<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PC QUOTE, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
-----------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
-----------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
-----------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
-----------------------------------------------------------------------
(5) Total fee paid:
-----------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-----------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-----------------------------------------------------------------------
(3) Filing Party:
-----------------------------------------------------------------------
(4) Date Filed:
-----------------------------------------------------------------------
<PAGE>
[LOGO]
300 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
NOTICE OF SPECIAL MEETING
OF STOCKHOLDERS TO BE HELD ON
DECEMBER 15, 1998
- ---------------------
TO THE STOCKHOLDERS OF
PC QUOTE, INC.:
A Special Meeting of Stockholders of PC Quote, Inc., a Delaware corporation,
will be held on December 15, 1998 at 3:00 p.m. at 225 West Wacker Drive, 30th
Floor, Chicago, Illinois, for the following purposes:
1. To consider and vote upon a proposal to approve the conversion of $6.7
million of debt owed to PICO Holdings, Inc. and Physicians Insurance Company of
Ohio into equity in the form of convertible preferred stock of PC Quote, Inc.
which would be convertible into a minimum of 4.8 million shares of common stock
of PC Quote, Inc. and a warrant to purchase a minimum of 3.1 million common
shares, which together represent 59% of the current shares outstanding and 37%
of the shares outstanding after conversion and exercise, and approve the
Securities Purchase Agreement made as of the 23rd day of September, 1998, by and
among PC Quote, Inc., PICO Holdings, Inc. and Physicians Insurance Company of
Ohio and the transactions contemplated thereunder.
2. To transact such other business as may properly come before the meeting.
Only stockholders of record at the close of business on November 10, 1998 are
entitled to notice of, and to vote at, the special meeting and at any
adjournment thereof.
By order of the Board of Directors
/s/ John E. Juska
------------------------------------------------------------------
JOHN E. JUSKA
CHIEF FINANCIAL OFFICER AND
CORPORATE SECRETARY
Chicago, Illinois
November 13, 1998
<PAGE>
[LOGO]
300 SOUTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
- ------------------------------------------------------
PROXY STATEMENT
The enclosed proxy is solicited on behalf of the Board of Directors of PC Quote,
Inc. (the "Company"), for use at a Special Meeting of Stockholders of the
Company, to be held December 15, 1998 at 3:00 p.m. at 225 West Wacker Drive,
30th Floor, Chicago, Illinois. In addition to solicitation of proxies by mail,
proxies may be solicited by the Company's directors, officers and regular
employees by personal interview, telephone or telegram, and the Company will
request brokers and other fiduciaries to forward proxy soliciting material to
the beneficial owners of shares which are held of record by them. The expense of
all such solicitation, including printing and mailing, will be paid by the
Company. Any proxy may be revoked at any time before its exercise, by written
notice to the Secretary of the Company or by attending the meeting and electing
to vote in person. This Proxy Statement and the accompanying proxy were
initially mailed to stockholders on or about November 13, 1998.
Only stockholders of the Company of record at the close of business on November
10, 1998 are entitled to vote at the meeting or any adjournment thereof. As of
that date there were outstanding 13,359,462 shares of common stock of the
Company ("Common Stock"), each of which is entitled to one vote on all matters
voted upon at the special meeting. A majority of the outstanding shares of
Common Stock, represented in person or by proxy, shall constitute a quorum at
the meeting. Any proxy may be revoked at any time before its exercise, by
written notice to the Secretary of the Company or by attending the meeting and
electing to vote in person.
Approval of the proposal to consummate the transactions contemplated by the
Securities Purchase Agreement shall be by the affirmative vote of a majority of
the outstanding shares of Common Stock. PICO Holdings, Inc. and its affiliates
(collectively "Holdings"), currently own 2,370,000 shares of Common Stock,
constituting 17.7% of the Company's outstanding shares of Common Stock (the
"Record Shares"). Holdings also holds currently exercisable warrants to purchase
an additional 949,032 shares of Common Stock (the "Warrant Shares") at the
prices set forth under the section of this Proxy Statement entitled "APPROVAL OF
DEBT RECAPITALIZATION AND SECURITIES PURCHASE
AGREEMENT - Background on Debt Recapitalization." Holdings has advised the
Company that it intends to vote all the Record Shares, and any of the Warrant
Shares or any other shares of Common Stock acquired by PICO prior to the record
date, for the proposal.
