FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED JUNE 30, 1996
COMMISSION FILE NUMBER 033-21342 FW
TELESCAN, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 72-1121748
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5959 CORPORATE DRIVE, SUITE 2000, HOUSTON, TEXAS 77036
(Address of principal executive offices)
(Zip Code)
(713) 588-9700
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities and Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
$.01 par value per share Common Stock: 10,684,455 as of August 12, 1996
<PAGE>
TELESCAN, INC.
Report on Form 10-Q
Quarter Ended June 30, 1996
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS ............................. 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ................ 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS .................................. 14
ITEM 2. CHANGES IN SECURITIES .............................. 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES ................... 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS ............................................ 14
ITEM 5. OTHER INFORMATION ................................. 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................. 14
SIGNATURES .. ................................................ 16
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TELESCAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
JUNE 30, DECEMBER 31,
1996 1995
-------- --------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ........................... $ 1,914 $ 1,796
Accounts receivable, net ............................ 1,597 1,265
Receivables from affiliates ......................... 479 311
Prepaid expenses .................................... 275 416
Inventory ........................................... 185 190
Other current assets ................................ 221 201
-------- --------
TOTAL CURRENT ASSETS ............................ 4,671 4,179
Property and equipment, net ............................ 2,719 2,260
Software development costs, net ........................ 3,615 3,173
Software technology rights, net ........................ 298 76
Capitalized data costs, net ............................ 747 826
Other assets, net ...................................... 320 345
======== ========
TOTAL ASSETS .................................... $ 12,370 $ 10,859
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable .................................... $ 1,616 $ 1,463
Accrued liabilities ................................. 460 221
Current portion of long-term debt and
capital lease obligations ........................... 302 315
Amounts due to stockholders and affiliates .......... 37 37
-------- --------
TOTAL CURRENT LIABILITIES ....................... 2,415 2,036
Long-term debt ......................................... 96 175
Capital lease obligations .............................. 239 313
Minority interest in subsidiary ........................ 260 370
CONTINGENCIES (NOTE 3) ................................. -- --
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 10,000,000 shares
authorized; none issued ......................... -- --
Common stock; $.01 par value; 15,000,000 shares
authorized; 10,684,292 and 10,242,506 shares
issued and outstanding in 1996 and 1995,
respectively .................................... 107 102
Additional paid-in capital .......................... 17,320 14,457
Accumulated deficit ................................. (8,067) (6,594)
-------- --------
TOTAL STOCKHOLDERS' EQUITY ...................... 9,360 7,965
======== ========
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ...... $ 12,370 $ 10,859
======== ========
3
The accompanying notes are an integral part of these financial statements.
TELESCAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------- ----------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenue:
Online service ........................................ $ 2,257 $ 2,108 $ 4,770 $ 4,195
Products .............................................. 657 812 1,072 1,191
Contract and license revenue .......................... 120 538 574 1,109
Contract revenue earned from affiliates ............... 177 108 283 214
Other revenue ......................................... 19 5 44 10
-------- -------- -------- --------
Total revenue .................................... 3,230 3,571 6,743 6,719
Costs and expenses:
Cost of revenue - online .............................. 1,600 1,122 3,066 2,208
Cost of revenue - products ............................ 329 274 580 551
Cost of revenue - other ............................... 177 396 565 789
Marketing expenses .................................... 785 704 1,515 1,392
General and administrative expenses ................... 1,393 931 2,560 1,788
Interest expense ...................................... 20 24 39 44
-------- -------- -------- --------
Total costs and expenses ......................... 4,304 3,451 8,325 6,772
Income (loss) before minority
interest ................................................... (1,074) 120 (1,582) (53)
Minority interest in (income) loss of
subsidiary ............................................ 134 (68) 109 (145)
-------- -------- -------- --------
Net income (loss) ................................ $ (940) $ 52 $ (1,473) $ (198)
======== ======== ======== ========
Net income (loss) per common share ......................... $ (0.09) $ 0.01 $ (0.14) $ (0.02)
======== ======== ======== ========
Weighted average common and common ......................... 10,628 10,025 10,526 9,533
======== ======== ======== ========
equivalent shares outstanding
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
TELESCAN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
SIX MONTHS
ENDED JUNE 30,
-------------------
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $(1,473) $ (198)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Minority interest in income (loss) of subsidiary . (109) 145
Depreciation and amortization .................... 1,028 701
Provision for doubtful accounts .................. 36 42
Changes in current assets and liabilities
Receivables and advances ......................... (536) (438)
Other current assets ............................. 126 (141)
Accounts payable ................................. 153 677
Billings in excess of costs and
estimated earnings on ............................ -- 191
uncompleted contracts
Other current liabilities ........................ 236 63
------- -------
Net cash (used) provided by operating
activities ............................................... (539) 1,042
------- -------
CASH FLOWS INVESTING ACTIVITIES:
Net additions to property and equipment .......... (865) (142)
Additions to software development costs .......... (829) (749)
Additions to capitalized data costs .............. (94) (128)
Other ............................................ (9) (1)
------- -------
Net cash used by investing activities ........ (1,797) (1,020)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuances of common stock .......... 2,619 1,289
Payments on notes payable and capital lease ...... (165) (146)
Other ............................................ -- (44)
------- -------
Net cash provided by financing activities .... 2,454 1,099
------- -------
Increase in cash and cash equivalents .................... 118 1,121
Cash and cash equivalents
Beginning of period .............................. 1,796 956
======= =======
End of period .................................... $ 1,914 $ 2,077
======= =======
The accompanying notes are an integral part of these financial statements.
5
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Telescan, Inc., and its majority owned subsidiaries ("Telescan" or the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Rule 10-01 of Regulation S-X for interim
financial statements required to be filed with the Securities and Exchange
Commission and do not include all information and footnotes required by
generally accepted accounting principles. However, in the opinion of management,
the information furnished reflects all adjustments, consisting of normal
recurring adjustments, which are necessary to make a fair presentation of
financial position and operating results for the interim periods.
Amounts in the June 30, 1995 condensed consolidated financial statements
have been reclassified whenever necessary to conform with the current period's
presentation.
The accompanying condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements for the
year ended December 31, 1995. The results of operations for the six-month period
ended June 30, 1996, are not necessarily indicative of the results to be
expected for the full year.
2. UNCONSOLIDATED SUBSIDIARY
The Company owns 21.25% of Telebuild, L.C., ("Telebuild") a limited
liability company formed in 1990 to develop and market online databases for
which the company has served as a contract software developer.
Selected statement of operations data of Telebuild are as follows (in
thousands):
QUARTER ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ------------------
1996 1995 1996 1995
----- ------ ----- ------
UNAUDITED UNAUDITED
Revenue ............................ $ 32 $ 23 $ 51 $ 58
Cost of revenue .................... 65 70 129 152
Marketing expenses ................. 103 38 137 79
General and administrative ......... 45 51 85 87
===== ===== ===== =====
Net loss ........................... $(181) $(136) $(300) $(260)
===== ===== ===== =====
6
TELESCAN, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company performed services under contract for Telebuild totaling
approximately $283,000 and $214,000, respectively, during the six months ended
June 30, 1996 and 1995. As of June 30, 1996, the Company has $479,000 due from
Telebuild of which $69,000 had not been billed as of June 30, 1996. This
receivable arose from programming, system operations, selling and administrative
services provided to Telebuild by the Company.
3. CONTINGENCIES
In 1986, a stockholder of Telescan, Inc. (predecessor business to D.B.
Technology, Inc.) filed suit in the 269th District Court in Texas against the
Company, certain stockholders of the Company, and others. The suit sought to set
aside the 1986 merger of D.B. Technology and Telescan, Inc., money damages from
all defendants, and sums due under alleged promissory notes. The case went to
trial in October 1989 and judgment was rendered in favor of the defendants on a
directed verdict including an order for the plaintiff to pay certain court costs
and certain attorney's fees of Telescan, Inc. Subsequent to an appeal by the
stockholder in the Texas Court of Appeals 14th Judicial District, the appellate
court remanded the case to trial court. At the conclusion of presentation of
evidence, the case was submitted to the jury by means of questions in order to
determine issues of liability and damages. Based on a lack of evidence which
would impose liability upon Telescan, Inc., no questions were submitted which
asked the jury to determine whether or not the Company bears any liability to
any plaintiff. A hearing on pending matters, including entry of Judgment, was
held April 10, 1995. At the hearing the court ruled that plaintiffs take nothing
other than the payment, with interest, of $40,000 in promissory notes in favor
of plaintiff Investa, Inc. and Hoggett, which notes preceded the merger. The
defendants were awarded attorney's fees and court costs. The Judgment has been
entered. The plaintiffs have appealed and oral argument was made on June 25,
1996 before the Texas Court of Appeals, 14th Judicial District. The court's
decision is pending. Management does not believe that any material adverse
outcome is reasonably possible nor probable and thus, no qualified disclosure as
to a range of reasonable possible loss or accrual in the financial statements of
probable loss have been made.
During June 1996 the Company and a publisher verbally agreed to cancel
their agreement to develop and operate an online service. As of June 30, 1996,
the Company had capitalized $488,000 in software development and data costs
related to its development effort under the agreement which began August 1,
1993. The Company has had discussions with other parties interested in
developing such an online system and currently believes that the asset's net
realizable value is not impaired.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
OVERVIEW
Telescan is an industry leader in providing innovative solutions for online
technology, sophisticated data retrieval tools and Internet services. The
Company develops, markets, and operates major online networks and Internet sites
serving the financial, publishing, home design and building, entertainment and
technology transfer industries. The Company's products and services, which are
based upon its proprietary online operating system and user software, allow its
customers to electronically access and analyze information through their
personal computer systems.
