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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____________to ________________.
COMMISSION FILE NO.: 0-20312
VISTA INFORMATION SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1293754
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5060 SHOREHAM PLACE, #300, SAN DIEGO, CA 92122
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (619) 450-6100
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section12(g) of the Exchange Act:
COMMON STOCK, $.001 PAR VALUE
Check whether the Issuer (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past
90 days. YES X NO
Check if there is no disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B contained herein, and no disclosure will be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [X].
Revenues for the period ended December 31, 1998 were approximately
$15,068,000.
As of March 24, 1999, 16,607,315 shares of Common Stock of the
Registrant were outstanding (this number excludes shares issuable upon
conversion of 481,671 shares of the Registrant's convertible voting preferred
stock into 3,542,153 shares of Common Stock) and the aggregate market value
of the Registrant's voting stock as of that date (based upon the closing bid
and asked prices of the Common Stock as of that date reported by Nasdaq),
excluding outstanding shares beneficially owned by directors and executive
officers, was approximately $83,643,255.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-KSB incorporates by reference
information (to the extent specific sections are referred to herein) from the
Registrant's Proxy Statement for its 1999 Annual Meeting (the "1999 Proxy
Statement"). If the Registrant does not file the Proxy Statement by April 30,
1999, it will file an amended Form 10-KSB to include such information.
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PART I
ITEM 1. GENERAL DEVELOPMENT OF BUSINESS.
This section contains forward-looking statements within the meaning
of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the
Securities Act of 1933, which are subject to the "safe harbor" created by
these sections. Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and similar expressions or variations of
such words are intended to identify forward-looking statements, but are not
the exclusive means of identifying forward-looking statements in this Report.
Additionally, statements concerning future matters such as the features,
benefits and advantages of the Company's products, the development of new
products, enhancements or technologies, business and sales strategies,
competition and facilities needs and other statements regarding matters that
are not historical are forward-looking statements. Such statements are
subject to certain risks and uncertainties, including without limitation
those discussed in "Risk Factors" section of Item 6 of this Report. The
Company's actual future results could differ materially from those projected
in the forward-looking statements. The Company assumes no obligation to
update the forward-looking statements. Readers are urged to review and
consider carefully the various disclosures made by the Company in this
Report, which attempts to advise interested parties of the risks and factors
that may affect the Company's business, financial condition and results of
operations. Because of these risks and uncertainties, readers are cautioned
not to place undue influence on such forward-looking statements.
VISTA Information Solutions, Inc. ("VISTA" or the "Company")
provides environmental risk information and address-based hazard and risk
classification information to bankers, engineers, insurance companies and
corporations throughout the United States. VISTA is comprised of three
primary product and service lines. The first, referred to as Environmental
Risk and Due Diligence Information Services is conducted principally in
California and provides address and name-based environmental risk information
about properties and companies in the United States to bankers, engineers and
corporations. The second, referred to as Property Disclosure Information
Services, is also located in California and provides natural hazard
disclosure reports to homesellers in California as required by law. The
third, referred to as Insurance Risk Information Services, is conducted
principally in Minnesota and provides information on address-based hazard and
classification information to property/casualty insurance underwriters.
The Company, originally known as DataMap, Inc. ("DMI"), was founded in
1975 to develop geographic-demographic analysis tools for business. From
inception until 1995, the Company focused on developing its geocoding
technologies (more fully explained below) and the related databases that provide
small area demographic information and address-based hazard and classification
information, and preparing geographically-based demographic reports used for
direct marketing and real estate site location. The Company focused its initial
selling efforts for its database services on the insurance industry through a
joint venture arrangement with the Insurance Services Office, Inc. ("ISO"). In
1995, the Company expanded its product offerings by acquiring, through a
wholly-owned subsidiary, VISTA Environmental Information, Inc. ("VISTA
Environmental"). The acquisition of VISTA Environmental expanded the Company's
existing product line to include environmental risk information and
significantly increased the marketing capability within the Company. On May 23,
1995, the Company changed its name from DataMap, Inc. to "VISTA Information
Solutions, Inc."
The Company was incorporated under the laws of the State of
Minnesota in 1975. On March 27, 1998 the Company was reincorporated in the
State of Delaware concurrent with a one-for-two reverse stock split, pursuant
to which each two outstanding shares of the Company's Common Stock were
converted into one share of Common Stock. In connection with the
reincorporation, the par value of the Company's common and preferred stock
was changed to $0.001 per share. All references to common shares (prices,
conversion rates and common stock equivalents) have been restated to
retroactively reflect the effect of the reverse split.
The Company has engaged in several acquisitions and mergers intended
to improve its competitiveness in the Environmental Risk and Due Diligence
and Property Disclosure Information markets. In November 1997, the Company
acquired substantially all assets of EnviroCheck, Ltd., a provider of
digitized federal environmental documents and high-detail environmental
reports. In April 1998, the Company acquired ENSITE Corporation of Denver, a
provider of detailed environmental information to engineers and financial
institutions. In July 1998, the Company acquired a majority interest in
E/Risk Information Services ("E/Risk"), a leading provider of property
disclosure reports in California. In January 1999, the Company reached an
agreement to acquire all remaining shares of E/Risk in exchange for shares of
the Company's common stock. In October 1998, the Company acquired
substantially all the assets of Environmental Information Services, Inc. a
provider of environmental research reports. In January 1999, the Company
merged with GeoSure, LP, which provided environmental risk and due diligence
information services and is a party to a 99-year license agreement with the
Sanborn Company to distribute Sanborn fire insurance maps. GeoSure, LP also
owns all shares of National Research Center, LLC, a provider of flood
determination information, and a majority interest in National Research
Center Insurance Services, Inc., a provider of flood insurance services. In
March 1999, the Company merged with EcoSearch Environmental Resources, Inc.,
a national provider of environmental information services.
The Company's executive office is located at 5060 Shoreham Place, #300,
San Diego, CA 92122, phone number (619) 450-6100.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company operates in a single industry segment: information services
including environmental risk information and address-based hazard and
classification information. No significant revenue is derived from foreign
markets.
NARRATIVE DESCRIPTION OF THE BUSINESS.
VISTA provides geographic risk information services and
address-based hazard and classification information services to bankers,
engineers, real estate professionals, insurance companies and corporations
throughout the United States. VISTA is comprised of three primary product and
service lines. The first, referred to as Environmental Risk and Due Diligence
Information Services is conducted principally in California and provides
address and name-based environmental risk information about properties and
companies in the United States to bankers, engineers and corporations. The
second, referred to as Property Disclosure Information Services, is also
located in California and provides required natural hazard disclosure reports
to homesellers in California as required by law. The third, referred to as
Insurance Risk Information Services, is conducted principally in Minnesota
and provides information on address-based hazard and classification
information to property/casualty insurance underwriters.