In determining whether a quorum exists at the meeting for purposes of all
matters to be voted on, all votes "for" or "against," as well as all abstentions
(including votes to withhold authority to vote in certain cases), with respect
to the proposal receiving the most such votes, will be counted. Abstentions with
respect to a particular proposal will be counted as part of the base number of
votes to be used in determining if that particular proposal has received the
requisite percentage of base votes for approval, while broker non-votes will not
be counted in such base for such proposal. Thus, an abstention will have the
same effect as a vote "against" such proposal while a broker non-vote will have
no effect.
1
<PAGE>
APPROVAL OF DEBT RECAPITALIZATION
AND SECURITIES PURCHASE AGREEMENT
BACKGROUND ON DEBT RECAPITALIZATION
On November 14, 1996, the Company entered into an agreement (the "Debenture
Agreement") with Physicians Insurance Company of Ohio ("Physicians"), which then
owned approximately 30% of the outstanding shares of Common Stock. Pursuant to
the Debenture Agreement, Physicians 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. Interest is
payable semiannually, beginning January 1, 1998. Physicians made the investment
and the Debenture was issued on December 2, 1996. The Debenture was to mature on
December 31, 2001 and was convertible at any time by Physicians into 1.25
million shares of Common Stock (subject to adjustment in certain cases).
The Debenture Agreement also provided that the Company shall have a five member
Board of Directors (the "Board"), and that Ronald Langley, Chairman and director
of PICO Holdings, Inc. ("PICO") and director of Physicians, and John Hart,
director, President and Chief Executive Officer of PICO and President and Chief
Executive Officer of Physicians, shall be members of the Board.
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 was 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 was also
entitled to be paid a "facility fee" of $40,000 on the maturity date of the loan
contemplated by the Loan Agreement.
In connection with the Loan Agreement, the Company and Physicians 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 was moved up to April 30, 1999
instead of December 31, 2001; (b) the Debenture may not be prepaid or redeemed
without the consent of Physicians; (c) the conversion rate on the Debenture was
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 shares of 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 as determined by the Company and at a
price as determined by Physicians. Interest under the Debenture will continue to
be payable in cash or, at the option of Physicians, in shares of 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 "Initial Warrant") to PICO
entitling PICO to purchase a minimum of 640,000 shares of 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
Initial Warrant or (b) $1.5625 per share (the market value of the shares of
Common Stock on the date the Initial Warrant was issued).
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 Common Stock.
The terms of the additional
2
<PAGE>
warrant are substantially the same as those contained in the Initial 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.
On September 22, 1997 the Company and PICO executed a second amendment to the
Loan Agreement to further increase the amount of the secured loan from PICO to
the Company from $2.0 million to $2.25 million. The terms of the Loan Agreement
otherwise remained substantially the same, except that the maturity date was
extended to December 31, 1997. In consideration of the amendment to the Loan
Agreement, the Company granted PICO another Common Stock Purchase Warrant for up
to 129,032 shares of Common Stock. The terms of such warrant are substantially
the same as contained in the Initial Warrant, except that the conversion price
is the lesser of (a) $1.9375 per share or (b) the mean of the closing bid price
per share for the 20 trading days preceding exercise of this warrant.
On December 30, 1997, February 5, 1998, March 10, 1998, May 5, 1998 and June 1,
1998, the Company and PICO executed the third, fourth, fifth, sixth, and seventh
amendments to the Loan Agreement, respectively, extending the due date for
borrowings by the Company, plus accrued interest, to January 31, 1998, February
28, 1998, April 30, 1998, May 31, 1998 and August 31, 1998, respectively. No
further warrants were issued in connection with the third, fourth, fifth, sixth,
or seventh amendments to the loan agreement.
On May 19, 1998, PICO exercised a portion of the Initial Warrant and purchased
320,000 shares of Common Stock for $500,000.
On July 24, 1998, the Company and PICO executed the eighth amendment to the Loan
Agreement to extend the due date for the borrowings by the Company, plus the
accrued interest, from August 31, 1998 to December 31, 1998.
On July 31, 1998, the Company and PICO executed the ninth amendment to the Loan
Agreement to further increase the amount of the secured loan from PICO to the
Company from $2.25 million to $3.25 million. No further warrants were issued in
connection with the eighth or ninth amendments.
As previously reported in the Company's 10-K and 10-Q filings with the
Securities and Exchange Commission, due to the decline in cash flow from
operating activities, to levels expected to be insufficient for working capital,
capital expenditures, and debt services, the Company has been exploring multiple
alternatives to raise capital. Such alternatives include refinancing existing
debt, a merger, a spin-off or sale of part of the Company's business, a
strategic relationship or joint venture with another technology or financial
service firm or other financing to further fund the Company's business. Any
capital raised may be costly to the Company and/or dilutive to stockholders.
