a written
opinion of legal counsel for such holder, if requested by the Company, to the
effect that such offer, sale or other disposition may be effected
8
<PAGE>
without registration or qualification of such Shares. Notwithstanding the
foregoing, such Shares may be offered, sold or otherwise disposed of in
accordance with Rule 144, provided that the Company shall have been furnished
with such information as the Company may reasonably request to provide a
reasonable assurance that the provisions of Rule 144 have been satisfied.
Each certificate representing the Shares thus transferred (except a transfer
pursuant to Rule 144) shall bear a restrictive legend as to the applicable
restrictions on transferability in order to insure compliance with the Act,
unless in the aforesaid opinion of legal counsel for the holder, such legend
is not required in order to insure compliance with the Act.
9. RIGHTS OF STOCKHOLDERS. No Holder shall be entitled to vote or
receive dividends or be deemed the holder of Shares or any other securities
of the Company which may at any time be issuable on the exercise of this
Warrant for any purpose, nor shall anything contained herein be construed to
confer upon the Holder, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold
consent to any corporate action (whether upon any recapitalization, issuance
of stock, reclassification of stock, consolidation, merger, transfer of
assets or otherwise) or, except as expressly required herein, to receive
notice of meetings, or to receive dividends or subscription rights or
otherwise until this Warrant shall have been exercised and the Shares
issuable upon exercise hereof shall have become deliverable, as provided
herein.
10. REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of
an indemnity agreement reasonably satisfactory in form and amount to the
Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of
this Warrant, a new warrant of like tenor.
11. EXCHANGE OF WARRANT. Subject to the other provisions of this Warrant,
on surrender of this Warrant for exchange, and subject to the provisions of this
Warrant with respect to compliance with the Act, the Company at its expense
shall issue to or on the order of the Holder a new warrant or warrants of like
tenor, in the name of the Holder or as the Holder (on payment by the Holder of
any applicable transfer taxes) may direct, for the number of Shares issuable
upon exercise thereof.
12. NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such Holder from time
to time.
13. WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
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14. GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. TITLES AND SUBTITLES; FORMS OF PRONOUNS. The titles of the Sections
and Subsections of this Warrant are for convenience only and are not to be
considered in construing this Warrant. All pronouns used in this Warrant shall
be deemed to include masculine, feminine and neuter forms.
16. ATTORNEYS' FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
Dated: August , 1997. PC QUOTE, INC., a Delaware corporation
-----
By:
-----------------------------------
, President
By:
-----------------------------------
, Secretary
10
<PAGE>
EXHIBIT A
NOTICE OF EXERCISE
TO: PC QUOTE, INC.
1. The undersigned Holder of the attached Common Stock Purchase
Warrant hereby elects to exercise its purchase right under such Warrant with
respect to ________________ Shares, as defined in the Warrant.
2. The undersigned Holder elects to pay the aggregate Warrant Price
for such Shares (the "Exercise Shares") in the following manner:
[ ] by the enclosed check drawn on a United States bank and for
United States funds made payable to the Company in the amount of
$_____________;
[ ] by wire transfer of United States funds to the account of the
Company in the amount of $___________, which transfer has been
made before or simultaneously with the delivery of this Notice
pursuant to the instructions of the Company; or
[ ] pursuant to the Net Exercise provisions set forth in Section 4(c)
of the Warrant.
3. Please issue a stock certificate or certificates representing the
appropriate number of Shares in the name of the undersigned or in such other
names as is specified below:
Name: _____________________________________
Address: __________________________________
___________________________________________
Tax Ident. No.: ___________________________
HOLDER:
__________________________________
By: ______________________________
Date:_____________________ Title: ___________________________
11
<PAGE>
EXHIBIT B
STATEMENT OF REGISTRATION RIGHTS
1. DEFINITIONS. For purpose of the Warrant to which this Statement of
Registration Rights is attached as Exhibit B:
(a) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the Securities Act of 1933, as amended
(the "Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means the shares of Common
Stock issued or issuable upon exercise of the Warrant;
(c) The term "Holder" means the original holder of the Warrant and
any transferee of the Warrant; and
(d) The term "Warrant" means the original Warrants issued in
connection with the Company's initial public offering and all Warrants issued
as a result of the transfer of such original Warrants.