The Company's primary product lines are (1) the Telescan system of online
financial databases and software tools which allow sophisticated investors to
obtain financial news and information and to design a variety of sophisticated
searches and perform fundamental and technical analyses using current and
historical financial information on more than 350,000 global equities, indices
and currencies; (2) Computer Sports Network division, which offers online
computer sports games to golf and baseball enthusiasts; (3) the numerous third
party online services which are developed and operated via alliances with third
parties in the publishing, entertainment, and home design and building
industries; and (4) Knowledge Express Data Systems, L.C. ("KEDS"), which is an
online database system for the commercialization and transfer of technology
serving corporations, government agencies, universities, and research
institutions. The Company owns 55.58% of KEDS and acts under contract as the
exclusive system operator.
Revenue is generated in the form of online service fees, product sales and
contract revenue. The Company has experienced a significant increase in revenue
over the past three years. The higher revenue is primarily attributable to
increases in the Company's subscriber base and the DOE Contract, as defined
herein, which expired in the first quarter of 1996. The subscriber growth is a
result of the growth in the online services industry, the diversification of the
Company's product and service offerings, and the Company's continued investment
in customer acquisition through technology development and marketing.
The Company's online revenue is generated primarily from individual subscribers
paying annual subscription fees plus recurring monthly usage fees. Until
recently, the monthly usage fees for the Company's financial online service were
based upon actual hours of prime time and non-prime time usage, with prime-time
hours charged at a premium. In December 1995, the Company implemented a new
fixed rate pricing plan for the Telescan Financial online service, whereby all
customers are charged a flat monthly fee for a specified number of hours, with
no stipulations as to time of day access.
The Company's incremental online operating expenses primarily include
telecommunications costs, royalties and customer service expenses, while fixed
online operating costs include data costs, amortization of software development
and amortization of capitalized data. On a going forward basis,
telecommunications costs will become semi-variable due to a new "per port"
contract. As a result of this mixed cost structure, the online gross margin rate
will typically increase as online revenue increases and will decrease as online
revenue decreases.
8
Product revenue is primarily generated from the sale of online access software,
software and service enhancements, major product upgrades and related
educational and training products such as books and videotapes. The Company's
software products generally reflect a common base technology to which additional
features can be added to satisfy the needs of the more sophisticated user.
Accordingly, product revenue principally represents revenue from product
enhancements or major upgrades. During 1995, the first version of Telescan
Investor's Platform for Windows ("TIP") software was released and generated a
significant increase in product revenue.
Product costs are variable in nature and include production, duplication,
royalties and distribution costs. Due to the variable nature of these costs,
increases or decreases in product revenue typically do not impact the gross
margin rate.
The Company's contract revenue is generated from providing contract services to
other companies which include developing, operating and maintaining online
database systems as well as providing administrative and marketing services. In
recent years, contract revenue has increased primarily due to the Department of
Energy Contract (the "DOE Contract") awarded to KEDS in April 1994. Under the
terms of the contract, the Company was responsible for the development,
marketing and operation of an online service enabling technology transfer among
universities, federal laboratories, and small to medium sized businesses. In
exchange, the DOE subsidized online services for up to 1,200 subscribers,
pursuant to which $452,000 and $1,099,000 of contract revenue and $156,000 and
$495,000 of gross margin was recognized by the Company during the six months
ended June 30, 1996 and 1995, respectively. The DOE Contract expired in March
1996. To counter the impact of the expiration of the DOE Contract, KEDS has been
actively working to expand its unsubsidized subscriber base. Since the beginning
of 1995 through the end of the second quarter of 1996, the number of
unsubsidized subscribers has increased resulting in higher revenue from such
subscribers. For the six months ended June 30, 1996, unsubsidized revenue
increased to an average of $36,000 per month over that period from an average of
$13,000 per month of such revenue during the first quarter of 1995. Management
will continue to closely monitor the operating results of KEDS, and will make
modifications, if necessary, to optimize KEDS' operating results.
Results for the six months ended June 30, 1996 reflect the Company's ongoing
efforts to grow market share in its existing online services, as well as to
pursue strategic partnership opportunities that could enable the Company to
broaden the usage of its proprietary technology platform and enter new segments
of the online services market. The Company has continued to invest in
infrastructure to support new business development activity, as well as in
upfront marketing and selling expenses to acquire new customers. As a result,
since the beginning of the year Telescan has entered into a number of new
contracts. These contracts include expanded relationships with Charles Schwab &
Co. and NETCOM On-Line Communications; building a new online service for
Standard and Poor's and new ventures with Independent Economic Analysis
(Holdings) Pte Limited (I.D.E.A.), a leading international provider of
independent financial and economic analysis; and an agreement with a major
world-wide financial services company.
9
QUARTER ENDED JUNE 30, 1996, COMPARED TO QUARTER ENDED JUNE 30, 1995
For the three months ended June 30, 1996 total revenue was $3,230,000 compared
to $3,571,000 for the same period in 1995. Recurring online service revenue rose
7% to $2,257,000 during the second quarter of 1996 from $2,108,000 during the
corresponding period of the prior year. The increase in online revenue is the
result of improving market penetration and new product offerings. Product
revenue decreased $155,000, or 19%, from $812,000 in 1995 to $657,000 in 1996
primarily due to higher second quarter 1995 revenues associated with the release
of Telescan Investor's Platform ("TIP") software. Contract and license revenue
decreased $349,000, or 54%, from $646,000 to $297,000, primarily due to the
expiration of the DOE Contract during March 1996.
Total cost of revenue increased from $1,792,000 during the second quarter of
1995 to $2,106,000 in the second quarter of 1996, a $314,000, or 18% increase.
For the three months ended June 30, 1996, the Company earned a gross margin on
its online service revenue of $657,000 compared to $986,000 for the comparable
period of 1995. Online gross margin as a percentage of online revenue decreased
from 47% to 29% for the quarters ended June 30, 1995 and 1996. The decrease is
primarily attributable to a $182,000, or 53%, increase in data and royalty
costs, and a $131,000, or 110%, increase in amortization of capital data and
software development costs. Data and royalty costs increased as a percentage of
online revenue primarily due to the addition of more database options and the
migration of the Company's data contracts from a variable to a fixed cost
structure. Amortization of software development costs increased due to the
release of the TIP software during 1995.
For the quarter ended June 30, 1996, the Company earned a gross margin on its
product revenue of $328,000 compared to $538,000 for the comparable period of
1995. Product gross margin as a percentage of product revenue decreased from 66%
to 50% primarily due to a higher margin second quarter 1995 sales mix reflecting
the TIP software release.
Marketing expenses increased 12% from $704,000 for the three months ended June
30, 1995 to $785,000 for the corresponding 1996 period. This increase is
primarily the result of the Company's continuing commitment to customer
acquisition and a $60,000 increase in salary expense reflecting Internet
business development.
General and administrative expenses increased 50% from $931,000 for the three
months ended June 30, 1995 to $1,393,000 for the three months ended June 30,
1996, primarily due to increased salary expense of $150,000, increased rent of
$43,000, increased depreciation and amortization expense of $46,000, increased
consulting expense of $71,000 and $55,000 of increased legal expense.
10
SIX MONTHS ENDED JUNE 30, 1996, COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995
Total revenue for the six months ended June 30, 1996 was $6,743,000 compared to
$6,719,000 for the corresponding period of 1995. Recurring online service
revenue rose 14% to $4,770,000 during the first six months of 1996 from
$4,195,000 during the corresponding 1995 period. The increase in online revenue
is the result of improving market penetration and new product offerings. Product
revenue decreased $119,000, or 10%, from $1,191,000 in 1995 to $1,072,000 in
1996. Contract and license revenue decreased $466,000, or 35%, from $1,323,000
to $857,000, primarily due to the expiration of the DOE Contract during March
1996.
Total cost of revenue increased from $3,548,000 during the first six months of
1995 to $4,211,000 in 1996, a $663,000 or 19% increase. This increase is
primarily attributable to the overall increase in revenue discussed above, as
well as the increase in the cost of online revenue as a percentage of online
revenue discussed below.
For the six months ended June 30, 1996, the Company earned a gross margin on its
online service revenue of $1,704,000 compared to $1,987,000 for the same period
in 1995. Online gross margin as a percentage of online revenue decreased from
47% to 36% for the six months ended June 30, 1995 and 1996, respectively. The
decrease is primarily attributable to a $433,000, or 65%, increase in data and
royalty costs (as discussed above in the quarterly comparison), and a $250,000,
or 91%, increase in amortization of capital data and software development costs
primarily reflecting the release of the TIP software in 1995.
For the six months ended June 30, 1996, the Company earned a gross margin on its
product revenue of $492,000 compared to $640,000 for the comparable period of
1995. Product gross margin as a percentage of product revenue decreased from 54%
to 46% primarily due to the higher margin TIP software released in the second
quarter of 1995.
Marketing expenses increased 9% from $1,392,000 for the six months ended June
30, 1995 to $1,515,000, for the six months ended June 30, 1996. It includes an
increase of $100,000 in salary expense associated with Internet business
development, and a $101,000 increase in sales promotion and advertising expense
offset by a reduction in tradeshow and seminar expenses of $68,000.
General and administrative expenses increased 43% from $1,788,000 for the six
months ended June 30, 1995 to $2,560,000 for the six months ended June 30, 1996,
primarily due to increased salary expense of $260,000, a $102,000 increase in
consulting expense, increased rent of $109,000 and increased depreciation and
amortization expense of $84,000.
During June 1996 the Company and a publisher verbally agreed to cancel their
agreement to develop and operate an online service. As of June 30, 1996, the
Company had capitalized $488,000 in software development and data costs related
to its development effort under the agreement which began August 1, 1993. The
Company has had discussions with other parties interested in developing such an
online system and currently believes that the asset's net realizable value is
not impaired.
11
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996, the Company had cash and cash equivalents aggregating
$1,914,000, which represents an increase of $118,000 since December 31, 1995.
Net cash used by operating activities was $539,000 for the six months ended June
30, 1996 compared to cash provided by operations of $1,042,000 for the six
months ended June 30, 1995. This $1,581,000 decrease in cash provided by
operations was primarily due to lower net income adjusted for an increase in
receivables and advances of $536,000, partially offset by non-cash items
including $1,028,000 of depreciation and amortization.