On August 11, 1998, a majority of the disinterested directors Jim R. Porter and
Timothy K. Krauskopf, (Louis J. Morgan was out of the country and did not
participate in the meeting) of the Board came to an initial agreement and
approved terms, subject to final documentation, for the recapitalization or
conversion of all debt (principal and accrued interest) owed to PICO and
Physicians into convertible preferred equity of the Company.
On September 21, 1998 a majority of the disinterested directors Jim R. Porter
and Timothy K. Krauskopf, (Louis J. Morgan was out of the country and did not
participate in the meeting) of the Board approved the final terms of the debt
recapitalization and authorized the execution of the Securities Purchase
Agreement (the "Agreement"), which includes, as a condition to closing,
stockholder approval of the transactions contemplated by the Agreement.
Concurrently with the execution of the Agreement, the Company and Physicians
entered into the Second Amendment to the Debenture and Debenture Agreement to
revise the conversion language therein in order to make it consistent with the
Agreement.
3
<PAGE>
SECURITIES PURCHASE AGREEMENT
The following is a summary of the Agreement and the Certificate of Designations,
Warrant Amendments and Common Stock Purchase Warrant and is qualified in its
entirety by reference to the Securities Purchase Agreement, Certificate of
Designations, Common Stock Purchase Warrant, Warrant Amendments, and
Registration Rights Agreement filed as exhibits to the Company's Form 8-K as
filed with the Securities and Exchange Commission on October 6, 1998. Copies of
the documents may be obtained free of charge by written request to the Company's
Corporate Secretary or by accessing the EDGAR SEC filings via the world wide
web.
On September 23, 1998, PC Quote, Inc. (the "Company") entered into a Securities
Purchase Agreement (the "Agreement"), subject to stockholder approval, with PICO
Holdings, Inc., a California corporation ("PICO") and Physicians Insurance
Company of Ohio, an Ohio corporation ("Physicians," and together with PICO, the
"Investors").
Physicians currently is the holder of a Subordinated Convertible Debenture dated
November 14, 1996, as amended (the "Debenture"), in the principal amount of
$2,500,000, plus accrued interest in the amount of $423,123 as of September
23,1998, plus interest accruing at the rate of $651 per day thereafter (such
principal and all accrued interest through the Closing Date, the "Debenture
Balance"). The Debenture currently has an interest rate of 9.5% (prime + 1%) and
a maturity date of April 30, 1999.
The Company is currently indebted to PICO in the principal amount of $3,290,000,
plus accrued interest in the amount of $377,742 as of September 23, 1998, plus
interest accruing at the rate of $1,262 per day following the date hereof (such
principal and all accrued interest through the Closing Date, the "PICO
Indebtedness"). All principal and interest (14% annually) on the debt to PICO is
currently due and payable on December 31, 1998.
PICO is the holder of three Common Stock Purchase Warrants to purchase an
aggregate of 949,032 shares of Common Stock (the "Existing Warrants"), each of
which currently expires on April 30, 2000.
The Company and the Investors wish to provide for the purchase of Series A 5%
Convertible Preferred Stock by Physicians through the conversion of the
Debenture and for the purchase of Series B 5% Convertible Preferred Stock by
PICO in consideration for the cancellation of the PICO Indebtedness.
PURCHASE AND SALE OF PREFERRED STOCK
Subject to the terms and conditions of the Agreement, Physicians agrees to
purchase at the Closing and the Company agrees to issue to Physicians at the
Closing the number of shares of Series A 5% Convertible Preferred Stock into
which the Debenture Balance shall be convertible as of the Closing determined by
dividing the following by one hundred: the number calculated from the division
of the Debenture Balance by the lowest of the following numbers (i) 1.5625, (ii)
the closing sale price of the shares of Common Stock as reported by the American
Stock Exchange ("AMEX") one day prior to the Closing Date (the "AMEX Closing
Price") or (iii) the average AMEX Closing Price of the shares of Common Stock
over the twenty-day period immediately preceding the Closing Date (the "Average
AMEX Price"). The lowest of (i), (ii) or (iii) above is hereinafter referred to
as the "Series A Closing Price."
Subject to the terms and conditions of the Agreement, PICO agrees to purchase at
the Closing and the Company agrees to sell and issue to PICO at the Closing the
number of shares of Series B 5% Convertible Preferred Stock determined by
dividing the following by one hundred: the number calculated from the division
of the PICO Indebtedness as of the Closing Date by the lower of the following
numbers: (i) 1.3125, (ii) the AMEX Closing Price or (iii) the Average AMEX
Closing Price, at a purchase price per share equal to the lowest of (i), (ii)
and (iii) (the "Series B Closing Price").