ENVIRONMENTAL RISK AND DUE DILIGENCE INFORMATION SERVICES
The Environmental Risk and Due Diligence Information Services portion
of VISTA's business was organized with the goal of meeting the needs of bankers,
engineers, corporations and others for environmental risk information relating
to properties and companies in the United States. VISTA gathers and collects
information from hundreds of federal, state, and local governmental agencies and
stores that information in proprietary databases. Using this information, the
Company has developed a diverse family of services, each tailored for the unique
needs of specific customer markets.
INDUSTRY FOCUS. The need for environmental risk information
originated with the enactment of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA) which imposes strict
liability for the full cost of cleanup of environmentally contaminated
property regardless of responsibility for the contamination or fault. The
Superfund Amendments and Reauthorization Act of 1986 (SARA) established an
"Innocent Landowner" defense which eliminated liability provided certain due
diligence was performed before acquisition. One step in the process of
satisfying the Innocent Landowners Defense requires routine, timely and
complete searching of government records for notice of environmental risk. As
a result of this legislation and additional enactments of state and federal
environmental laws, banks, corporations, attorneys, insurance companies and
environmental engineering firms have been and are continuing to seek
efficient means to gather environmental information. The consulting
engineering market segment has been serving bankers, developers, corporations
and others by providing Phase I and Phase II site assessments and many other
types of remediation and compliance review services. During 1993, the
industry and its clientele adopted new standards, ASTM-E 1527 and E-1528,
which, for the first time, provided clear guidelines for environmental due
diligence in commercial real estate transactions. These guidelines require a
search of government environmental records to check the known risks
associated with a property. The need for this information has greatly
increased since the 1970's and 1980's as a number of judicial, statutory,
regulatory and economic factors have encouraged participants in the real
estate markets (including owners, operators, lenders and insurers) to demand
such information to avoid potentially catastrophic environmental cleanup
liability. VISTA provides a set of software and services that meet the
requirements set out in the standards. VISTA also provides environmental
database reports to help this clientele conduct compliance audits, waste
disposal audits, benchmark reviews and marketing for strategic planning
programs.
In addition to using environmental information to establish the
Innocent Landowners Defense, the economic impact of environmental problems on
properties and companies arises in a number of other contexts, all having
potentially adverse effects on a company's finances. For example, banks are
monitored by the FDIC as to impact of environmental risk on property values
and the subsequent effect this has on the value of collateral and on the
banks' financial stability. Also, the federal securities laws require
disclosure regarding the material effects of compliance with federal, state
and local environmental laws and pending legal proceedings, and may require
discussion of the impact of such compliance.
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DEVELOPMENT OF THE ENVIRONMENTAL DATABASE. As a result of the
enactment of federal and state environmental laws and regulations during the
1970's and 1980's, various governmental agencies began collecting massive
quantities of information about environmental contamination and the
activities of businesses that could impact the environment. These
governmental agencies continue to collect, update and enhance information on
environmental issues. Each governmental agency, however, has different
information that it provides and uses various media formats for the
information collected. Furthermore, each governmental agency has its own
database and communication process and updates its information on different
timelines throughout the year. As a result of this lack of centralization of
environmental information, environmental engineers, financial institutions
and other companies did not have a cost-effective, timely way to gain access
to this extensive environmental risk information directly from the
governmental sources.
In response to the needs of users of environmental risk information,
VISTA has developed a national database containing environmental information
on approximately 3.5 million facilities and properties by gathering
information from more than 600 public sources. On an annual basis, VISTA
regularly processes approximately 60 million environmental records from such
sources, with more than 50,000 facilities or properties added or deleted each
month. VISTA has developed this database using its proprietary geographic
information systems capabilities, and has also created on-line distribution
channels.
PRODUCT AND SERVICE LINES. The Company has developed a diverse
family of services, each tailored for the unique needs of specific customer
markets. The following depicts the broad categories of current VISTA services
organized by general application.
REAL ESTATE TRANSACTION SCREEN REPORTS ("RETSR"). RETSRs are
specifically designed to provide easy to understand, basic environmental
hazard data about a specific piece of property and its immediate surrounding
area. RETSRs come in a variety of formats, from a single page screen to a
more detailed data report containing a map depicting the property and risk
discovered. These reports give the user the ability to identify environmental
hazards from public records with a low price screening tool and add more
layers of detail (and higher prices) as the need is discovered. All VISTA
RETSRs conform to the "Government Records Search" element of the ASTM
standards.
SITE ASSESSMENT REPORTS ("SAR"). SARs are designed specifically for the
environmental engineering market and are consistent with the ASTM-E 1527
standards. These reports provide a quick and accurate, low cost supplement to
the "Phase I" site assessment process which is the common standard in all
commercial real estate transactions. VISTA supports these clients with
additional information obtained from third parties including historical maps,
topographical maps, aerial photos and chain of title records ("Historical
Reference Products").
COMPLIANCE REPORTS. In addition to map-based reports, the RETSR and
SAR, VISTA offers a full line of compliance reports which provide extensive
information about operational compliance with all the major pieces of
environmental legislation including the Clean Air Act, Clean Water Act,
Resource Conservation and Recovery Act of 1976, Occupational Safety and
Health Act of 1970, Toxic Substances Control Act and several others.
Compliance reports can be prepared for a specific facility or an entire
company including all its facilities. Clients may order these reports to
audit their own facilities, for vendor audits or for acquisition analysis and
due diligence. Pricing is based on the number of facilities and the level of
detail the customer requests. During 1995, VISTA began offering a new line of
compliance reports which allow companies to compare their environmental
records with those of competitors, or other companies in the same geographic
area. The studies normally include comparisons of compliance records,
remediation requirements, Superfund responsibility, toxic release reporting
and waste minimization efforts. Major companies seeking ISO 14000
certification can use this product to establish a baseline from which to
measure future operational improvements. Others can use it for setting
internal goals and management incentives, or for demonstrating superior
performance to regulators, investors and other constituencies.
HISTORICAL REFERENCE PRODUCTS. A complete line of historical map
products is available to support ASTM requirements for determining historical
use of any property. These include Sanborn fire insurance maps, historical
topographical maps, county-planning maps, property chain-of-title, city
directories and others.
VISTACHECK(TM) is a fully integrated, Internet-based information
solution providing immediate access to the Company's environmental database
reports, including SARs, RETSRs and compliance reports. Customers can submit
a property address or geographic coordinate and see an on-screen, visual
representation of the subject property, which they can use to verify the
accuracy of the location. Once the location has been accepted, the customer
can then order the full range of VISTA environmental risk information
products related to that property.
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SEARCH!. The SEARCH! module is a tool for environmental risk managers
and provides immediate access to the 3.5 million record VISTA database. Clients
use the SEARCH! module for both risk management and business development, and
have the ability to screen environmental risks associated with specific
companies, properties, or geographic areas.