The Company's primary capital needs are for (1) the continued investment in
technology through its software development activities, (2) the purchase of
capitalized data and (3) the purchase of computers and communications equipment.
During the six months ended June 30, 1996, the Company invested $829,000 in
software development costs and acquired property and equipment totaling
$865,000, of which none was financed. The Company estimates that it may invest
up to an additional $2 million in capital expenditures over the next twelve
months. The Company intends to fund these capital additions through existing
cash on hand and cash generated from operations.
In June 1995, the Company entered into a Stock Purchase Agreement with
TransTerra Company ("TransTerra"), whereby TransTerra agreed to purchase $5
million of the Company's common stock ("Common Stock") in four equal
installments over a nine month period. The number of restricted shares of Common
Stock issued for each installment was calculated based upon the average market
price of the Common Stock over the preceding quarter. In connection with this
agreement, the Company granted certain registration rights to TransTerra and
allowed TransTerra to appoint a representative to the Board of Directors. Net
proceeds of approximately $4,900,000 from this series of transactions are being
used by the Company for technology development, working capital and other
general corporate requirements. During the six months ended June 30, 1996,
pursuant to the terms of this agreement, 341,796 shares of restricted Common
Stock were issued for total consideration of $2.5 million.
On June 14, 1996, the Company issued 38,000 shares of common stock to acquire
certain software technology rights from OP/COM Partners, Ltd., a Texas limited
partnership in which a director and significant stockholder of the Company, G.
Robert Friedman, has a 36.5% ownership interest. The purchase price of $249,000,
representing the fair market value of the shares issued, was allocated to such
software technology on the acquisition date.
The Company believes that the existing cash on hand together with cash generated
from operations will be adequate to fund its working capital and other cash
requirements over the next twelve months. Due to the uncertainty of the timing
of any new product introductions and the uncertainty of the timing of the
development of new markets for the Company's technology, capital expenditures
for future equipment and software development projects beyond a twelve-month
period are uncertain. Accordingly, additional outside sources of capital could
be required beyond the next twelve-month period should the Company embark upon
major software development or hardware acquisition projects or the Company
should obtain major contracts to develop online systems for other parties.
Aggregate revenue from the Company's online financial database and related
product sales accounted for approximately 76% and 71% of the Company's total
revenue for the six months ended June 30, 1996 and 1995, respectively. A
downturn in the equity markets could cause a reduction in this revenue, which
could have an adverse effect on the Company's financial position and results of
operations. However, the Company believes that the effect of such adverse market
conditions would be lessened by its fixed rate billing structure. To counter the
potential impact, if any, of such a downturn, the Company is broadening its
revenue base through its alliances with third parties to develop and operate
online databases and Internet sites outside the Company's primary market. Also,
during the fourth quarter of 1995, the Company began utilizing its new
technology, code-named Sunflower, which will allow the Company to efficiently
establish additional third party online communication networks without a
substantial investment in hardware or software development.
12
IMPACT OF RELATIONSHIP WITH TELEBUILD, L.C.
The Company owns 21.25% of Telebuild, L.C. ("Telebuild"). Friedman Interests,
Inc. ("Friedman Interests"), a company controlled by G. Robert Friedman, a
director of the Company, owns 38.1625% of Telebuild. JST Technology Center, Inc.
("JST"), which is owned 93.98% by the Brown Family Partnership and 6.02% by a
third party) owns 40.5875% of Telebuild. The Brown Family Partnership is owned
by David L. Brown, the Company's Chairman and Chief Executive Officer, and Scott
L. Brown, a former Vice President of the Company, and other members of the Brown
family.
During the six months ended June 30, 1996, the Company performed services under
contract for Telebuild which consisted primarily of software development,
operation of an online database system, and selling and administrative services.
During the three months ended June 30, 1996, the Company earned revenue of
$177,000 and incurred expense of $142,000 under its contract with Telebuild. For
the six months ended June 30, 1996, the Company recognized $283,000 of contract
revenue and incurred $238,000 of expenses related to the Telebuild contract. The
Company anticipates that there may be an increase in the related contract
revenue and expense over the next twelve months due to a recent acceleration in
the business activities of Telebuild.
It is uncertain when Telebuild will reach break-even cash flow levels and be
able to meet its operating and capital requirements. As of June 30, 1996,
$479,000 was due from Telebuild, $69,000 of which was not billed at that date.
Although there have been no formal commitments on the part of JST and Friedman
Interests, the Company is confident that JST and Friedman Interests have both
the ability and intent to continue to fund Telebuild. The Company bases this
belief on the fact that JST and Friedman Interests have funded Telebuild
approximately $2,026,000 in the form of capital and advances, and have made
assurances to the Company of continued funding. The Company has not provided, is
not obligated to provide and has no present or future commitment to provide any
funding of Telebuild. In the unlikely event JST and Friedman Interests, either
individually or jointly, elect to or are unable to continue funding Telebuild,
the Company has been advised that Telebuild will seek other third-party
investors as a source of funding. Should Telebuild be unable to obtain such
third party funding, the Company would re-evaluate the business prospects of
Telebuild and would consider various business alternatives, including the
possibility of purchasing additional equity in Telebuild, provided it had the
resources to do so.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Not applicable.
ITEM 2. CHANGES IN SECURITIES.
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Stockholders ("Annual Meeting") on May
23, 1996. The purpose of the Annual Meeting was to elect its directors for the
ensuing year and to ratify Hein + Associates LLP as auditors for 1996.
At the Annual Meeting, David L. Brown, Dr. Ronald W. Hart, Burt H. Keenan,
William D. Savoy, Stephen C. Wood, Dr. Richard K. Carlin, Roger C. Wadsworth, J.
Joseph Ricketts and G. Robert Friedman were elected as directors of the Company,
with each receiving 9,298,416 votes for election and with 1,200 abstentions
except for Mr. Savoy. Mr. Savoy received 9,198,416 and there were 101,200
abstentions.
The Board of Directors recommended that the stockholders ratify their action in
appointing their existing certified public accountants, Hein + Associates LLP,
independent auditors of the Company for the fiscal year ended December 31, 1996.
The stockholders voted 9,293,793 shares for the ratification of Hein +
Associates LLP as auditors for 1996, there were 2,200 abstentions, and there
were 3,623 votes cast against such ratification.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits:
4.1** Asset Purchase Agreement dated June 30, 1990, between TIC
Software, Inc. and the Registrant which sets forth certain
registration rights of TIC Software, Inc. (Incorporated by
reference to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182)).
4.2** Exhibits to Asset Purchase Agreement dated June 30, 1990,
between TIC Software, Inc. and the Registrant which set forth
certain registration rights of TIC Software, Inc.
(Incorporated by reference to the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182)).
4.3** Assignment of Agreement between Jacob Sobotka, Marvin Deuell,
Raymond C. Wicker and the Registrant which sets forth certain
registration rights of those parties, effective as of January
1, 1992. (Incorporated by reference to the Company's Form S-1
dated September 14, 1993 (Registration No. 33-52182)).
14
4.4** Assignment of General Partnership interest between New World
Technologies, a Texas general partnership, and the Registrant
which sets forth certain registration rights effective as of
January 1, 1992. (Incorporated by reference to the Company's
Form S-1 dated September 14, 1993 (Registration No.
33-52182)).
4.5** Registration Rights Agreement between Vulcan Ventures
Incorporated and the Registrant dated May 20, 1992.
(Incorporated by reference to the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182)).
4.6** Form of Redeemable Warrant Certificate issued by the
Registrant to Vulcan Ventures Incorporated to purchase 600,000
shares of Common Stock of the Registrant at $3.25 per share
dated May 20, 1992. (Incorporated by reference to the
Company's Form S-1 dated September 14, 1993 (Registration No.
33-52182)).
4.7** Form of Registration Rights Agreement between Sanders Morris
Mundy Inc. and the Registrant dated May 20, 1992.
(Incorporated by reference to the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182)).
4.8** Form of Warrant Certificate issued by the Registrant to
Sanders Morris Mundy Inc. to purchase 60,000 shares of Common
Stock of the Registrant at $1.75 per share dated May 20, 1992.
(Incorporated by reference to the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182)).
4.9** Form of Warrant Certificate issued by Registrant to Sanders
Morris Mundy Inc. to purchase 60,000 shares of Common Stock of
Registrant at $3.25 per share dated May 20, 1992.
(Incorporated by reference to the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182)).
4.10** Form of Registration Rights Agreement between the Registrant
and 47 private investors dated August 5, 1992. (Incorporated
by reference to the Company's Form S-1 dated September 14,
1993 (Registration No. 33-52182)).
4.11** Form of Redeemable Warrant Certificate issued by the
Registrant to 47 private investors to purchase, in the
aggregate, 1,200,000 shares of Common Stock of the Registrant
at $3.25 per share dated August 5, 1992. (Incorporated by
reference to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182)).
4.12** Form of Registration Rights Agreement between the Registrant
and Sanders Morris Mundy Inc. dated August 5, 1992.
(Incorporated by reference to the Company's Form S-1 dated
September 14, 1993 (Registration No. 33-52182)).
4.13** Form of Warrant Certificate issued by the Registrant to
Sanders Morris Mundy Inc. to purchase 120,000 shares of Common
Stock of the Registrant at $1.75 per share dated August 5,
1992. (Incorporated by reference to the Company's Form S- 1
dated September 14, 1993 (Registration No. 33-52182)).
15
4.14** Form of Warrant Certificate issued by the Registrant to
Sanders Morris Mundy Inc. to purchase 120,000 shares of Common
Stock of the Registrant at $3.25 per share dated August 5,
1992. (Incorporated by reference to the Company's Form S- 1
dated September 14, 1993 (Registration No. 33-52182)).
4.15** Form of Registration Rights Agreement between the Registrant
and G. Robert Friedman dated May 24, 1990. (Incorporated by
reference to the Company's Form S-1 dated September 14, 1993
(Registration No. 33-52182)).
4.16** Registration Rights Agreement between TransTerra Company and
the Registrant dated June 28, 1995. (Incorporated by reference
to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995.)