4
<PAGE>
Subject to the terms and conditions of the Agreement, the Company shall issue to
PICO a warrant (the "Warrant") to purchase the number of shares of Common Stock
equal to the following (i) the Debenture Balance, divided by the Series B
Closing Price, multiplied by .10, plus (ii) the PICO Indebtedness, divided by
the Series B Closing Price, at an exercise price of 120% of the Series B Closing
Price per share (the "Exercise Price"), and an expiration date of April 30,
2005.
At the Closing, the Company and PICO shall enter into Amendments of the Existing
Warrants to extend the term of the Existing Warrants until April 30, 2005.
The Closing Date shall be the date that is five (5) days from the date of
fulfillment, including obtaining stockholder approval, or waiver of all
conditions to Closing, as set forth in the Agreement, or such other date as may
be mutually agreed to by the Company and the Investors.
NEGATIVE COVENANTS
As part of the Agreement, without the prior written consent of the Investors,
prior to Closing, the Company will not:
a) 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.
b) 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).
c) Issue any capital stock of the Company or other securities convertible
into or exchangeable for capital stock of the Company other than (i)
securities issued pursuant to the Company's Incentive Stock Option Plan or
the Employees Stock Purchase Plan, (ii) capital stock or securities issued
in connection with the exercise or conversion of securities of the Company
issued and outstanding prior to the date hereof or (ii) securities issued,
or to be issued, to Jim R. Porter pursuant to the exercise of options
granted to Mr. Porter prior to the date hereof by the Company's Board of
Directors, to purchase up to 6.88% of the outstanding shares of Common
Stock.
d) 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.
e) 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 to do so, except for an existing blanket lien in favor of
Lakeside Bank on all personal property of the Company and a blanket lien
in favor of PICO, on all personal property of the Company.
f) Pay any dividends or make any other distribution or payment on account of
or in redemption, retirement or purchase of any capital stock.
g) Directly or indirectly acquire or own, or make any investment in or to any
entity, or permit any of its subsidiaries to do so, other than Permitted
Investments (as defined in the Loan and Security Agreement dated May 4,
1997, as amended, between the Company, as borrower, and PICO as lender).
h) 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,
5
<PAGE>
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
non-affiliated party.
i) 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.
j) 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.
LISTING REQUIREMENT
Promptly following the Closing Date, but in no event later than 20 days after
the Closing Date, the Company shall secure the listing of all of the Registrable
Securities (as defined in the Registration Rights Agreement) upon each national
securities exchange and automated quotation system (including the AMEX), if any,
upon which shares of Common Stock are then listed (subject to official notice of
issuance), and shall maintain, so long as any other shares of Common Stock shall
be so listed, such listing of all Registrable Securities from time to time
issuable under the terms of the Agreement and the accompanying Certificate of
Designations, Warrant and Existing Warrants. The Company shall maintain the
Common Stock's authorization for listing on the AMEX, The Nasdaq SmallCap
Market, the Nasdaq National Market, or The New York Stock Exchange, Inc.
("NYSE"), as applicable.
TERMINATION OF AGREEMENT
The Agreement may be terminated on or prior to the Closing Date:
a) At any time by the mutual consent of the Company and the Investors;
b) Following fourteen (14) business days after the date of the Agreement, by
the Investors if the proxy statement soliciting approval from the
stockholders of the Company of the transactions contemplated by the
Agreement has not been filed with the SEC;
c) Following December 31, 1998, by the Investors if the Company has not yet
obtained stockholder approval for the matters contained in the proxy
statement; provided however, that if the proxy statement does not receive
full review by the SEC, the date for termination shall be November 30,
1998;
d) By the Company or the Investors if the other party breaches in any
material respect any of its representations, warranties, covenants,
obligations or agreements contained in the Agreement and such breach has
not been cured within thirty (30) days of the date that notice of breach
is received by the breaching party;
e) On or after December 31, 1998, by either the Company or the Investors if
the Closing has not taken yet place by such date;
f) By the Investors, on or after the date when it becomes reasonably likely
that the Company will be unable to satisfy any of its obligations for
Closing, and by the Company on or after the date when it becomes
reasonably likely that the Investors will be unable to satisfy any of its
obligations for Closing.
FEES AND EXPENSES
The Company shall pay the reasonable fees and expenses incurred by the Investors
in conjunction with the transactions contemplated by the Agreement, including
but not limited to the reasonable fees and expenses of counsel for the
Investors, provided such fees and expenses do not exceed $30,000.