STARVIEW(TM). The Company has developed an "off-the-shelf" family of
Windows-based software modules known as STARVIEW. The various modules of
STARVIEW bring VISTA environmental risk information and VISTA reports to the
desktop of the customer. StarView is marketed exclusively as a contractual
relationship whereby generally the customer agrees to a certain minimum
purchase commitment, a higher, per-transaction cost or to use Vista
exclusively for its environmental risk information needs. Currently VISTA
licenses two modules in the STARVIEW suite:
1. REAL ESTATE. The Real Estate module is used to prepare Site
Assessment and Transaction Screen radius reports, which
provide a concise review of known and potential environmental
risks associated with a specific property and surrounding
area. Standard real estate report templates conform to or
exceed ASTM standards for government record searches. Reports
using extended radii or user-specified search criteria can
also be easily defined and prepared.
2. TSDF PERFORMANCE. The TSDF Performance Monitor module is a
cost-effective way to screen and evaluate waste handler
performance. The Performance Monitor contains more than 650
complete TSDF audits. It allows users to benchmark performance
between TSDFs, or monitor changes within individual facilities
as new information is released. The Performance Monitor is
also valuable in identifying which generators use specific
TSDFs and evaluating potential "deep pocket" exposure.
CUSTOMER BASE. VISTA's customer base for Environmental Risk and Due
Diligence Information Services includes consulting engineers, financial
institutions, law firms, real estate finance companies, insurance companies
and major corporations nationwide. VISTA's services are sold directly to its
customers and through established resellers. VISTA's services have an
exclusive endorsement by the American Bankers Association and many state
banking associations.
SALES AND MARKETING. VISTA markets its Environmental Risk and Due
Diligence Information Services through direct sales and through value-added
resellers and other strategic relationships. VISTA has approximately 17
direct sales representatives in 8 cities as well as an inside sales
department located in San Diego, CA. These sales representatives target the
banking, corporate and engineering markets. The sales force is supplemented
by the value-added resellers and other sales agents.
COMPETITION. The Company believes that the principal competitive
factors in the environmental information services business are price, accuracy
and completeness of data, readability of reports and the speed and ease of
delivery. While the Company competes on the basis of each of these factors,
management believes that the Company's primary competitive strengths in the
environmental information services business are the accuracy and completeness of
its data, the readability of its reports and the speed and ease of delivery
particularly through STARVIEW and VISTACHECK.
VISTA is aware of only one other firm, Environmental Data Resources,
Inc. ("EDR"), with national environmental database service. In addition to
EDR, New England DataMap, Inc. and a number of smaller regional and local
companies, who are focused on a single state or regional market, compete with
the Company in this area. These smaller firms often originate out of an
environmental engineering background, focus on a city, state or small region
and have strengths in understanding the local available data sources.
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PROPERTY DISCLOSURE INFORMATION SERVICES
VISTA Property Disclosure Information Services was formed in 1998 to
provide natural hazard disclosure reports to homesellers in California as
required by law. The Company also provides other disclosure reports such as
special taxation areas ("Mello-Roos").
INDUSTRY FOCUS. In 1998, legislation became effective in California
which requires sellers and their agents to disclose to a prospective buyer
whether the property for sale is located in one of six so-called "natural
hazard zones" and to make this disclosure on a statutory form known as the
Natural Hazard Disclosure Statement ("NHD"). The six zones are:
1) A flood hazard zone as designated by the Federal Emergency Management Agency
("FEMA");
2) An area of potential flooding after a dam failure (also known as a
"dam inundation area");
3) A high fire hazard severity zone;
4) A wildland fire area (also known as "state fire responsibility area" or
"SRA");
5) An earthquake fault zone; and
6) A seismic hazard zone.
In 1998, the Company developed a geographic database and software to
provide NHD reports and formed a division known as Property Disclosure
Information Services. This division marketed one information product, known
as a Home Disclosure Report, to title companies, real estate brokers and
homesellers. In July 1998, the Company acquired a majority interest in E/Risk
Information Services ("E/Risk"), the leading provider of NHD reports in
California. E/Risk's premier product, the Total Disclosure Package ("TDP"),
provides all required state and local hazard disclosures, Mello-Roos
disclosure, and a required booklet which includes lead-based paint,
earthquake preparedness and environmental risks.
Property Disclosure products are sold primarily as a requirement for
commercial and residential property transactions. While the seller is required
to provide this information, the Company markets these products primarily to
real estate brokers and developers, title companies and escrow companies.
Typically, a seller's real estate agent will recommend a vendor to the seller
and order the report to be included in an escrow account, along with payment for
the report. Subsequent to the close of the transaction, funds are remitted from
the escrow account to the Company.
DESCRIPTION OF THE DATABASE. The database used to generate Property
Disclosure reports consists of digitized, geographic representations of the
six previously discussed hazard zones. This data is obtained from government
agencies and commercial providers of geographic hazard and risk information.
SALES AND MARKETING. The Company markets its Property Disclosure
reports through a staff of direct and inside sales representatives who
maintain relationships with real estate professionals and title companies.
The Company also has agreements with certain title companies to purchase or
refer purchases of Property Disclosure reports. In 1998 the Company signed a
five-year agreement with HomeSeekers.com, a leading Internet provider of
residential real estate listing information, to promote VISTA's Property
Disclosure products and provide marketing information through the HomeSeekers
web site.
COMPETITION. Other than VISTA, there are two large competitors and
numerous small competitors providing property disclosure in California. JCP
Geologists, Property ID, and LGS, Inc. are larger competitors providing
statewide property disclosure data. Smaller competitors primarily serve small
regions and provide manually produced disclosure reports. The Company
believes that convenience, accuracy and price are the primary competitive
factors in the property disclosure business. The Company believes that it has
significant competitive advantages with respect to convenience and accuracy
because of its online database and Internet order and delivery platform. The
Company also believes that it has a significant competitive advantage as a
result of its marketing agreement with HomeSeekers.com.
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INSURANCE RISK INFORMATION SERVICES
The Company has developed a proprietary service known as the Geographic
Underwriting System(R) ("GUS") which delivers address-based hazard and
classification information to property/casualty insurance underwriters. GUS
provides insurance underwriters and loss control groups of insurance companies
with on-line or batch access to a series of reports presenting specific
classification and hazard information about the property to be insured. The
Company's geo-demographic information databases, technological understanding and
techniques of geographic information processing provide the basis for its
current services. Additional insurance information layers can be added to the
Company's current GUS service offering due to the application's modular design.
The Company's GUS services are the subject of an exclusive arrangement
with ISO, a company providing services to approximately 1,400 participating
property/casualty companies which collectively write approximately 80 percent of
all property and casualty insurance in the United States. In October 1992, the
Company and ISO entered into a 15-year mutually exclusive contract with a
five-year extension option to offer a national system to electronically provide
geographically based information to insurers (the "ISO Agreement"). The GUS
project links the Company's geographic information systems technology with ISO's
insurance underwriting and other insurance information. Under the provisions of
the ISO Agreement, the Company provides its GUS software and support and ISO
provides contract administration and marketing of the product to its customer
base. Generally, the Company and ISO share project revenues equally. Both
companies also equally share the incremental costs of GUS project development
through the term of the ISO Agreement, which include costs incurred to date in
connection with the development of the Public Protection Classification Layer
(see "Product Lines", below).