4.17* Asset Purchase Agreement By and Among Telescan, Inc., OP/COM
Partners, Ltd., and Raymond S. Wicker, Jr., dated June 14,
1996.
11* Statement regarding computation of earnings per share.
15* Letter regarding unaudited financial information.
27* Financial Data Schedule.
- -------------------------------------
* Indicates documents filed herewith.
** Indicates documents incorporated by reference from the prior
filing indicated.
(B) Reports on Form 8-K:
None.
Pursuant to the requirements of the Securities Exchanges Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TELESCAN, INC.
By:/s/ROGER C. WADSWORTH
Roger C. Wadsworth
Senior Vice President and
Acting Chief Financial Officer
a duly authorized officer of the Registrant
Date: AUGUST 12, 1996
EXHIBIY 4.17
ASSET PURCHASE AGREEMENT
BY AND AMONG
TELESCAN, INC.
AND
OP/COM PARTNERS, LTD.
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (this "Agreement") is entered into as of
June 14, 1996 by and among TELESCAN, INC., a Delaware corporation (the
"PURCHASER"), OP/COM PARTNERS, LTD., a Texas limited partnership (the "SELLER"),
and RAYMOND S. WICKER, JR., an individual residing in Harris County, Texas and
the sole general partner of the Seller (the "GENERAL PARTNER").
RECITALS
WHEREAS, the partners of the Seller listed on EXHIBIT A (the "PARTNERS")
are the owners of 100% of the outstanding partnership interests in the Seller,
WHEREAS, the Purchaser desires to purchase from the Seller, and the
Seller desires to sell to the Purchaser, all of the technology assets of the
Seller upon the terms and conditions set forth herein, and
WHEREAS, the Purchaser, the Seller and the General Partner are making
certain representations, warranties, covenants and indemnities herein as an
inducement to the others to enter into this Agreement.
NOW, THEREFORE, in order to consummate this Agreement and in
consideration of the respective representations, warranties, covenants and
indemnities contained herein and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
TRANSFER OF STOCK
1.1 TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement, the Seller will convey, transfer and deliver to the Purchaser at the
Closing all of the assets listed on EXHIBIT B, free and clear of all
Encumbrances except those to be canceled or released pursuant to disbursements
at Closing (the "ASSETS").
(a) The Purchaser does not assume and is not responsible for any claims
against or Liabilities, commitments, contracts, agreements or obligations
whatsoever of the Seller or any of the Partners, and, without limiting the
Seller's or the General Partner's indemnification obligations under ARTICLE IV,
the Seller and the General Partner will at all times indemnify and hold the
Purchaser harmless from and against any claim therefor or Liability arising
therefrom.
1
1.2 CONSIDERATION FOR ASSETS. At the Closing, subject to the terms and
conditions of this Agreement, as full consideration for the Assets, the
Purchaser will pay to the Seller the Purchase Price (the "PURCHASE PRICE") as
follows:
(a) the sum of $8,000 in cash or cash equivalents as full payment for
the accrued royalties owed to the Seller by the Purchaser pursuant to that
certain Technology License Agreement dated as of August 15, 1989 (the "CASH
PURCHASE PRICE"); and
(b) 38,000 shares of restricted common stock, par value $0.01 per share,
of the Purchaser (the "STOCK"), in consideration for the Assets listed on
EXHIBIT B, other than those identified in SECTION 1.2(A).
1.3 CLOSING DELIVERIES.
(a) The Seller will deliver to the Purchaser at the Closing:
(i) such deeds, bills of sale, endorsements, assignments and other
good and sufficient instruments of conveyance, transfer and assignment,
in form and substance satisfactory to the Purchaser, as shall be
effective to vest in the Purchaser good and marketable title to the
Assets, free and clear of all Encumbrances except those to be canceled
or released pursuant to disbursements at Closing;
(ii) a Secretary's Certificate from the Seller certifying that the
transfer of the Assets to the Purchaser, and the other obligations of
the Seller contemplated by this Agreement, have been authorized by the
Seller;
(iii) all consents, approvals and waivers from third parties and
Governmental Authorities required to be obtained to consummate the
transaction contemplated by this Agreement;
(iv) an Investor Letter in the form of EXHIBIT C;
(v) such other documents as may be required by this Agreement or
reasonably requested by the Purchaser in connection with the transaction
contemplated hereby; and
(vi) the Registration Rights Agreement in the form of EXHIBIT D
(the "REGISTRATION RIGHTS AGREEMENT").
2
(b) The Purchaser will deliver to the Seller at the Closing:
(i) the Cash Purchase Price, by wire transfer or cash equivalents;
(ii) a certificate representing the Stock;
(iii) such other documents as may be required by this Agreement or
reasonably requested by the Seller in connection with the transaction
contemplated hereby; and
(iv) the Registration Rights Agreement.
1.4 FURTHER ASSURANCES. From time to time after the Closing, at the
Purchaser's request but without further consideration, the Seller and the
General Partner, as appropriate, will execute and deliver such other instruments
of conveyance and transfer and take such other action as the Purchaser
reasonably may require to more effectively vest title to the Assets in the
Purchaser.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
THE SELLER AND THE GENERAL PARTNER
The Seller and the General Partner, jointly and severally, represent and
warrant to the Purchaser as follows:
2.1 ORGANIZATION, EXISTENCE AND GOOD STANDING. The Seller is a limited
partnership duly organized, validly existing and in good standing under the laws
of the State of Texas and has all requisite power and authority to own or lease
and operate its properties and assets and to carry on its business as now owned
or leased, operated and conducted.
2.2 OWNERSHIP OF THE SELLER. The Partners own all the outstanding
partnership interests in the Company. No person other than the Partners has any
record or beneficial ownership interest whatsoever in the Seller. The Partners'
ownership interests in the Seller are free and clear of all Encumbrances.
2.3 OWNERSHIP OF CERTAIN ASSETS. None of the Partners nor any employee
of or consultant to the Seller owns, directly or indirectly, in whole or in
part, any property, asset or right, tangible or intangible (including, but not
limited to, any patent, trademark, service mark, trade name, brand name,
copyright, pending application for any patent, trademark, service mark, or
copyright, invention, process, know-how, formula, design or trade secret), which
is associated with the Assets.
3
2.4 AUTHORITY. The Seller and the General Partner have full power and
authority to execute and deliver this Agreement and to consummate the
transaction contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transaction contemplated hereby have been duly and
validly authorized and approved by the Seller and the Partners, and no other
proceedings on the part of the Seller or any of the Partners are necessary to
authorize this Agreement or the consummation of the execution and delivery of
this Agreement by the Seller and the consummation of the transaction
contemplated hereby. This Agreement has been duly and validly executed and
delivered by the Seller and the General Partner, and this Agreement constitutes
the legal, valid and binding agreement of the Seller and the General Partner
enforceable jointly and severally against the Seller and the General Partner in
accordance with its terms.
2.5 CONSENTS AND APPROVALS. No filing or registration with, and no
permit, authorization, consent or approval of, any public body or authority is
necessary for the consummation of the transaction contemplated by this
Agreement.
2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Other than as disclosed on
SCHEDULE 2.6, all of which liabilities will be fully satisfied and discharged
immediately after the Closing with proceeds of the transaction contemplated
hereby, the Seller has no liabilities or obligations of any nature (whether
absolute, accrued, contingent or otherwise). There is no basis for any assertion
against the Seller of any liabilities of any nature or in any amount other than
those incurred in the ordinary course of business and all of which shall be
fully satisfied and discharged at or prior to the Closing.
2.7 TITLE TO PROPERTIES AND RELATED MATTERS. The Seller has good and
marketable title to all of the Assets. None of the Assets is subject to any
Encumbrance, except for liens for taxes, assessments or governmental charges or
levies which are not delinquent.
2.8 LITIGATION. (i) There are no legal, administrative, arbitration,
investigatory or other proceedings, and no other controversies, pending or
threatened, against the Seller or any Partner (with respect to the Seller), or
as to which the Seller or any Partner (with respect to the Seller) is or might
become a party, or challenging the validity or propriety of the transaction
contemplated by this Agreement, (ii) there is no basis or ground for any suit,
action, claim, investigation, inquiry or legal, administrative, arbitration,
investigatory or other proceeding against the Seller or any Partner (with
respect to the Seller), and (iii) there is no outstanding order, writ,
injunction or decree of any court, administrative agency, governmental body, or
mediation or arbitration tribunal against or affecting the transaction
contemplated by this Agreement, the Seller, any of the Partners or any of the
partnership interests in, properties, assets or liabilities of the Seller.
4
2.9 PATENTS, TRADEMARKS AND SIMILAR RIGHTS. The Seller has described in
SCHEDULE 2.9 all patents, trademarks, trade names, service marks, copyrights,
and licenses of the Seller, whether or not registered in the name of the Seller,
or for which applications for registration are pending, under appeal, denied or
contemplated, in which the Seller has any right, title or interest. The conduct
by the Seller of its business does not infringe upon or violate the patents,
trademarks, trade names, service marks, trade secrets, copyrights, licenses or
rights of any other person, firm or corporation, and neither the Seller nor any
Partner has received any notice of any claim of any such infringement or
violation. The Seller has no knowledge of any facts which would be detrimental
to the renewal of the registration of any of such patents, trademarks, trade
names, service marks, copyrights or licenses.
2.10 NO MISLEADING STATEMENTS. Neither this Agreement nor any exhibit,
schedule, list or other document referred to herein and delivered by the Seller
or the General Partner pursuant hereto contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which they
were made, not misleading. All information previously provided, or to be
provided, to the Purchaser and all exhibits and schedules contemplated hereby
are, or shall be, as applicable, true, accurate and complete in all material
respects.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser represents and warrants to the Seller and the General
Partner as follows:
3.1 ORGANIZATION, EXISTENCE AND GOOD STANDING. The Purchaser is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
3.2 AUTHORITY. The Purchaser has full corporate power and authority to
execute and deliver this Agreement and to consummate the transaction
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transaction contemplated hereby have been duly and validly
authorized and approved by the Board of Directors of the Purchaser and no other
corporate proceedings on the part of the Purchaser are necessary to authorize
this Agreement or the consummation of the transaction contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Purchaser and
constitutes the valid and binding agreement of the Purchaser.