6
<PAGE>
DIVIDENDS
(a) A holder of Series A Preferred shall be entitled to receive cash
dividends, when and as declared by the Board out of funds legally available
for such purpose, in the annual amount of 5% of the per share purchase
price, payable quarterly on the 15th day of September, December, March and
June, in each year. A holder of Series B Preferred shall be entitled to
receive cash dividends, when and as declared by the Board out of funds
legally available for such purpose, in the annual amount of 5% of the per
share purchase price, payable quarterly on the 15th day of September,
December, March and June, in each year. Dividends payable for any period
less than a full quarter shall be computed on and paid for the actual number
of days elapsed. Dividends shall accrue on each share of Preferred Stock
from the date of issue of such share of stock (the "Issuance Date").
(b) No dividends shall be declared on any other series or class or
classes of stock unless there shall be or have been declared on all shares
of Preferred Stock then outstanding the dividends for all quarter-yearly
periods coinciding with or ending before such quarter-yearly period.
Dividends shall be cumulative. No interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment which is in
arrears. If in any quarter-yearly dividend period, dividends in the annual
amount have not been declared and paid or set apart for payment for such
quarter-yearly dividend period and all preceding such periods from the first
day from which dividends are cumulative, then, until the aggregate
deficiency is declared and fully paid or set apart for payment, the
Corporation shall not (i) declare or pay or set apart for payment any
dividends or make any other distribution on any other capital stock or
securities having an equity interest in the Corporation ranking junior to or
on a parity with the Preferred Stock with respect to the payment of
dividends or distribution of assets on liquidation, dissolution or winding
up of the Corporation (the "Secondary Stock") (other than dividends or
distributions paid in shares of, or options, warrants or rights to subscribe
for or purchase Secondary Stock) or (ii) make any payment on account of the
purchase, redemption, other retirement or acquisition of any Secondary Stock
with respect to the payment of dividends or distribution of assets on
liquidation, dissolution or winding up of the Corporation.
CONVERSION OF PREFERRED STOCK
A holder of Preferred Stock shall have the right, at such holder's option, to
convert the Preferred Stock into shares of the Company's common stock, par value
$0.001 per share (the "Common Stock"). If any Preferred Stock remains
outstanding on the fifth anniversary after the Issuance Date, then such
Preferred Stock shall automatically convert to Common Stock on such fifth
anniversary.
At any time or times on or after the Issuance Date, any holder of Preferred
Stock shall be entitled to convert any whole number of shares of Preferred Stock
into fully paid and nonassessable shares (rounded to the nearest whole share).
The number of shares of Common Stock issuable upon conversion of the Preferred
Stock shall be determined by multiplying the product of one hundred (100) and
the number of shares of Preferred Stock to be converted into Common Stock by:
(i) in the case of Series A Preferred, (A) the Series A Closing Price
plus (B) the amount of any accrued but unpaid dividends attributable to such
Preferred Stock, divided by the lower of (X) the Series A Closing Price, (Y)
the average Closing Sale Price of the Common Stock on the AMEX over the
twenty-day period immediately prior to the day the Series A Preferred is to
be converted into Common Stock; or (Z) the Closing Sale Price of the Common
Stock on the AMEX one day prior to the day the Series A Preferred is to be
converted into Common Stock (the "Series A Conversion Rate").
(ii) in the case of Series B Preferred, (A) the Series B Closing Price
plus (B) the amount of any accrued but unpaid dividends attributable to such
Preferred Stock, divided by the lower of (X) the Series B Closing Price, (Y)
the average Closing Sale Price of the Common Stock on the AMEX
7
<PAGE>
over the twenty-day period immediately prior to the day the Series B
Preferred is to be converted into Common Stock; or (Z) the Closing Sale
Price of the Common Stock on the AMEX one day prior to the day the Series B
Preferred is to be converted into Common Stock (the "Series B Conversion
Rate").
In order to prevent dilution of the rights granted, the Series A and Series B
Conversion Rates will be subject to adjustment for issuance of additional
securities of the Company, including common stock, options or convertible
securities, and reclassifications or changes of outstanding securities (by any
stock split, reverse stock split, combination, stock dividend, recapitalization
or otherwise).
VOTING RIGHTS
The holders of Preferred Stock shall be entitled to notice of any stockholders'
meeting and to vote upon any matter submitted to the stockholders for a vote on
the following basis. Each Holder of Preferred Stock shall have the number of
votes equal to the number of shares of Common Stock into which the Preferred
Stock then held by such holder is convertible, as adjusted from time to time.