INDUSTRY FOCUS. In the Insurance Risk Information Service area, the
Company focuses primarily on the property/casualty insurance industry for
sales of its services through ISO. The Company believes that the
implementation of GUS service can improve a property/casualty insurer's
underwriting process by reducing the number of misclassifications due to
human error, reducing the amount of personnel time involved in the
underwriting process, and providing an objective measure which will support
the insurer in defending rate determinations before state insurance
commissioners and consumer groups. In addition, GUS services provide a total
package of risk information that the Company believes is not presently
available on-line or in an easily accessible electronic format.
DESCRIPTION OF THE DATABASE. GUS contains two principal databases that
provide information to the Company's customers: (i) insurance hazard data (the
"Hazard Database") and (ii) road, street and postal database (the "Roadbase").
The Hazard Database is structured geographically as well as by the type of
hazard (e.g. crime ratings, auto territories, windstorm, extended coverage
zones, public protection classifications, earthquake risk and fire districts)
and includes information for all 50 states and the District of Columbia. The
Roadbase contains two sources of "raw data," the Dynamap/2000 street network
database from Geographic Data Technology (GDT) of Lebanon, NH, and the AMS II
database of postal delivery information produced and maintained by the United
States Postal Service ("USPS").
Both of the GUS databases are updated periodically throughout the
calendar year based on the source of the raw data. For the Hazard Database, fire
protection data is updated on a monthly basis. Other "hazard types" are updated
annually. Most of the insurance-specific data is updated through a process of
collection, assessment, classification, normalization, formatting, dataset
archiving, and uploading activities for test and production systems.
The Roadbase is updated quarterly. AMS II is generated and released
monthly by the US Postal Service. GDT updates and releases the Dynamap/2000
database quarterly. The Company developed a proprietary software system called
ZIPR(R) that integrates the Dynamap/2000 database and the USPS AMS II files,
automatically normalizing, matching, correcting, filling in, and inferring
information. The ZIPR(R) process links the raw databases and produces a
geographically complete master database capable of accurately locating "postal
compliant" addresses in the United States. The Roadbase that is uploaded into
GUS(R) is an extract of the master database created and maintained within
ZIPR(R). With each update, the Roadbase consists of the "most current" road
names, street positions and postal data all optimally structured for the address
matching and query process portion of a GUS(R) transaction.
As additional opportunities are identified, the Company intends to
evaluate adding additional hazard database layers to GUS to complement the
existing Hazard Database and the Roadbase and thereby provide "one-stop
shopping" for insurance underwriting information. For example, the Company
released a new "Earthquake Information Layer" in 1996 that provides underwriters
with important earthquake-related data.
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DESCRIPTION OF THE UNDERLYING TECHNOLOGY. Central to the development of
the information database is a process called geocoding. Geocoding is the ability
to accurately process a street address and convert this address to a latitude
and longitude coordinate pair. If it is not possible (because of incomplete or
inaccurate raw data from either Dynamap/2000 or the USPS) to assign unique
coordinates to an individual address, the Company's geocoding process will
assign latitude/longitude coordinates corresponding to its street range, postal
carrier route, zip code or city centroid. The Company believes that the
resulting geocode assignments offer the broadest coverage available of any
competitive geocoding technology. The Company has developed proprietary software
that performs this geocoding function ("Geocoder 2").
GUS is intended to deliver location-specific risk information to
insurance underwriters via the proprietary electronic network operated by ISO
("ISOTEL") and may be accessed by either telecommunication or batch processing.
GUS information can also be accessed by subscribers of the Equifax Insurance
Services information network, which has a direct on-line link to the ISOTEL
network. Insurance company subscribers are connected directly to GUS service
through an office terminal utilizing ISOTEL. The process to connect to ISO's
network is easy and is used regularly by many ISO participating companies. In
batch mode, large numbers of property location addresses are submitted for
processing to ISO, and are performed during off-peak hours by ISO as they
generally require considerable computer time and produce a large number of
reports. The reports requested are written to tape and returned to the insurance
company. While batch processing generally has a lower per-transaction cost, the
application of batch processing is more limited, often involving industry
analyses or audit functions.
The primary computer system for processing GUS service transactions is
capable of processing up to 15,000 transactions per hour. The primary system
located at ISO's data processing facility has a functionally equivalent back-up
system capable of assuming the transaction load for GUS service within one hour
of a failure of the primary system. VISTA maintains the back-up system at its
Minnesota location and is connected to the ISO network with a dedicated
communication line.
As an alternative to receiving access to GUS through the ISO electronic
network, the Company has developed a "flat file version" of GUS to market to
insurance companies that have developed their own application software. The flat
file version of GUS, or ZIP+GUS, is a pre-processed geographic file to which the
Company appends all of the hazard layer ratings and classifications found in the
standard on-line GUS. Using standard database look up software or the insurance
company's own application software, the user can submit addresses to the system
and obtain GUS ratings and classifications. ZIP+GUS converts GUS information
into a database that can be incorporated into the insurance company's internal
MIS operations. Development of the "flat file version" of GUS for a customer
requires customization to the customer's specific needs as each customer
typically requests different GUS layers for its system.
PRODUCT LINES. GUS currently provides the following information layers
to insurance companies:
PUBLIC PROTECTION CLASSIFICATION LAYER (AVAILABLE IN ALL STATES, AND
THE DISTRICT OF COLUMBIA) ("PPC"). PPC reports provide the following information
to the insurance company: (i) ISO standard protection classification; (ii) fire
district name; (iii) name of and distance to nearest fire station (measured in
tenths of miles); (iv) water supply type; and (v) revision dates for all data
and confidence factors for measured distances;
AUTO LAYER (AVAILABLE IN ALL STATES, AND THE DISTRICT OF COLUMBIA).
GUS's Auto Layer provides the following information: (i) ISO territory
classifications; (ii) drive distances for up to two work addresses; and (iii)
revision dates for all data and confidence factors.
WIND LAYER (AVAILABLE IN ALL STATES, AND THE DISTRICT OF COLUMBIA).
GUS's Wind Layer provides the following information: (i) ISO extended coverage
zone (residential and commercial); (ii) ISO extended territory code (residential
and commercial); (iii) wind pool eligibility; (iv) distance to nearest large
body of water and ocean or gulf; (v) five historical wind storm events closest
to the insured property, date of occurrence and measured wind speed; and (vi)
revision dates for all data and confidence factors for measured distances.
CRIME LAYER (AVAILABLE IN ALL STATES, AND THE DISTRICT OF COLUMBIA).
GUS's Crime Layer provides the following information: (i) composite crime rating
factor; (ii) arson rating; (iii) motor vehicle theft rating; (iv) robbery
rating; (v) aggravated assault rating; (vi) burglary rating; (vii) personal
crime index; (viii) property crime index; and (ix) revision dates for all data.
EARTHQUAKE LAYER. The GUS Earthquake Layer is particularly important to
the California market and provides the following information: (i) ISO and
California DOI earthquake zones; (ii) risk index (iii) soil type, landslide,
liquefaction, and ground failure risk; (iv) five closest faults with related
data; and (v) site seismity.