3.3 NO MISLEADING STATEMENTS. The representations and warranties of the
Purchaser made in this Agreement do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements herein, in light of the circumstances under which they were made, not
misleading.
5
3.4 DISCLAIMER OF ADDITIONAL AND IMPLIED WARRANTIES. The Purchaser is
making no representations or warranties, express or implied, of any nature
whatsoever except as specifically set forth in this Article III.
ARTICLE IV
INDEMNIFICATION
4.1 INDEMNIFICATION BY THE SELLER AND THE GENERAL PARTNER. The Seller
and the General Partner unconditionally, absolutely and irrevocably agree to and
shall, jointly and severally, defend, indemnify and hold harmless the Purchaser
and each of the Purchaser's subsidiaries, stockholders, affiliates, officers,
directors, employees, counsel, agents, contractors, successors, assigns, heirs
and legal and personal representatives (the Purchaser and such persons are
collectively referred to as the "PURCHASER'S INDEMNIFIED PERSONS") from and
against and shall reimburse the Purchaser's Indemnified Persons for, each and
every Loss, including without limitation those Losses arising out of the strict
liability or the negligence of any party, including the Purchaser's Indemnified
Persons, whether such negligence be sole, joint or concurrent, active or
passive, paid, imposed on or incurred by the Purchaser's Indemnified Persons,
directly or indirectly, relating to, resulting from or arising out of, or any
allegation by any third party of: (i) any inaccuracy in any representation or
warranty, without regard to knowledge limitations, of the Seller or the General
Partner under this Agreement or the Schedules hereto, or any agreement,
certificate or other document delivered or to be delivered by the Seller or the
General Partner pursuant hereto or thereto in any respect, whether or not the
Purchaser's Indemnified Persons relied thereon or had knowledge thereof, or any
breach or nonfulfillment of any covenant, agreement or other obligation of the
Seller under this Agreement or any agreement, certificate or document delivered
pursuant hereto; (ii) any Liabilities to the extent such Liability relates,
directly or indirectly, to events, conditions, operations, facts or
circumstances which occurred or existed on or prior to the date hereof, even if
not required to be disclosed on a balance sheet in accordance with GAAP; or
(iii) the business conducted by the Seller or the occupancy, condition,
management, operation or use of the Assets on or prior to the Closing Date. With
respect to matters involving Proceedings brought or asserted by third parties,
within ten (10) days after notification from the Purchaser's Indemnified Persons
supported by reasonable documentation setting forth the nature of the
circumstances entitling the Purchaser's Indemnified Persons to indemnity
hereunder, the Seller or the General Partner, at no cost or expense to the
Purchaser's Indemnified Persons, shall diligently commence resolution of such
matters in a manner reasonably acceptable to the Purchaser's Indemnified Persons
and shall diligently and timely prosecute such resolution to completion;
provided, however, with respect to those claims that may be satisfied by payment
of a liquidated sum of money, the Seller or the General Partner shall promptly
pay the amount so claimed to the extent supported by reasonable documentation.
If litigation or any other Proceeding is commenced or threatened the provisions
of SECTION 4.3 shall control.
6
4.2 INDEMNIFICATION BY THE PURCHASER. The Purchaser unconditionally,
absolutely and irrevocably agrees to and shall defend, indemnify and hold
harmless the Seller and each of its Partners, counsel, agents, successors,
assigns, heirs and legal representatives (the Seller and such persons are
collectively referred to as the "SELLER'S INDEMNIFIED PERSONS") from and
against, and shall reimburse the Seller's Indemnified Persons for any loss or
claim made by third parties arising from use of the Assets by the Purchaser
after the date hereof, each and every Loss paid, imposed on or incurred by the
Seller's Indemnified Persons, directly or indirectly, relating to, resulting
from or arising out of any inaccuracy in any representation or warranty of the
Purchaser under this Agreement or any agreement, certificate or other document
delivered or to be delivered by the Purchaser pursuant hereto in any respect,
whether or not the Seller's Indemnified Persons relied thereon or had knowledge
thereof, or any breach or nonfulfillment of any covenant, agreement or other
obligation of the Purchaser under this Agreement or any agreement, certificate
or document delivered pursuant hereto, and any loss or claim arising from or
related to use of the Assets by the Purchaser from the date of this Agreement
forward.
4.3 NOTICE AND DEFENSE OF THIRD PARTY CLAIMS. If any Proceeding shall be
brought or asserted under this Article against an indemnified party or any
successor thereto (the "INDEMNIFIED PERSON") in respect of which indemnity may
be sought under this Article from an indemnifying person or any successor
thereto (the "INDEMNIFYING PERSON"), the Indemnified Person shall give prompt
written notice of such Proceeding to the Indemnifying Person who shall assume
the defense thereof, including the employment of counsel reasonably satisfactory
to the Indemnified Person and the payment of all expenses; provided, that any
delay or failure so to notify the Indemnifying Person shall relieve the
Indemnifying Person of its obligations hereunder only to the extent, if at all,
that it is prejudiced by reason of such delay or failure. In no event shall any
Indemnified Person be required to make any expenditure or bring any cause of
action to enforce the Indemnifying Person's obligations and liability under and
pursuant to the indemnifications set forth in this Article. In addition, actual
or threatened action by a Governmental Authority or other entity is not a
condition or prerequisite to the Indemnifying Person's obligations under this
Article. The Indemnified Person shall have the right to employ separate counsel
in any of the foregoing Proceedings and to participate in the defense thereof,
but the fees and expenses of such counsel shall be at the expense of the
Indemnified Person unless the Indemnified Person shall in good faith determine
that there exist actual or potential conflicts of interest which make
representation by the same counsel inappropriate. The Indemnified Person's right
to participate in the defense or response to any Proceeding should not be deemed
to limit or otherwise modify its obligations under this Article. In the event
that the Indemnifying Person, within ten days after notice of any such
Proceeding, fails to assume the defense thereof, the Indemnified Person shall
have the right to undertake the defense, compromise or settlement of such
Proceeding for the account of the Indemnifying Person, subject to the right of
the Indemnifying Person to assume the defense of such Proceeding with counsel
reasonably satisfactory to the Indemnified Person at any time prior to the
settlement, compromise or final determination thereof. Anything in this Article
to the contrary notwithstanding, the Indemnifying Person shall not, without the
Indemnified Person's prior written consent, settle or compromise any Proceeding
or consent to the entry of any judgment with respect to any Proceeding for
anything other than money damages paid by the Indemnifying
7
Person. The Indemnifying Person may, without the Indemnified Person's prior
written consent, settle or compromise any such Proceeding or consent to entry of
any judgment with respect to any such Proceeding that requires solely the
payment of money damages by the Indemnifying Person and that includes as an
unconditional term thereof the release by the claimant or the plaintiff of the
Indemnified Person from all liability in respect of such Proceeding. As a
condition to asserting any rights under this Article, each of the Purchaser's
Indemnified Persons must appoint the Purchaser, and each of the Seller's
Indemnified Persons hereby appoint Raymond S. Wicker, Jr., as its sole agent for
all matters relating to any claim under this Article.
4.4 PAYMENT; INTEREST. The Indemnifying Party shall make any payment
required to be made under this Article in cash and on demand. Any Losses or
other payments required to be paid by an Indemnifying Party under this Article
which are not paid within five business days of receipt by the Indemnifying
Party of the Indemnified Party's demand therefor shall thereafter be deemed
delinquent, and the Indemnifying Party shall pay to the Indemnified Party
immediately upon demand, interest at the rate of 10% per annum, not to exceed
the maximum nonusurious rate allowed by applicable law, from the date such
payment becomes delinquent to the date of payment of such delinquent sums.
4.5 INCONSISTENT PROVISIONS. The provisions of this Article shall govern
and control over any inconsistent provisions of this Agreement.
4.6 LIMITATION ON INDEMNIFICATION. The provisions of SECTIONS 4.1 and
4.2 shall terminate and expire four years after the Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 CERTAIN DEFINITIONS. All capitalized terms used and not otherwise
defined herein shall have the meanings ascribed to them below:
(a) "CLOSING" means the closing and consummation of the transaction
contemplated by this Agreement, which closing is intended to be and shall be
deemed to be simultaneous with the delivery of this Agreement and the documents
required hereby to be delivered at Closing.
(b) "CLOSING DATE" means the date of this Agreement.
(c) "DAMAGES" includes damages, losses (including, but not limited to,
any diminution in value), shortages, Liabilities, payments, obligations,
penalties, claims, causes of action, litigation, demands, defenses, judgments,
suits, proceedings, costs, disbursements or expenses (including, without
limitation, fees, disbursements and expenses of attorneys, accountants and other
professional advisors and of expert witnesses and costs of investigation,
testing and preparation) of any kind or nature whatsoever.
8
(d) "ENCUMBRANCE" means any security interest, pledge, mortgage, lien
(including environmental and tax liens), charge, adverse claim or restriction of
any kind.
(e) "GOVERNMENTAL AUTHORITY" means any foreign governmental authority,
the United States of America, any State of the United States, any local
authority and any political subdivision of any of the foregoing, any
multi-national organization or body, any agency, department, commission, board,
bureau, court or other authority of any of the foregoing, or any
quasi-governmental or private body exercising, or purporting to exercise, any
executive, legislative, judicial, administrative, police, regulatory or taxing
authority or power of any nature.
(f) "LIABILITY" means any debt, obligation, duty or liability of any
nature (including any unknown, undisclosed, unfixed, unliquidated, unsecured,
unmatured, unaccrued, unasserted, contingent, conditional, inchoate, implied,
vicarious, joint, several or secondary liability), regardless of whether such
debt, obligation, duty or liability would be required to be disclosed on a
balance sheet prepared in accordance with GAAP.