Holders of Preferred Stock shall have the exclusive right to elect two (2) of
the five (5) directors to the Board of the Company.
WARRANT EXERCISE AND ADJUSTMENTS
The holder of the Warrant shall have the right, at such holder's option, to
exercise the Warrant, or any portion thereof, and to purchase the corresponding
whole number of shares of Common Stock, at the Exercise Price, at any time after
the Issuance Date until April 30, 2005. In lieu of exercising the Warrant for
cash, the holder may elect to receive shares of 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 Common Stock subject
to the Warrant and the Exercise 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
Common Stock exercisable at less than the current market price per share; and
other distributions to all holders of shares of 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 the holder has not fully exercised the Warrant,
the unexercised portion of the Warrant will be deemed automatically converted
into shares of Common Stock at the Conversion Value. Alternatively, the holder
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 the holder
exercised the unexercised portion of the Warrant immediately before the record
date for determining stockholders entitled to participate in the proceeds of the
Acquisition, less (b) the aggregate Exercise Price.
8
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at June 30,
1998 and the pro forma capitalization of the Company at that date after giving
effect to the additional $1.0 million borrowed on the credit facility on July
31, 1998, and the consummation of the Proposal.
<TABLE>
<CAPTION>
($ In Thousands)
Historical Pro Forma
--------------- ---------------
(unaudited)
<S> <C> <C>
Current liabilities:
Note payable, bank, current................................................... $ 300,000 $ 300,000
Note payable, credit facility................................................. 2,250,000 0
Convertible subordinated debenture bond payable............................... 2,500,000 0
Accounts payable.............................................................. 3,952,391 3,112,391
Accrued expenses.............................................................. 478,825 478,825
Accrued compensation.......................................................... 418,854 418,854
Accrued interest.............................................................. 665,007 0
Income taxes payable.......................................................... 0 0
Unearned revenue, current..................................................... 1,109,287 1,109,287
--------------- ---------------
Total current liabilities................................................... 11,674,364 5,419,357
--------------- ---------------
Noncurrent liabilities:
Notes payable, bank, noncurrent............................................... $ 649,634 $ 649,634
Unearned revenue, noncurrent.................................................. 342,496 342,496
Accrued expense, noncurrent................................................... 174,334 174,334
--------------- ---------------
Total noncurrent liabilities................................................ 1,166,464 1,166,464
--------------- ---------------
Total liabilities........................................................... 12,840,828 6,585,821
--------------- ---------------
--------------- ---------------
Stockholders' equity:
Common stock, par value $.001................................................. 13,197 13,197
Convertible preferred stock, par value $.001.................................. 0 6,749
Additional paid-in-capital - common........................................... 18,408,290 18,408,290
Additional paid-in-capital - preferred........................................ 0 6,742,862
Additional paid-in-capital - convertible subordinated debenture and
warrants.................................................................... 2,750,491 2,750,491
Accumulated deficit........................................................... (24,330,420) (24,625,024)
--------------- ---------------
Total stockholders' equity.................................................. (3,158,442) 3,296,565
--------------- ---------------
Total liabilities and stockholders' equity...................................... $ 9,682,386 $ 9,882,386
--------------- ---------------
--------------- ---------------
Total long-term debt and stockholders' equity................................... $ (2,508,808) $ 3,946,199
--------------- ---------------
--------------- ---------------
</TABLE>
The above table does not reflect operating results since June 30, 1998 other
than interest on Holdings debt through December 15, 1998.
9
<PAGE>
ALTERNATIVES CONSIDERED AND CERTAIN EFFECTS OF THE PROPOSAL
Over the last ten months the Company has explored numerous alternatives to raise
$2.0 million to $10.0 million in order to address repaying its debt obligations
to PICO and Physicians, as well as its negative capital and working capital
situations. Specific proposals examined by the Company included mergers, joint
ventures, issuing convertible debt instruments, private equity placements, and
restructuring the existing debt. Merger discussions were not pursued when it
became apparent that potential transactions would not enhance shareholder value.
Possible joint ventures explored, although still being examined, would not
address the Company's immediate needs. Convertible debt instruments were
discounted as they would not help the Company's negative capital situation or
decrease the leverage in its capital structure. The private equity placement
offerings considered by the Company were, in the Board's opinion, either too
costly or onerous for the Company or too dilutive to the existing shareholders.