2. COMPANY REGISTRATION. If (but without any obligation to do so) the
Company proposes at any time before April 30, 2000 to register (including for
this purpose a registration effected by the Company for stockholders other
than Holder) any of its stock or other securities under the Act in connection
with the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give Holder written notice of such
registration. Upon the written request of Holder given within twenty days
after mailing of such notice by the Company, the Company shall, subject to
the provisions of Section 8 hereof and Section 5 of the Warrant, cause to be
registered under the Act all of the Registrable Securities that each such
Holder has requested to be registered.
3. DEMAND REGISTRATION. In case the Company shall, at any time before
April 30, 2000, receive from Holders holding 40% or more of the outstanding
Registrable Securities a written request (to be exercised only once) that the
Company effect a registration and any related qualification or compliance with
respect to all or a part of the Registrable Securities (which registration shall
at the election of Holder either be for a registration for a primary issuance of
the Shares upon the exercise of the Warrant or the resale of the Shares
previously issued upon exercise of the Warrant at the election of Holder) owned
by such Holder, the Company will promptly notify each other Holder (if any) of
such request and will:
12
<PAGE>
(a) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of a Holder's
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other holder of
registration rights joining in such request as are specified in a written
request given within 20 days after receipt of such written notice from the
Company; PROVIDED, HOWEVER, that the Company shall not be obligated to effect
any such registration, qualification or compliance, pursuant to this Section
3: (1) if the Company has effected a registration of Registrable Securities
pursuant to this Section 3 within the preceding 12 months; (2) if the Company
shall furnish to Holder a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its
stockholders for such registration to be effected at such time, in which
event the Company shall have the right to defer the filing of the
registration statement for a period of not more than 60 days after receipt of
the request of Holder under this Section 3; PROVIDED, HOWEVER, that the
Company shall not utilize this right more than once in any twelve-month
period; or (3) in any jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process
in effecting such registration, qualification or compliance; and,
(b) subject to the foregoing, file a registration statement
covering the Registrable Securities and other securities so requested to be
registered promptly after receipt of the request or requests of Holder, and
in any event within 30 days of receipt of such request.
4. OBLIGATION OF THE COMPANY. Subject to the terms of the Warrant, in
the event that the Company is to effect the registration of any Registrable
Securities pursuant to Section 2 or 3 hereof, the Company shall promptly:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the
holders of a majority of the securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days, or
such shorter period as is required to dispose of all securities covered by
such registration statement.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the provisions
of the Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to Holder such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of
the Act, and such other documents as Holder may reasonably request in order
to facilitate the disposition of Registrable Securities owned by Holder.
13
<PAGE>
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue
Sky laws of such jurisdictions as shall be reasonably requested by Holder,
provided that the Company shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions or to agree to any
restrictions as to the conduct of its business in the ordinary course thereof.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Holder shall
also enter into and perform its obligations under such underwriting agreement.
(f) Notify Holder at any time when a prospectus relating to
Registrable Securities of Holder covered by such registration statement is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under
which they were made.
(g) Furnish, at the request of Holder, on the date that such
Registrable Securities are delivered to the underwriters for sale in
connection with a registration pursuant to the Warrant, if such securities
are being sold through underwriters, or, if such securities are not being
sold through underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an opinion, dated such
date, of counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters
in an underwritten public offering, addressed to the underwriters, if any,
and to Holder and (ii) a letter dated such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any,
and to Holder.
5. AVAILABILITY OF RULE 144. Notwithstanding anything in the Warrant
or this Statement of Registration Rights to the contrary, the Company shall
not be obligated to effect any such registration, qualification or
compliance, pursuant to Section 2 or 3, if application of Rule 144 would
allow Holder requesting a registration under Section 2 or 3 to dispose of the
Registrable Securities for which a registration is demanded within a single
90-day period.
6. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to the Warrant that
the selling Holder shall furnish to the Company such information regarding
itself, the Registrable Securities held by Holder, and the intended method of
disposition of such securities as shall be required to effect the
registration of their Registrable Securities.
14
<PAGE>
7. EXPENSES. The Company shall bear and pay all expenses (other than
underwriting discounts and commissions) incurred in connection with any
registration, filing or qualification of Registrable Securities, including
(without limitation) all registration, filing, and qualification fees, legal,
printers and accounting fees relating thereto, and the cost of any reasonable
fees or disbursements of counsel for Holder.