(g) "PROCEEDINGS" means any actions, suits, claims, investigations,
reviews or other proceedings pending or threatened against the Seller or
involving any of its properties or assets of a material nature, at law or in
equity or before or by any foreign, federal, state, municipal, or other
governmental court, department, commission, board, bureau, agency, Governmental
Authority, or other instrumentality or Person or any board of arbitration or
similar entity.
(h) "LOSS" means any loss, damage, Damages, injury, harm, detriment,
decline in value, lost opportunity, Liability, exposure, claim, demand,
Proceeding, settlement, judgment, award, punitive damage, award, fine, penalty,
Tax, fee, charge, cost or expense (including, without limitation, costs of
attempting to avoid or in opposing the imposition thereof, interest, penalties,
costs of preparation and investigation, and the fees, disbursements and expenses
of attorneys, accountants and other professional advisors), as well as with
respect to compliance with the Requirements of Environmental Law, expenses of
Remediation and any other remedial, removal, beneficiating, response, abatement,
cleanup, investigative, monitoring, or record keeping costs and expenses. In
calculating the dollar amount of any Loss, no allowance shall be made for any
tax benefit that may be received in connection therewith and no allowance shall
be made for any insurance proceeds or other amounts that may be recovered in
connection therewith.
(i) "MATERIAL ADVERSE EFFECT" shall mean any material adverse change in
the financial condition, assets, Liabilities (absolute, accrued, contingent or
otherwise), reserves, business, prospects or results of operations of the
indicated Person.
(j) "PERSON" means any individual, entity or Governmental Authority.
9
5.2 NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
statements of fact contained in any memorandum, certificate, instrument,
schedule, or other document delivered by or on behalf of the Seller or any of
the Partners, on the one hand, or the Purchaser, on the other hand, for the
information of, or reliance by, the other party to this Agreement pursuant
hereto, shall be deemed to be representations and warranties by the party
delivering same. All representations, warranties and covenants, including
covenants of indemnification, made by the parties and contained in this
Agreement shall survive the Closing and all inspections, examinations, or audits
on behalf of the parties.
5.3 AMENDMENT AND MODIFICATION. Except as provided otherwise in this
Agreement, this Agreement may be amended, modified or supplemented only by
written agreement of the parties hereto.
5.4 WAIVER OF COMPLIANCE; CONSENTS. Any failure of the Purchaser on the
one hand, or the Seller or the General Partner, on the other hand, to comply
with any obligation, covenant, agreement or condition herein may be waived by
the Seller or the Purchaser, respectively, only by a written instrument signed
by the party granting such waiver, but such waiver or failure to insist upon
strict compliance with such obligation, covenant, agreement or condition shall
not operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this SECTION
5.4.
5.5 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the other party at
the following addresses (or at such other address for a party as shall be
specified by like notice; provided that notices of a change of address shall be
effective only upon receipt thereof):
(a) if to the Seller or the General Partner, to:
OP/COM Partners, Ltd.
1400 Post Oak Boulevard, Suite 300
Houston, Texas 77056
Attention: Mr. Raymond S. Wicker, Jr.
Telecopy No.: (713) 622-9108
10
(b) if to the Purchaser, to:
Telescan, Inc.
5959 Corporate Drive, Suite 2000
Houston, Texas 77036
Attention: Mr. Roger C. Wadsworth, Senior Vice President
Telecopy No.: (713) 588-9797
with a copy to:
Liddell, Sapp, Zivley, Hill & LaBoon, L.L.P.
3400 Texas Commerce Tower
Houston, Texas 77002
Attention: Mr. David F. Taylor
Telecopy No.: (713) 223-3717
5.6 ASSIGNMENT. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto without the prior written consent of the other parties; PROVIDED,
HOWEVER, that the Purchaser may, without the prior written consent of the Seller
or any of the Partners, assign its rights, interests and obligations hereunder
to a corporation all the outstanding stock of which is owned by the Purchaser,
but the Purchaser shall not be relieved from liability hereunder. This Agreement
is not intended to and shall not confer upon any person other than the parties
any rights or remedies hereunder.
5.7 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Texas (regardless of the laws that might otherwise govern under
applicable Texas principles of conflicts of law) as to all matters, including
but not limited to matters of validity, construction, effect, performance and
remedies.
5.8 GENDER; "INCLUDING" IS NOT LIMITING; DESCRIPTIVE HEADINGS. The
masculine and neuter genders used in this Agreement each includes the masculine,
feminine and neuter genders, and the singular number includes the plural, each
where appropriate, and VICE VERSA. Wherever the term "INCLUDING" or a similar
term is used in this Agreement, it shall be read as if it were written
"including by way of example only and without in any way limiting the generality
of the clause or concept referred to." The descriptive headings are inserted for
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
5.9 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Agreement.
11
5.10 JURISDICTION AND VENUE. Any process against the Purchaser, the
Seller or any of the Partners in, or in connection with, any suit, action or
proceeding arising out of or relating to this Agreement or any of the
transaction contemplated by this Agreement may be served personally or by
certified mail at the address set forth in SECTION 5.5 with the same effect as
though served on it or him personally. The Purchaser, the Seller and the
Partners hereby irrevocably submit in any suit, action or proceeding arising out
of or relating to this Agreement or any of the transaction contemplated by this
Agreement to the jurisdiction and venue of the United States District Court for
the Southern District of Texas and the jurisdiction and venue of any court of
the State of Texas located in Harris County and waive any and all objections to
jurisdiction and review or venue that it or he may have under the laws of Texas
or the United States.
5.11 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.12 REFERENCES; INCORPORATION BY REFERENCE. All section, article,
schedule and exhibit references made herein refer to sections and articles of
this Agreement unless otherwise specified. Any and all schedules, exhibits,
annexes, statements, reports, certificates or other documents or instruments
referred to herein or attached hereto are incorporated herein by reference as
though fully set forth at the point referred to in the Agreement.
5.13 INTERPRETATION. The article and section headings contained in this
Agreement are solely for the purpose of reference, are not part of the agreement
of the parties and shall not in any way affect the meaning or interpretation of
this Agreement.
5.14 ENTIRE AGREEMENT. This Agreement, including the exhibits hereto and
the documents, instruments and schedules referred to herein, embodies the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, representations,
warranties, covenants, or undertakings, other than those expressly set forth or
referred to herein. This Agreement supersedes all prior agreements and
understandings between the parties with respect to such subject matter.
5.15 WAIVER. A provision of this Agreement may be waived only by a
written instrument executed by or on behalf of the party waiving compliance. The
failure of any party at any time or times to require performance of any
provision hereof shall in no manner affect the right at a later time to enforce
the same. No waiver by any party of any condition, or of any breach of any term,
covenant, representation or warranty contained in this Agreement, in any one or
more instances, shall be construed to be a waiver of any other condition or of
any other breach of the same or any other term, covenant, representation or
warranty.
12
5.16 DISCLOSURE. The parties hereto shall not, prior to the Closing,
make any public disclosure of the terms of the transaction contemplated hereby
or in connection herewith without the written consent of the other party, other
than as required to obtain the necessary approvals for the transaction
contemplated hereby, to those professionals and advisors who have a need to
know, and as otherwise required by applicable law.
5.17 EXPENSES. Except as otherwise provided in this Agreement, the
Purchaser shall pay all expenses incurred by the Purchaser in connection with
entering into and carrying out its obligations pursuant to this Agreement,
including all of its attorneys' fees, and the Seller shall pay all expenses
incurred by the Seller and the General Partner in connection with entering into
and carrying out their obligations pursuant to this Agreement, including all
their attorneys' fees.
5.18 ATTORNEYS' FEES. In the event any party hereto institutes a lawsuit
against any other party hereto for a claim arising out of or to specifically
enforce this Agreement, the losing party shall pay the reasonable attorneys'
fees incurred by the prevailing party in connection with such lawsuit.
13
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed on its behalf as of the date first above written.
TELESCAN, INC.
By: /s/ ROGER C. WADSWORTH
Roger C. Wadsworth
Senior Vice President
OP/COM PARTNERS, LTD.,
by its General Partner
/s/ RAYMOND S. WICKER JR.
Raymond S. Wicker, Jr.
General Partner:
/s/ RAYMOND S. WICKER JR.
Raymond S. Wicker, Jr.
EXHIBITS AND SCHEDULES:
Exhibit A List of Partners
Exhibit B Schedule of Assets
Exhibit C Investor Letter
Exhibit D Registration Rights Agreement
Schedule 2.6 Liabilities
Schedule 2.9 Intellectual Property
14
EXHIBIT A
LIST OF PARTNERS OF SELLER
Betty Sue Gullberg
L.D. Blackwell
Alan B. Gaylor
MG&R Limited Partnership
G. Robert Friedman
Raymond S. Wicker, Jr.
EXHIBIT B
SCHEDULE OF ASSETS
All Patent Rights, licensed Patent Rights, Confidential Information,
contract rights and, to the extent not included therein, all general and
specific knowledge, experience and information and rights with respect thereto,
including without limitation, all know-how, trade discoveries, methods, plans,
specifications, characteristics, raw material(s) and any other technical
information or rights, patentable or unpatentable, discovered, developed or
acquired by OP/COM Partners, Ltd., a Texas limited partnership (the
"Partnership"), with respect to the development of the Technology during the
Development Phase (the "Partnership Technology"), including, without limitation,
the Partnership's rights with respect to the Ancillary Products, and subject to
such rights of other person or entities as may exist with respect to the
Partnership Technology or any of its components.
For purposes of the EXHIBIT A:
(1) "ANCILLIARY PRODUCTS" shall mean any products utilizing any patent
rights, licenses of patent rights or Confidential Information included within
the scope or as a part of the Technology.