The proposed debt recapitalization:
1) eliminates the Company's obligation to pay $3.8 million, which the Company
does not have, in principal and accrued interest due by December 31, 1998 and
$3.1 million (principal and accrued interest) on April 30, 1999;
2) represents a permanent $6.7 million equity infusion increasing stockholders'
equity from a negative $3.2 million at June 30, 1998 to a positive pro-forma
$3.3 million (adjusted for interim interest) and brings the Company back into
compliance with one of the AMEX's minimum continued listing requirements;
3) increases June 30, 1998 working capital (current assets minus current
liabilities) by $6.5 million;
4) is less costly to the Company in terms of immediate cash than other
alternatives in that there are no finder's, placement agent, or other cash
out-of-pocket costs other than a maximum reimbursement of $30,000 for the
Investors fees and expenses (including attorney's fees); and
5) makes the Company more attractive to new investors given the elimination of
debt and stronger balance sheet.
The consummation of the Proposal will result in a decrease in indebtedness and a
corresponding increase in stockholders' equity. These changes will effect a
substantial decrease in the debt to equity ratio of the Company, decreasing the
leverage inherent in the Company's capital structure. The percentage ownership
of each stockholder, other than Holdings, will, proportionately decrease, while
the percentage of beneficial ownership of the Company's common stock by Holdings
from its current minimum level of 32.2% (assuming conversion of the debenture
and exercise of all outstanding warrants) to minimum level of 50.5% (assuming
conversion of the Series A preferred stock, the Series B preferred stock and all
warrants outstanding at the effective date of the transaction).
10
<PAGE>
PC QUOTE CAPITALIZATION
<TABLE>
<S> <C>
Total Common Shares outstanding at record date:..................... 13,359,462 shares
Holdings beneficial ownership - pre-recapitalization:............... 2,370,000 shares
Existing warrants................................................. 949,032 shares *
Convertible Subordinated Debenture (if converted at at the maximum
conversion price of $1.5625, including accrued interest through
12/15/98)....................................................... 1,905,363 shares *
Holdings Percentage Beneficial Ownership Pre-recapitalization....... 32.2%
</TABLE>
* exercise and conversion increases number of shares outstanding
Holdings Percentage Beneficial Ownership Post-recapitalization:
(at 12/15/98 assuming closing market price of $1.5625)
<TABLE>
<CAPTION>
HOLDINGS OWNERSHIP
TOTAL ----------------------- STOCKHOLDERS
OUTSTANDING SHARES % EQUITY
------------ ------------ --------- -------------
<S> <C> <C> <C> <C> <C>
Common Shares Balance @ 10/31/98............ 13,359,462 2,370,000 17.7% $ (3,453,046)
------------ ------------
Holdings Conversion of Debt to Convertible
Preferred
Conv Debt Prin < mkt or $1.5625........... $ 2,500,000 1,600,000 1,600,000
Conv Debt Int < mkt or $1.5625............ 477,130 305,363 305,363
Loan Prin + Fee < mkt or $1.3125.......... 3,290,000 2,506,667 2,506,667
Loan Interest < mkt or $1.3125............ 482,481 367,605 367,605
------------ ------------ ------------
Potential Conversion Shares................. $ 6,749,611 4,779,635 4,779,635 6,749,611
------------ ------------ ------------ -------------
Total Shares after Conversion of
Preferred.................................. 18,139,097 7,149,635 39.4% 3,296,565
------------ ------------ -------------
Conversion "Warrant"
(expires 4/30/05):
Conv Debt 120% of Series B................ $ 1.5750 226,829 226,829 357,256
Loan 120% of Series B................ $ 1.5750 2,874,271 2,874,271 4,526,977
Holdings "Existing Warrants":
(expire 4/30/05)
320,000 < mkt or $1.5625.................. $ 1.5625 320,000 320,000 500,000
500,000 < mkt or $2.00.................... $ 2.0000 500,000 500,000 781,250
129,032 < mkt or $1.9375.................. $ 1.9375 129,032 129,032 201,613
------------ ------------ -------------
949,032 Total Warrants.................... 4,050,132 4,050,132 6,367,096
------------ ------------ -------------
Total Shares Fully Diluted.................. 22,189,229 11,199,767 50.5% $ 9,663,661
</TABLE>
The above table is shown for representative purposes only, actual results could
differ materially, stockholders' equity does not reflect operating results since
June 30, 1998, other than interest accrued on Holdings debt through December 15,
1998.