MISCELLANEOUS LAYERS. The Company also provides an information layer
that identifies California property that is located in brush fire zones.
8
<PAGE>
CUSTOMER BASE AND SALES AND MARKETING. GUS is currently being marketed
to the insurance industry exclusively through the ISO Agreement. Under the terms
of the ISO Agreement, a national sales force employed by ISO is responsible for
sales of the Company's GUS services to members of ISO. The Company supports
ISO's sales efforts by providing sales and technical training presentations for
ISO personnel, assisting ISO field sales representatives in preparing proposals,
participating in joint field sales calls and sharing resources with ISO at
industry trade shows and conferences.
The Company estimates that the selling and implementation cycle for GUS
service to a typical insurance company takes approximately six to nine months.
Implementation of GUS requires an insurance company to make a commitment to
alter its current way of doing business. For example, a majority of insurance
companies do not currently collect employment addresses on auto policy
applications therefore making it difficult to calculate drive distances.
COMPETITION. Given the exclusive nature of the ISO Agreement, the
Company believes that it does not have any direct competitors for sales through
ISO utilizing the GUS software. Certain of the GUS layers, or subfiles, do have
competitors, however, the Company does not believe that there are any
competitors that presently offer an on-line hazard and risk data service
comparable to that offered by GUS. No assurance can be given, however, that
competing services will not be developed in the future.
PRODUCT REVENUES AND SIGNIFICANT CUSTOMERS
For the fiscal year ended December 31, 1998, Environmental Risk and
Due Diligence Information Service revenues comprised 60 percent of total
revenues, Insurance Risk Information Services Revenues comprised 30 percent
of total revenues with Property Disclosure Information Services comprising
the balance. For the fiscal year ended December 31, 1997, environmental risk
information service revenues comprised 68 percent of total revenues, with the
balance comprised of geographic information services revenues. The Company
and ISO generally share project revenues equally, net of any payments to
third party information providers. The Company's share of revenues from one
ISO customer (State Farm) in 1998 and 1997 was approximately $2,000,000 and
$1,500,000 or 13 percent and 14 percent of revenues, respectively.
9
<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenditures were approximately $1,204,000 and
$919,000 for the years ended December 31, 1998 and 1997, respectively. Research
and development costs include database building and digitizing costs and
amounted to approximately $242,000 and $185,000 for the years ended December 31,
1998 and 1997, respectively and the development of new operating systems for the
environmental system of approximately $962,000 and $734,000 respectively. To
date, the Company's research and development activities related to the
development of GUS services and the development of new services, have been
conducted at its offices in Edina, Minnesota.
The Company has expended approximately $8.2 million to date on
developing the GUS technology and related information layers. Since the
completion of the PPC layer, the Company has not, and does not expect to make
significant development expenditures for the existing risk information layers
except for maintenance of the software and updates to the existing layers.
EMPLOYEES
As of December 31, 1997, the Company had 137 full time employees
including 67 employees in operations, 35 employees in sales and marketing, 22
employees in research and development and 13 employees in finance and
administration. On December 31, 1998, the Company had increased its operating
size to 194 full time employees including 115 employees in operations, 38
employees in sales and marketing, 25 employees in research and development and
16 employees in finance and administration.
No Company employee is currently represented by a labor union and
the Company is not a party to any collective bargaining agreement. The
Company has never been subject to any form of work stoppage or strike and has
not experienced any labor difficulties. Management believes that its employee
relations are good.
PATENTS, COPYRIGHTS AND TRADEMARKS
The Company's business is dependent upon its ability to gather,
manipulate and report publicly available data through the use of proprietary
techniques. Although management believes that the Company's business is not
significantly dependent upon patent protection, it has investigated possible
patent protection for several of the software techniques used in the development
of its geographic databases. To date, the Company has no patents and has made no
patent applications.
The Company has registered trademarks of "DataMap(R)," which
registration term expires on August 13, 2001, and "CAM-1+(R)," which
registration term expires on April 30, 2001, and has registered the service mark
"GUS(R)" which registration term expires on August 11, 2002
The unregistered trademarks and service marks which are used by the
Company are ZIPR(TM), Geosurance(TM), VISTAEXPRESS(TM), VISTA Information
ExpressWay(TM), VISTA InfoNet(TM), VISTACheck(TM), TSDMonitor(TM), TSDF
Performance Monitor(TM), QuickSite(TM), STARView(TM), Search!(TM), Business
Trac(TM), GUS(TM) and Business Traks(TM).
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
The Company's operations are conducted within the United States, and no
material portion of the Company's revenues is generated by export sales.
10
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's principal executive offices and Environmental Risk and
Due Diligence Information Services operations are located at 5060 Shoreham
Place, San Diego, California. The Company leases approximately 20,000 square
feet of space at this facility pursuant to a lease expiring in December 2003.
The lease for this facility provides for rent of approximately $30,000 per
month, subject to increase on an annual basis not to exceed 5 percent per year.
The Company also pays a pro rata share of operating expenses associated with
this space.
The Company leases approximately 13,000 square feet of space at 5354
Parkdale Drive, St. Louis Park, Minnesota for its Insurance Risk Information
Services operations pursuant to a lease executed December 1998, commencing
March 1999 and expiring in February 2007. The lease for this facility
provides for rent of approximately $14,400 per month, subject to increases in
years two through seven of $270 per month each year. The Company also pays a
pro rata share of taxes associated with this space.
The Company leases approximately 4,100 square feet of office space
located at 5 Sarnowski Drive, Glenville, New York, for a data center and
sales office for its Environmental Risk and Due Diligence Information
Services operations pursuant to a lease executed January 1997 expiring in
December 2001. The lease for this facility provides for rent of approximately
$4,100 per month, subject to increases in years two through five of
approximately $120 per month each year.
The Company leases approximately 2,500 square feet of office space
located at 187 Route 81, Killingworth, Connecticut, for a technical center
for its Environmental Risk and Due Diligence Information Services operations
pursuant to a lease executed December 1997 expiring in 1999. The lease for
this facility provides for rent of approximately $1,800 per month.
The Company leases approximately 1,430 square feet of office space
located at 7400 E. Arapahoe Road, Englewood, Colorado, for a sales and
production office for its Environmental Risk and Due Diligence Information
Services operations pursuant to a lease which commenced August 1994. The lease
for this facility provides for rent of approximately $1,193 per month.
The Company also leases approximately 300 square feet of office
space located at 149 Fifth Avenue, New York, New York, for a sales and
production office for its Environmental Risk and Due Diligence Information
Services operations pursuant to a lease commencing December 1997 and renewing
automatically each December. The lease for this office provides for rent of
approximately $1,200 per month.
The Company also leases approximately 5,400 square feet of office
space at 100 N. Winchester Blvd., Santa Clara, California, for its Property
Disclosure Information Services operations pursuant to leases commencing
April 1997 and March 1998 and expiring February 2001 and June 2001. The
leases for this facility provide for rent of approximately $9,000 per month,
subject to increases of approximately $380 per month each year.