(2) "CONFIDENTIAL INFORMATION" shall mean all unpatented know-how, trade
secrets, technical data, processes, formulae, designs, inventions, discoveries,
methods, plans, specifications, characterizations, raw material data,
statistical theory and data, hardware design data, market action studies,
processing techniques, system sub-routines, and any technical information,
patentable or unpatentable, of the Partnership, except such information which is
(a) known other than as a result of disclosure by the Partnership or any of the
Partners, (b) disclosed in published literature (other than by publication by
Partnership or any of the Partners, or by its employees or any consultant or
independent contractor retained by any of them) or in issued patents, (c)
generally known to the industry without breach of that certain Research and
Development Agreement dated as of August 15, 1989 (the "R & D Agreement")
between Raymond S. Wicker, Jr. and D.B. Technology, Inc., a Texas corporation or
any other agreement between such parties, (d) lawfully obtained by such party
from a third party without binder of secrecy, or (e) licensed or transferred to
other parties in areas outside the scope of the Technology but subject to a
restriction on disclosure.
(3) "DEVELOPMENT PHASE" shall mean, with respect to the Technology, the
period beginning August 15, 1989 and ending upon the completion of development
of the Technology pursuant to Section 3 of the R & D Agreement.
(4) "PATENT RIGHTS" shall mean all United States patents, patent
application, and all non-United States national patents and regional patents
(such as those applied for under the European Patent Convention or granted under
the Eurpean Community Patent Convention) and applications therefor, of any kind
(including divisions, continuations, in whole or in part, reissues, renewals,
and extensions of any of the foregoing and pending applications therefor).
(5) "TECHNOLOGY" shall mean the hardware and software necessary to develop:
(a) a storage and retrieval sequence for handling stock options and
commodity data;
(b) an interface for said commodity and options data to either a
proprietary developed portfolio package or to an existing
acceptable portfolio program;
(c) a portfolio routine to be used in conjunction with various
Telebase activities, including stock portfolios for the current
range of Telebase customers and a special routine for a proposed
Telebase stock market game; and
(d) a comprehensive options analysis package that will allow the user
to identify the best option and to allow the user to search out
and identify profitable option opportunities across the entire
stock option market.
EXHIBIT C
INVESTOR LETTER
June 14, 1996
Telescan, Inc.
5959 Corporate Drive, Suite 2000
Houston, Texas 77036
Gentlemen:
Pursuant to the Asset Purchase Agreement (the "Agreement") dated June
14, 1996, by and between Telescan, Inc., a Delaware corporation ("Telescan"),
and OP/COM Partners, Ltd., a Texas limited partnership ("OP/COM"), the
undersigned has agreed to acquire, as part of the Purchase Price (as such term
is defined in the Agreement), 38,000 shares of Telescan common stock, $0.01 par
value per share (the "Stock"). In connection with the acquisition of the Stock,
OP/COM represents to Telescan, its representatives and agents that the Stock
will be acquired by OP/COM for its own account and that OP/COM does not
currently have any present intention of selling or otherwise disposing of all or
any portion of the Stock. The Stock will be acquired and held by OP/COM for
investment purposes only, and not with a view to or for resale in connection
with any distribution thereof.
OP/COM certifies that it has, and at the time of such acquisition will
have, such knowledge and experience in financial and business matters as to be
capable of understanding the nature of the investment to be made by it and
evaluating the financial risk thereof. OP/COM acknowledges that prior to the
date hereof, it has received copies of Telescan's most recent filings with the
Securities and Exchange Commission (the "SEC") which consist of (i) Telescan's
Form 10-K filed for the fiscal year ended December 31, 1995, (ii) Telescan's
Form 10-Q for the fiscal quarter ended March 31, 1996, and (iii) Telescan's
Proxy Statement dated on or about May 1, 1996 for its 1996 annual shareholders'
meeting. In addition, OP/COM acknowledges that it was afforded access to all of
the books, records and premises of Telescan, and that it examined the same or
caused the same to be examined by its representatives to the extent it deemed
necessary or appropriate.
OP/COM acknowledges that, in connection with its consideration of
whether to engage in the transactions contemplated by the Agreement, Telescan
provided to OP/COM certain non-public confidential information (the
"Information"), and agrees OP/COM should not use such Information in violation
of federal or state securities or other laws.
OP/COM was advised prior to the date hereof of the promulgation of Rule
144 by the SEC under the Securities Act of 1933 which currently permits only
limited resales of securities purchased in private placements subject to the
satisfaction of certain conditions, including, among other things: the
availability of certain current public information about the issuer, the resale
occurring not less than two (2) years after a party has purchased and paid for
the security to be sold, the sale being through a broker in a "broker's
transaction," and the number of shares being sold during any period not
exceeding specified limitations. OP/COM acknowledges and understands that
although Rule 144 is not the exclusive means provided for the sale of the Stock,
the Staff of the SEC has expressed its opinion that persons proposing to sell
securities received
Telescan, Inc.
June 14, 1996
Page 2
in a private placement other than in a registered offering or pursuant to Rule
144 will have a substantial burden of proof in establishing that an exemption
from registration is available. OP/COM understands that it may be required to
bear the financial risk of investment in the Stock for an indefinite period of
time.
OP/COM agrees that Telescan may prohibit the transfer of the Stock out
of its name unless any request for transfer is accompanied by an opinion of
counsel acceptable in form and substance to counsel for Telescan to the effect
that the proposed transfer results in no violation of the Securities Act of
1933, as amended, or any other applicable securities laws. OP/COM acknowledges
that the following legend may be placed upon each certificate:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR ANY APPLICABLE STATE SECURITIES LAWS
AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR CONVEYED WITHOUT
REGISTRATION OR AN OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO TELESCAN TO THE EFFECT THAT SUCH REGISTRATION IS NOT
REQUIRED.
OP/COM acknowledges that you are relying upon the representations
contained herein and that the shares of Stock are subject to restrictions on
transferability and resale and must be held until they are subsequently
registered under the Securities Act of 1933 and any other applicable securities
laws or an exemption from such registration is available. OP/COM understands
that only Telescan can take action to register the Stock and that, except as set
forth in that certain Registration Rights Agreement between Telescan, Inc. and
OP/COM Partners, Ltd. dated as of the date hereof, Telescan is under no
obligation to register the Stock under such Act or any other securities laws or
any agreement between Telescan and OP/COM.
OP/COM PARTNERS, LTD.
By: Its General Partner
/s/ RAYMOND S. WICKER, JR.
Raymond S. Wicker, Jr.
EXHIBIT D
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made June 14,
1996 by and between TELESCAN, INC., a Delaware corporation (the "Company") and
OP/COM PARTNERS, LTD., a Texas limited partnership ("OP/COM").
WHEREAS, on the date hereof, OP/COM acquired 38,000 shares of restricted
common stock, par value $0.01 per share (the "Shares"), of the Company.
WHEREAS, the Company desires to grant OP/COM certain registration rights
in respect of the Shares, as set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS.
As used in this Agreement, the following terms shall have the meanings
set forth below:
"COMMISSION" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"HOLDER" shall mean any distributee of the Shares. All of such
distributees shall be collectively referred to as the "Holders".
"HOLDERS' REPRESENTATIVE" shall mean Raymond S. Wicker, Jr., an
individual residing in Harris County, Texas.
"REGISTRABLE SECURITIES" shall mean the Shares.
The terms "REGISTER," "REGISTERED", and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement
in compliance with the Securities Act, and the declaration or ordering
by the Commission of the effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, other than
Selling Expenses (as defined below), incurred by the Company in
complying with Section 2.1 hereof, including, without limitation, all
registration, qualification and filing fees, exchange listing fees,
printing expenses, escrow fees, fees and disbursements of counsel of the
Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in
any event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations of
the Commission thereunder, all as the same shall be in effect at the
time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities
registered on behalf of OP/COM and/or any Holder and, except as set
forth above, all fees and disbursements of counsel for OP/COM, any
Holder or the Holders' Representative.
"UNDERWRITTEN PUBLIC OFFERING" shall mean a public offering in
which the Common Stock is offered and sold on a firm commitment basis
through one or more underwriters, all pursuant to an underwriting
agreement between the Company and such underwriters.
2. REGISTRATION RIGHTS.
2.1 COMPANY REGISTRATION.
(a) NOTICE OF REGISTRATION. Subject to the terms hereof, if at
any time or from time to time the Company shall determine to register any of its
securities (except for registration statements relating to employee benefit
plans or exchange offers), either for its own account or the account of a
securityholder, the Company will:
(i) promptly give to OP/COM and Holders' Representative
written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance),
and in the underwriting involved therein, such Registrable
Securities as OP/COM or any Holder (through the Holders'
Representative) may unconditionally request in a writing
delivered to the Company within 10 days after OP/COM's or
the Holders' Representative's receipt of Company's written
notice delivered pursuant to Section 2.1(a)(i) above. If
no such notice is received by the Company in the time
period set forth above, the Company shall have no
registration obligations with respect to the Shares for
such registration or underwriting.
OP/COM and/or any Holder may participate in one such registration
pursuant to this Agreement, regardless of whether all of the Registerable
Securities held by OP/COM and/or any such Holder are to be or have been
distributed pursuant to a registration; PROVIDED, HOWEVER, that neither OP/COM
nor any Holder shall have any rights hereunder if the applicable holding period
has elapsed under Rule 144 with respect to its or his Shares, as the case may
be.
-2-
(b) UNDERWRITING. If any registration statement is an
Underwritten Public Offering, the right of OP/COM and/or any Holder to
registration pursuant to this Section 2.1 shall be conditioned upon OP/COM's
and/or any such Holder's participation in such reasonable underwriting
arrangements as the Company shall make regarding the offering, and the inclusion
of Registrable Securities in the underwriting shall be limited to the extent
provided herein. OP/COM, any Holder and all other securityholders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting ) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provisions of this Section 2.1, if the managing
underwriter concludes in its reasonable judgment that the number of shares to be
registered for selling securityholders (including OP/COM and/or any Holder)
would materially adversely effect such offering, the number of Shares to be
registered, together with the number of shares of Common Stock or other
securities held by other securityholders proposed to be registered in such
offering, shall be reduced on a pro rata basis based on the number of Shares
proposed to be sold by OP/COM and/or any Holders as compared to the number of
shares proposed to be sold by all securityholders. If OP/COM or any Holder
disapproves of the terms of any such underwriting, OP/COM or any such
disapproving Holder may elect to withdraw therefrom by written notice to the
Company and the managing underwriter, delivered not less than ten days before
the effective date of such registration. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration, and shall not
be transferred in a public distribution prior to 120 days after the effective
date of the registration statement relating thereto, or such other shorter
period of time as the underwriters may require.