8. UNDERWRITING REQUIREMENTS. In connection with any registrations in
which Registrable Securities have a right to be included pursuant to Section
2 hereof and which involves an underwriting of securities being issued by the
Company, the Company shall not be required, under Section 2 hereof, to
include any of Holder's securities in such underwriting unless Holder accepts
the terms of the underwriting as agreed upon between the Company and the
underwriters selected by it, and then only in such quantity as will not, in
the opinion of the underwriters, jeopardize the success of the offering by
the Company. If the total amount of securities, including Registrable
Securities, requested by stockholders to be included in such offering exceeds
the amount of securities sold other than by the Company that the underwriters
reasonably believe compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters believe
will not jeopardize the success of the offering, the securities so included
to be apportioned pro rata among the selling Holder and other shareholders
holding contractual registration rights according to the total amount of
securities entitled to be included therein owned by each selling stockholder
or in such other proportions as shall mutually be agreed to by Holder and
each other selling stockholder.
9. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement filed by the Company:
(a) The Company will indemnify and holder harmless Holder, its
officers, directors, and agents, any underwriter (as defined in the Act) for
Holder and each person, if any, who controls Holder or underwriter within the
meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) asserted by a third party to which they may become subject under the
Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereof) arise out of
or are based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (iii) any violation or
alleged violation of the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934
Act or any state securities law; and the Company will reimburse Holder, any
of its officers or directors, underwriter or controlling person for any legal
or other expenses reasonably incurred by them, as incurred, in connection
with investigating or defending any such loss, claim, damage, liability, or
action; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 9(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Company (which consent shall not be unreasonably withheld),
15
<PAGE>
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability, or action to the extent that it arises out of or is based
upon a Violation which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such registration
by such Holder, underwriter or controlling person.
(b) Holder will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company with the meaning of
the Act, any underwriter and any other shareholder selling securities in such
registration statement or any of its directors or officers or any person who
controls such shareholder, against any losses, claims, damages, or
liabilities (joint or several) asserted by a third party to which the Company
or any such director, officer, controlling person, or underwriter or
controlling person, or other such shareholder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written information furnished
by Holder expressly for use in connection with such registration; and Holder
will reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer, controlling person, underwriter or controlling
person, other shareholder, officer, director, or controlling person, as
incurred, in connection with investigating or defending any such loss, claim,
damage, liability, or action; PROVIDED, HOWEVER, that the obligations of
Holder hereunder shall be limited to an amount equal to the net proceeds
(equal to the offering price less the exercise price, expenses and
underwriting commissions and discounts) to such Holder of Shares sold as
contemplated herein. Notwithstanding the foregoing, the indemnity agreement
contained in this Section 9(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of Holder, which consent shall not be
unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying part under this Section 9,
deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party shall have the right to retain its own counsel, with the
fees and expenses to be paid by the indemnifying party, if representation of
such indemnified party by the counsel retained by the indemnifying party
would be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in
such proceeding. The failure to deliver written notice to the indemnifying
party within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 9, but the omission so to deliver written notice to the indemnifying
party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 9.
16
<PAGE>
10. REPORTS UNDER THE 1934 ACT. With a view to making available to
Holder the benefits of Rule 144 promulgated under the Act and any other rule
or regulation of the SEC that may at any time permit Holder to sell
securities of the Company to the public without registration the Company will
endeavor to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144;
(b) take such action as is necessary to enable Holder to utilize
an abbreviated registration statement for the sale of its Registrable
Securities;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to Holder, so long as Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company
that it has complied with the reporting requirements of SEC Rule 144, the Act
and the 1934 Act, or that it qualifies as a registrant whose securities may
be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a
copy of the most recent annual or quarterly report of the Company and such
other reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing Holder of any rule or
regulation of the SEC which permits the selling of any such securities
without registration or pursuant to such form.
11. ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to the Warrant may be assigned by
Holder to a permitted transferee or assignee of the Warrant or of at least
400,000 Shares, provided the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Act.
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 258,709
<SECURITIES> 0
<RECEIVABLES> 1,018,067
<ALLOWANCES> 300,000
<INVENTORY> 0
<CURRENT-ASSETS> 1,444,072
<PP&E> 10,698,208
<DEPRECIATION> 8,355,849
<TOTAL-ASSETS> 9,310,590
<CURRENT-LIABILITIES> 7,590,623
<BONDS> 950,000
0
0
<COMMON> 7,365
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<TOTAL-LIABILITY-AND-EQUITY> 9,310,590
<SALES> 8,226,404
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<INCOME-TAX> 0
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<NET-INCOME> (6,086,276)
<EPS-PRIMARY> (0.83)
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