The Company leases approximately 295 square feet of office space
located at 945 Hopmeadow Street, Simsbury, Connecticut, for a sales office
pursuant to a lease commencing February 1998 and expiring in 1999. The lease for
this facility provides for rent of $361 per month.
ITEM 3. LEGAL PROCEEDINGS
On July 28, 1998 the Company terminated a strategic alliance with
Phase One Inc. ("POI"). On August 19, 1998 POI filed a complaint against the
Company with the American Arbitration Association in San Diego, CA alleging,
among other things, that the Company incorrectly terminated the alliance and
withheld revenue distributions from POI. The Company believes that these
claims have no merit and that any outcome of this arbitration would not have
a material impact on the Company's financial results or business condition.
This statement is forward-looking and subject to risks and uncertainties
inherent in any legal proceeding. Accordingly, no assurances can be given
that the outcome or the process of resolving the claims made in this
proceeding will not adversely affect the Company's financial results or
business condition.
In October 1998, the Company filed a complaint against ISO with the
American Arbitration Association alleging, among other things, that ISO
incorrectly calculated certain processing fees and withheld these fees from
from the monthly GUS revenue distributions to the Company. The Company has
currently recorded a receivable from ISO which amounts to approximately
$750,000 at December 31, 1998. An arbitrator has been selected and the
arbitration is scheduled for April 15 and 16, 1999. This statement is
forward-looking and subject to risks and uncertainties inherent in any legal
proceeding. Accordingly, no assurances can be given that the outcome or the
process of resolving the claims made in this proceeding will not adversely
affect the Company's financial results or business condition.
In October 1998, the Company filed a complaint against ISO with the
American Arbitration Association alleging, among other things, that ISO has
incorrectly calculated processing fees from GUS transactions submitted
outside ISO's telecommunications network and witheld these fees from the
monthly GUS revenue distribution to the Company. An arbitrator has been
selected and the arbitration is scheduled for April 15 and 16, 1999.
Management and its counsel believe that the Company is entitled to the
withheld revenue distributions in accordance with the relevant provisions of
the ISO agreement and, accordingly, the Company has recorded a receivable of
approximately $750,000 from ISO. This statement is forward-looking and
subject to risks and uncertainties inherent in any legal proceeding. While the
Company believes it will be awarded the withheld amounts, no assurances can be
given that the outcome or the process of resolving the claims made in this
proceeding will not adversely affect the Company's financial results or
business condition.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted to a vote of the security holders of the
Company during the quarter ended December 31, 1998.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is currently traded on the NASDAQ
National Market under the symbol "VINF". Prior to March 19, 1999, the
Company's Common Stock was traded on the Nasdaq SmallCap Market. The
following table sets forth, for each of the quarters indicated, the range of
high and low bid quotations for the Company's Common Stock. Quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission,
and may not represent actual transactions.
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------ -------
<S> <C> <C>
FISCAL 1997
Quarter Ended March 1997 $1.876 $0.688
Quarter Ended June 1997 3.626 1.000
Quarter Ended September 1997 6.876 3.250
Quarter Ended December 1997 10.500 5.876
FISCAL 1998
Quarter Ended March 1998 9.626 7.375
Quarter Ended June 1998 10.75 6.625
Quarter Ended September 1998 8.938 4.375
Quarter Ended December 1998 8.125 2.781
</TABLE>
Share prices reported in the above table have been retroactively
restated from their actual prices to reflect the reverse split discussed
previously.
As of March 22, 1999, the Company's transfer agent reported
approximately 519 holders of record of the Company's Common Stock.
The Company has never paid any cash dividends on its Common Stock. The
Company currently intends to retain any future earnings to fund the development
of its business and does not anticipate that it will pay cash dividends on its
Common Stock in the foreseeable future. Additionally, agreements with various
lenders restrict the Company's ability to pay cash dividends.
On October 1, 1998, the Company issued 53,000 shares of Common Stock
to Environmental Information Services, Inc. ("EIS") in consideration for
substantially all of the assets of EIS. On December 31, 1998, the Company
sold 837,521 shares of Common Stock to Century Capital Partners, LP, a
venture capital fund. These shares were issued pursuant to the exemption from
registration provided by Section (412) of the Securities Act, in reliance in
part on the investment representations of the parties acquiring the shares.
12
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis provides information that the
Company's management believes is relevant to an assessment and understanding of
the Company's results of operations and financial condition. This discussion
should be read in conjunction with the financial statements and footnotes, which
appear elsewhere in this Report.
This discussion and analysis contains forward-looking statements within
the meaning of Section 21E of the Securities Exchange Act of 1934 and Section
27A of the Securities Act of 1933, which are subject to the "safe harbor"
created by that section. Words such as "expects," "anticipates," "intends,"
"plans," "believes," "seeks," "estimates" and similar expressions or variations
of such words are intended to identify forward-looking statements, but are not
the exclusive means of identifying forward-looking statements in this Report.
Additionally, statements concerning future matters such as the features,
benefits and advantages of the Company's products, the development of new
products, enhancements or technologies, business and sales strategies,
competition and facilities needs and other statements regarding matters that are
not historical are forward-looking statements. Such statements are subject to
certain risks and uncertainties, including without limitation those discussed in
"Risk Factors" section later in this Report. The Company's actual future
results could differ materially from those projected in the forward-looking
statements. The Company assumes no obligation to update the forward-looking
statements. Readers are urged to review and consider carefully the various
disclosures made by the Company in this Report, which attempts to advise
interested parties of the risks and factors that may affect the Company's
business, financial condition and results of operations. Because of these
risks and uncertainties, readers should not place undue reliance on any such
forward-looking statements.
VISTA provides environmental risk information and address-based hazard
and classification information to bankers, engineers, insurance companies and
corporations throughout the United States. The Company, originally known as
DataMap, Inc. ("DMI"), was founded in 1975 to develop geographic-demographic
analysis tools for business ("GIS"). Supporting this business line, the Company
has developed a proprietary service known as the Geographic Underwriting System
("GUS(R)") which delivers address-based hazard and classification information to
property/casualty insurance underwriters. GUS provides insurance underwriters
and loss control groups of insurance companies with on-line or batch access to a
series of reports presenting specific classification and hazard information
about the property to be insured. The Company's geo-demographic information
databases, technological understanding and techniques of geographic information
processing provide the basis for its current services. Additional insurance
information layers can be added to the Company's current GUS service offering
due to the application's modular design.
13
<PAGE>
On February 28, 1995, DMI acquired VISTA Environmental Information,
Inc. ("VISTA Environmental") in exchange for newly issued common and
preferred shares of DMI. The acquisition of VISTA Environmental expanded the
Company's existing product line to include environmental risk information and
significantly increased the marketing capability within the Company. VISTA
Environmental provides address and name based environmental risk information
about properties and companies in the United States to bankers, engineers and
corporations. On May 23, 1995, the Company changed its name from DataMap,
Inc. to "VISTA Information Solutions, Inc."