11
<PAGE>
The Series A Preferred Stock, Series B Preferred Stock and Warrant have downside
protection for Holdings in the event that the market price of the Company's
common stock at the time of Closing, or average closing price for the previous
20 days, is below $1.5625, $1.3125 and $1.3125, respectively. In such case, or
cases, the maximum conversion and/or exercise price would be adjusted to reflect
the respective lower market, or average, price and the number of common shares
issuable upon conversion would increase proportionately, while the price paid by
Holdings upon exercise of the Warrant would decrease.
The Series A and Series B Preferred Stock and Existing Warrants have downside
protection for Holdings in the event that the market price of the Company's
common stock at the time of conversion into common or exercise, respectively, is
below the maximum conversion or exercise price. In such case, or cases, the
number of shares issuable upon conversion would increase in proportion to the
maximum price over the market price while the price paid by Holdings upon
exercise of the Existing Warrants would decrease. Holdings will retain the right
to receive benefits from appreciation in the price of the Company's common
shares and the right to receive additional shares, or pay less for Existing
Warrant shares, in the event of depreciation in the price below the respective
maximum price, until such time as the preferred stock is converted and the
Existing Warrants are exercised or expire.
RECOMMENDATION OF THE BOARD OF DIRECTORS AND REQUIRED VOTE
Jim R. Porter and Timothy K. Krauskopf constituting a majority of the
disinterested Directors of the Board (Louis J. Morgan was out of the country and
did not participate) have approved the debt recapitalization, the Securities
Purchase Agreement and the transactions contemplated by the Agreement. Under
Delaware law and the Company's By-laws, the affirmative vote of the holders of a
majority of the issued and outstanding shares of Common Stock is required for
approval of the Securities Purchase Agreement and the transactions contemplated
thereunder. If the Agreement is approved, then upon consummation of the
transactions contemplated by the Agreement, not only will the Company experience
a $6.7 million increase in working capital and stockholders' equity, but also
avoid the potential default under the Loan Agreement and the Debenture when the
principal and interest amounts thereunder become due and payable.
THE DISINTERESTED MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY RECOMMEND
A VOTE FOR APPROVAL OF THE SECURITIES PURCHASE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREUNDER. SHAREHOLDERS ARE URGED TO RETAIN THIS
PROXY STATEMENT FOR FUTURE REFERENCE. THE PERSONS NAMED ON THE ENCLOSED
PROXY CARD INTEND TO VOTE THE PROXIES SOLICITED HEREBY FOR APPROVAL OF THE
SECURITIES PURCHASE AGREEMENT UNLESS SPECIFICALLY DIRECTED OTHERWISE ON SUCH
PROXY CARD.
OTHER MATTERS
Management knows of no other business likely to be brought before the meeting.
If other matters do come before the meeting, the persons named in the form of
proxy or their substitute will vote said proxy according to their best judgment.
By order of the Board of Directors
/s/ John E. Juska
-------------------------------------------
JOHN E. JUSKA
CHIEF FINANCIAL OFFICER AND CORPORATE
SECRETARY
12
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PC QUOTE, INC.
300 South Wacker
Chicago, Illinois 60606
The undersigned hereby appoints Jim R. Porter and John E. Juska as
Proxies, each with the power to appoint a substitute, and hereby authorizes
them to represent and to vote, as designated below, all the Common Stock of
PC Quote, Inc. held of record by the undersigned on November 10, 1998 at the
Special Meeting of Stockholders to be held on December 15, 1998 or any
adjournment thereof.
(1) Approval of the conversion of $6.7 million debt owed to PICO Holdings, Inc.
and Physicians Insurance Company of Ohio into equity in the form of
convertible preferred stock of PC Quote, Inc. which would be convertible
into a minimum of 4.8 million shares of common stock of PC Quote, Inc.
and a warrant to purchase a minimum of 3.1 million common shares, which
together represents 59% of the current shares outstanding and 37% of the
shares outstanding after conversion and exercise, and approve the
Securities Purchase Agreement made as of the 23rd day of September, 1998,
by and among PC Quote, Inc., PICO Holdings, Inc. and Physicians Insurance
Company of Ohio and the transactions contemplated thereunder.
FOR AGAINST ABSTAIN
/ / / / / /
(2) In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
(CONTINUED, AND TO BE SIGNED ON OTHER SIDE)
<PAGE>
THIS PROXY WHEN PROPERLY ENDORSED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR THE ELECTION OF ALL NOMINEES.
Please sign exactly as name appears below. For joint accounts, all
tenants should sign. If signing for an estate, trust, corporation,
partnership or other entity, title or capacity should be stated.
Dated: _______________, 1998
____________________________
Signature
____________________________
Signature if held jointly
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY USING THE ENCLOSED RETURN ENVELOPE