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.1 prior to the effectiveness of such registration whether or not
OP/COM and/or any Holder has elected to include securities in such registration.
2.2 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with all registrations pursuant to Section 2.1 shall be borne by the
Company. Unless otherwise stated herein, all Selling Expenses relating to
securities registered on behalf of OP/COM and/or any Holder under Sections 2.1
shall be borne by OP/COM and/or the Holders.
2.3 REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep OP/COM and/or the Holders' Representative, as the case may
be, advised in writing as to the initiation of each registration, qualification
and compliance and as to the completion thereof.
At its expense, the Company will:
(a) prepare and file with the Commission a registration statement
with respect to such securities and use its commercially reasonable efforts to
cause such registration statement to become and remain effective until the
distribution described in such registration statement has been completed;
-3-
(b) furnish to each underwriter such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as such underwriter
may reasonably request in order to facilitate the public sale of the Shares by
such underwriter, and promptly furnish to each underwriter, OP/COM and/or the
Holders' Representative, as applicable, notice of any stop-order or similar
notice issued by the Commission or any state agency charged with the regulation
of securities, and notice of any NASDAQ National Market or securities exchange
listing.
(c) cause the Shares to be listed on each Securities Exchange on
which the Common Stock is approved for listing.
2.4 CERTAIN INFORMATION.
(a) OP/COM and each of the Holders agrees, with respect to any of
its or his Registrable Securities included in any registration, to furnish to
the Company such information regarding OP/COM and/or such Holder, its or his
Registrable Securities and the distribution proposed by OP/COM and/or such
Holder, as applicable, as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in Section 2.1.
(b) The failure of OP/COM and/or any Holder to furnish the
information requested pursuant to Section 2.5(a) shall not affect the obligation
of the Company to the other selling securityholders who furnish such information
unless, in the reasonable opinion of counsel to the Company or the underwriters,
such failure impairs or may impair the legality of the Registration Statement or
the underlying offering.
3. MISCELLANEOUS.
3.1 APPOINTMENT OF HOLDERS' REPRESENTATIVE. Raymond W. Wicker, Jr., an
individual residing in Harris County, Texas, is hereby appointed by OP/COM and
the Holders to act for purposes of this Agreement as the Holders' Representative
hereunder. Raymond W. Wicker, Jr. hereby accepts such appointment and agrees to
act as the Holders' Representative hereunder and in accordance and compliance
herewith.
3.2 GOVERNING LAW. This Agreement shall be governed in all respects by
the laws of the State of Texas.
3.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the full and
entire understanding and agreement between the parties with regard to the
subject hereof. This Agreement, or any provision hereof, may be amended, waived,
discharged or terminated upon the written consent of the Company and OP/COM.
-4-
3.4 ASSIGNMENT. This Agreement and all of OP/COM's rights hereunder may
be assigned by OP/COM solely to its partners, or any of them, by pro rata
distribution of partnership assets; PROVIDED, that all such partners to which
this Agreement and the rights of OP/COM hereunder is assigned shall accept such
assignment and agree to be bound by the terms hereof in writing delivered to the
Company.
3.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by messenger
including Federal Express or similar courier service, addressed (a) if to OP/COM
or the Holders' Representative, to 1400 Post Oak Boulevard, Suite 300, Houston,
Texas 77056, or (b) if to the Company, to 5959 Corporate Drive, Suite 2000,
Houston, Texas 77036, or at such other address as the Company shall have
furnished in writing to OP/COM. Each such notice or other communication shall
for all purposes of this Agreement be treated as effective upon receipt.
3.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to any party to this
Agreement shall impair any such right, power or remedy of such party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party to this Agreement, shall be cumulative and not alternative.
3.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.8 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision.
3.9 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
-5-
IN WITNESS WHEREOF, the parties have executed this Agreement effective
upon the date first set forth above.
TELESCAN, INC.
By: /s/ ROGER C. WADSWORTH
Roger C. Wadsworth
Senior Vice President
OP/COM PARTNERS, LTD.
By: Its General Partner
/s/ RAYMOND S. WICKER, JR.
Raymond S. Wicker, Jr.
HOLDERS' REPRESENTATIVE
/s/ RAYMOND S. WICKER, JR.
Raymond S. Wicker, Jr.
-6-
BILL OF SALE
THAT OP/COM Partners, Ltd., a Texas limited partnership ("SELLER"), for and
in considera tion of the sum of Ten and No/100 Dollars ($10.00) and other good
and valuable consideration paid by Telescan, Inc., a Delaware corporation
("PURCHASER"), the receipt of which is hereby acknowledged, has BARGAINED, SOLD,
TRANSFERRED, DELIVERED and ASSIGNED, and by these presents does BARGAIN, SELL,
TRANSFER, DELIVER and ASSIGN, unto Purchaser any and all rights, title and
interest in, to those assets set forth on EXHIBIT A hereto (the "ASSETS"), in
each case free and clear of all mortgages, liens, pledges, security interests,
charges, claims, restrictions, and encumbrances of any nature except those to be
canceled or released pursuant to disbursements on the date hereof.
TO HAVE AND TO HOLD unto the Purchaser and its successors and assigns
forever the Assets, together with, all and singular, the rights and
appurtenances thereto in any way belonging to the Seller.
This Bill of Sale shall be governed by and construed in accordance with the
internal laws of the State of Texas, without regard to conflicts of law
principles.
EXECUTED as of this 14th day of June, 1996.
SELLER:
OP/COM PARTNERS, LTD.
By: /s/RAYMOND S. WICKER, JR.
Raymond S. Wicker, Jr.
its General Partner
PURCHASER:
TELESCAN,INC.
By: /s/ROGER C. WADSWORTH
Roger C. Wadsworth
Senior Vice President
SCHEDULE 2.6
LIABILITIES
None.
SCHEDULE 2.9
INTELLECTUAL PROPERTY
None.
EXHIBIT 11
TELESCAN , INC.
Calculation of Earnings Per Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
--------------------------- ---------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Primary:
Weighted average number of shares
of common stock (1) ................................. 10,628 9,560 10,526 9,533
Assumed exercise of certain
stock options (2) ................................... -- 361 -- --
Assumed exercise of stock warrants (2) ................. -- 104 -- --
-------- -------- -------- --------
10,628 10,025 10,526 9,533
======== ======== ======== ========
Net income (loss) ...................................... $ (940) $ 52 $ (1,473) $ (197)
======== ======== ======== ========
Primary earnings per share:
Net income (loss) ...................................... $ (0.09) $ 0.01 $ (0.14) $ (0.02)
======== ======== ======== ========
Fully-diluted:
Weighted average number of shares
of common stock (1) ................................. 10,628 9,560 10,526 9,533
Assumed exercise of certain
stock options (2) ................................... -- 361 -- --
Assumed exercise of stock warrants (2) ................. -- 104 -- --
-------- -------- -------- --------
10,628 10,025 10,526 9,533
======== ======== ======== ========
Net income (loss) ...................................... $ (940) $ 52 $ (1,473) $ (197)
======== ======== ======== ========
Fully-diluted earnings per share:
$ (0.09) $ 0.01 $ (0.14) $ (0.02)
======== ======== ======== ========
</TABLE>
(1) Used in calculating net income per common share for the quarters ended
June 30, 1996 and 1995, and the six months ended June 30, 1996, as the
dilutive effect of stock options and warrants was less than three percent.
(2) Assumed exercises are anti-dilutive for the six months ended June 30,
1995.
EXHIBIT 11
page 2 of 2
TELESCAN, INC. AND SUBSIDIARIES
Statement Regarding Computation of Per Share Earnings
(in thousands, except per share amounts)
Days
Out- Weighted
Shares Standing Shares
------ ----- ------
Quarter Ended June 30, 1996:
Balance March 31, 1996 ...................... 10,605 90 10,605
Common stock issuances ...................... 79 25.2 23
------ ----- ------
Balance June 30, 1996 ....................... 10,684 10,628
====== ======
Six Months Ended June 30, 1996:
Balance December 31, 1995 ................... 10,243 180 10,243
Common stock issuances ...................... 441 115.7 283
------ ----- ------
Balance June 30, 1996 ....................... 10,684 10,526
====== ======
EXHIBIT 15
REPORT ON REVIEW BY INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Telescan, Inc.
Houston, Texas
We have reviewed the accompanying condensed consolidated balance sheet of
Telescan, Inc. and subsidiaries as of June 30, 1996, and the related condensed
consolidated statements of operations for the three-month and six-month periods
then ended June 30, 1996 and 1995, and the related condensed consolidated
statements of cash flows for the six-month period ended June 30, 1996 and 1995.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
statements consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is the expression
of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements in order
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the year then ended (not presented herein); and in our report dated
February 13, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of December 31, 1995, is
fairly stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
HEIN + ASSOCIATES LLP
Houston, Texas
August 9, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM TELESCANS QUARTERLY REPORT FOR THE QUARTER ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<EXCHANGE-RATE> 1
<CASH> 1,914
<SECURITIES> 0
<RECEIVABLES> 1,762
<ALLOWANCES> 165
<INVENTORY> 185
<CURRENT-ASSETS> 4,671
<PP&E> 4,743
<DEPRECIATION> 2,024
<TOTAL-ASSETS> 12,370
<CURRENT-LIABILITIES> 2,415
<BONDS> 0
107
0
<COMMON> 0
<OTHER-SE> 9,253
<TOTAL-LIABILITY-AND-EQUITY> 12,370
<SALES> 1,071
<TOTAL-REVENUES> 6,743
<CGS> 580
<TOTAL-COSTS> 5,726
<OTHER-EXPENSES> 2,560
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 39
<INCOME-PRETAX> (1,473)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,473)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,473)
<EPS-PRIMARY> (0.14)
<EPS-DILUTED> (0.14)
</TABLE>