In April 1998, the Company acquired ENSITE Corporation of Denver
("Entrac"), a provider of detailed environmental information to engineers and
financial institutions.
In July 1998, the Company acquired 80 percent of the outstanding stock
of E/Risk Information Services ("E/Risk") in exchange for cash and newly issued
common shares of the Company. In January 1999, the Company reached an agreement
to acquire the remaining shares of E/Risk for newly issued Common Stock.
In October 1998, the Company acquired substantially all assets of
Environmental Information Services, Inc. a provider of environmental research
reports.
In January 1999, the Company merged with GeoSure, LP, a company
which provides environmental risk and due diligence information and is a
party to a 99-year license agreement with the Sanborn Company to distribute
Sanborn fire insurance maps. Under the terms of the agreement, the Company
may distribute copies of historical fire insurance maps known as "Sanborn
maps" for a royalty fee equal to 30 percent of the Sanborn Company's
prevailing price. GeoSure, LP also owns all shares of National Research
Center, LLC, a provider of flood determination information and a majority
interest in National Research Center Insurance Services, Inc., a provider of
flood insurance services.
In March 1999, the Company merged with EcoSearch Environmental
Resources, Inc. a national provider of environmental information services.
On January 27, 1998 the Company's Board of Directors approved a
reincorporation of the Company in Delaware and a one-for-two reverse stock
split. On March 27, 1998, the Company's stockholders approved the
reincorporation and reverse stock split, which went into effect after the
close of the market on March 27, 1998. All references to common shares,
earnings (loss) per common share and conversion rates herein have been
restated to retroactively reflect the effect of the reverse split. In
connection with the reincorporation of the Company as a Delaware corporation
the par value of the Company's Common and Preferred stock was changed to
$.001 per share.
14
<PAGE>
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1998 TO THE YEAR ENDED DECEMBER 31,
1997.
REVENUE. Total revenues increased 45 percent from $10,391,000 for
the year ended December 31, 1997, to $15,068,000 for the year ended December
31, 1998. Revenues from Environmental Risk and Due Diligence Information
Services increased 28 percent from $7,065,000 for the year ended December 31,
1997 to $9,014,000 for the year ended December 31, 1998. Insurance Risk
Information Services revenues increased 34 percent, totaling $3,326,000 for
the year ended December 31, 1997 compared with $4,472,000 for the year ended
December 31, 1998. Revenue from Property Disclosure Information Services
(developed in 1998) totaled $1,582,000 for the year ended December 31, 1998.
Increases in environmental revenues are primarily the result of additional
STARVIEW contracts, the acquisition of Entrac and an effort by the Company to
increase sales of products known as reference products. In 1997, the Company
initiated a campaign to convert existing transaction-based business to longer
term contract relationships through the STARVIEW desktop service. Initially,
this lead to a reduction in revenue because of lower overall pricing, but in
1998 the Company believes that it has overcome this decrease through market
share increases as a result of contractual relationships. In 1997, the
Company changed its selling strategy to place a lower emphasis on historical
reference reports, which are products that are purchased and resold to
customers and typically have lower gross margins. In 1998, the Company was
able to decrease vendor costs and improve gross margins and renewed efforts
to sell these reports. The increase in Insurance Risk Information Services
(comprised of the GUS product line) revenue was the result of ISO's agreement
with State Farm (signed in April 1997) and a general increase in utilization
of GUS by insurers. The Company's revenues during 1998 were not significantly
affected by changes in prices compared to 1997.
GROSS MARGIN. Gross margins increased 45 percent from approximately
$8,073,000 for the year ended December 31, 1997 to approximately $11,726,000
for the year ended December 31, 1998. Gross margins as a percent of revenue
remained at 78 percent of revenue for the years ended December 31, 1998 and
1997. Gross margin as a percent of Environmental and Due Diligence
Information Services revenue was 69 percent of revenue for the year ended
December 31, 1998 compared to 67 percent of revenue for the year ended
December 31, 1997. Increases in revenue from the Company's STARVIEW product,
which have higher gross margins offset by increases in historical reference
product revenue, which have lower gross margins, were the primary causes of
the improvement in gross margins.
OPERATING EXPENSES.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased 54 percent from $6,217,000 for the year ended
December 31, 1997, to $9,582,000 for the year ended December 31, 1998. This
increase is primarily due to costs associated with the formation of the property
disclosure information services division, combined with added sales and
marketing initiatives in 1998 as well as a general increase in administrative
functions necessary to accommodate acquisitions and growth.
RESEARCH AND DEVELOPMENT. Research and development expenses increased
31 percent from $919,000 for the year ended December 31, 1997 to $1,204,000 for
the year ended December 31, 1998. This increase was primarily the result of
development activities associated with the Company's VISTACHECK Internet order
and delivery platform and the development of the property disclosure information
services division.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
62 percent from $5,048,000 for the year ended December 31, 1997 to $1,900,000
for the year ended December 31, 1998. This decrease is primarily the result of
decreased amortization of acquired technology associated with the acquisition of
Vista Environmental due to the completion of the amortization in February 1998.
RESTATEMENT OF SEPTEMBER 1998 FINANCIAL STATEMENTS. As discussed in
the notes to the financial statements, the Company restated its September 30,
1998 financial statements to reduce the amount of purchase price allocated to
acquired in-process research and development recognized in the acquisition of
E/Risk in July 1998 by $2,900,000. This amount has been classified as
acquired technology and environmental databases in the Company's consolidated
balance sheet, and is being amortized over its estimated useful life of 5
years.
15
<PAGE>
RESTRUCTURING AND OTHER CHARGES. During 1998, the Company recorded
pretax restructuring and other unusual charges of approximately $1,361,000 as
part of the Company's strategy to reduce costs and focus on its core business
and improve overall financial discipline. The following categories comprise
the restructuring and other unusual charges:
<TABLE>
<CAPTION>
Workforce Business Terminated Canceled
Reductions Consolidations Alliance Acquisitions Total
<S> <C> <C> <C> <C> <C>
Labor costs $109,000 $ 523,000 $ 632,000
Legal fees $ 300,000 $ 55,000 355,000
Consulting costs 74,000 112,000 186,000
Equipment disposals 25,000 27,000 52,000
Office rent 7,000 49,000 56,000
Other 50,000 30,000 80,000
-------- ------- ------- ------- ----------
Total $190,000 $ 647,000 $ 357,000 $ 167,000 $1,361,000
-------- ------- ------- ------- ----------
-------- ------- ------- ------- ----------
</TABLE>
In July 1998, the Company's Board of Directors approved a plan to
reduce administrative staff, consolidate management and operations of the
Property Disclosure Information Services department, terminate a strategic
alliance and discontinue certain merger and acquisition activities.
Approximately 25 jobs were eliminated as a result of the workforce reduction
and business consolidation. Affected employees were entitled to receive
severance benefits either as part of employment contracts or Company policy.
In July 1998, the Company elected to terminate a strategic alliance to
develop and market certain environmental information products after it was
determined that profitable operations would likely not be achieved. As
discussed in Item 3, VISTA's partner in this alliance has alleged that the
Company, among other things, incorrectly terminated the alliance and
withheld revenue distributions. The Company has incurred approximately
$110,000 of legal and accounting fees in 1998 as a result of this dispute and
expects to incur an additional $190,000 of legal and accounting fees in 1999
and, accordingly, has recorded these costs in 1998. During 1997 and 1998, the
Company recorded deferred costs for acquisition activities. As a result of
the cancellation of these activities, the Company expensed the accumulated
deferred costs. The Company expects that the restructuring actions it has
taken will result in costs savings of approximately $1,700,000 annually. This
statement is forward-looking and subject to risks and uncertainties. No
assurance can be made that these cost reductions will not result in decreased
revenue or diminished competitiveness in its markets.
INTEREST EXPENSE. Interest expense decreased 81 percent from $1,466,000
for the year ended December 31, 1997, to $277,000 for the year ended December
31, 1998. The accelerated amortization in 1997 of approximately $548,000 of the
value of warrants issued with the debt financings in 1996 and 1997, due to their
early retirements, combined with lower overall debt levels in 1998 were the
primary reasons for decreases in interest expense.
INFLATION. The Company's management believes that inflation has not had
a material effect on the Company's results of operations or financial condition.
16
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As reflected in the Company's statements of cash flows, the
Company's operations historically have not generated sufficient cash flows to
meet the on-going cash needs of the Company. However, the Company believes
that current cash flows being generated from operations, combined with the
borrowing capacity discussed below will be sufficient to fund operations in
1999. Factors impacting this forward looking information are the levels of
the Company's overall revenues and overhead expenses and changes in the
Company's accounts receivable turnover. If cash flows from operations are not
sufficient to meet cash needs during 1999, however, the Company may need to
raise additional debt or equity financing to meet its operating capital
needs. In addition, the Company may need to raise additional capital in the
future to meet various strategic growth and research and development
initiatives. There can be no assurance that the Company will be able to
obtain any required additional funding on satisfactory terms, if at all. If
the additional funding is not obtained, the Company will seek alternative
sources of debt and/or equity financing and, to the extent necessary, will
reduce overhead expenditures.
Net cash provided by operating activities for the twelve months
ended December 31, 1998 was approximately $119,000 compared to $1,772,000 net
cash used in operating activities during the twelve months ended December 31,
1997. Increases in accounts receivable were primarily the result of increases
in revenue associated with acquisitions, growth in STARVIEW revenue and GUS
processing fees and an increase in accounts receivable from ISO as discussed
below. Increases in other current liabilities were primarily attributed to
the accrual of restructuring and other costs and an accrual for costs related
to the Company's 401(k) plan.
In October 1998, the Company filed a complaint against ISO with the
American Arbitration Association alleging, among other things, that ISO has
incorrectly calculated processing fees from GUS transactions submitted
outside ISO's telecommunications network and witheld these fees from the
monthly GUS revenue distribution to the Company. An arbitrator has been
selected and the arbitration is scheduled for April 15 and 16, 1999.
Management and its counsel believe that the Company is entitled to the
withheld revenue distributions in accordance with the relevant provisions of
the ISO agreement and, accordingly, the Company has recorded a receivable of
approximately $750,000 from ISO. This statement is forward-looking and
subject to risks and uncertainties inherent in any legal proceeding. While the
Company believes it will be awarded the withheld amounts, no assurances can be
given that the outcome or the process of resolving the claims made in this
proceeding will not adversely affect the Company's financial results or
business condition.
Net cash used in investing activities for the twelve months ended
December 31, 1998, was approximately $2,580,000 compared to $508,000 for the
twelve months ended December 31, 1997. Factors that account for this increase
include a cash payment of approximately $1,100,000 to one shareholder in the
acquisition of E/Risk as well as the expenditure of approximately $439,000 of
capitalized costs in connection with the acquisition and development of computer
software to be used by the Company solely for internal purposes. The Company has
invested substantially in computers, software and other technological equipment
over the last twelve months to accommodate the requirements of newer operating
systems and software development tools.
Net cash provided by financing activities was approximately $2,506,000
during the twelve months ended December 31, 1998, compared to $2,565,000 during
the twelve months ended December 31, 1997. In 1998, the Company received cash of
$2,500,000 from the sale of Common Stock to Century Capital Partners, LP as
discussed below. The Company also paid $600,000 in dividends to SIRROM Capital
in connection with Series E and Series F Preferred Stock during 1998.
The Company entered into an agreement for a commercial credit facility
of $1,500,000 with Silicon Valley Bank in April 1998. Borrowings under this
facility bear interest at 0.5 percent above the Prime Lending Rate published by
Silicon Valley Bank. Borrowings under this agreement were secured by
substantially all the assets of the Company. In October 1998, the Company was
notified by Silicon Valley Bank that it was in violation of certain covenants of
the loan agreement and, accordingly, no further cash advances were permitted
under the agreement.
In December 1998, the credit facility discussed above was repaid
with the proceeds from an accounts receivable purchase agreement.
Transactions under the agreement were not treated as a sale of receivables
due to the existence of repurchase obligations. The borrowings under this
arrangement were collateralized by certain assets of VISTA Environmental and
of E/Risk. The borrowing arrangement allowed the Company to borrow funds
based on a percentage of eligible receivables, up to a maximum of $2,000,000.
Proceeds from the agreement, which were secured by receivables of VISTA
Environmental, bore interest at the rate of 1.5 percent per month. Proceeds
from the agreement, which were secured by receivables of E/Risk Information
Services, bore interest at the rate of 2.5 percent per month. There were
additional administrative fees of 0.5 percent per month charged by the lender
based on the value of the receivables submitted for borrowing. Subsequent to
December 31, 1998, the Company retired this facility using funds from the
sale of Common Stock discussed below.
In July 1998, the Company borrowed $1,500,000 from Silicon Valley Bank
for the purchase of shares of E/Risk Information Services. This loan had a term
of five years, bore interest of 9 percent annually and was paid in monthly
installments of principal and accrued interest. The Company retired this loan in
December 1998 using funds from the sale of Common Stock discussed below.
17
<PAGE>
On December 31, 1998 the Company sold 837,521 shares of Common Stock to
Century Capital Partners, LP for an aggregate price of $5,000,000. $2,500,000
was received in cash on the date of the sale and a $2,500,000 Note Receivable
was recorded for the remaining portion of the purchase price. In January 1999
the Company received $2,500,000 from Century Capital Partners, LP, which retired
the Note Receivable. Initial proceeds from this sale were used to retire the
above-mentioned term loan and reduce trade accounts payable. Proceeds from the
payment of the Note Receivable in January 1999 were used to retire the
above-mentioned accounts receivable purchase agreement, further reduce trade
accounts payable, make payments to HomeSeekers.com as required by the
technology alliance agreement and provide working capital.
On March 19, 1999 the Company received a financing proposal from
Silicon Valley Bank for a revolving credit line of up to $5,000,000. Under the
proposed terms, proceeds would bear interest at a rate of 1 percent above the
Prime Lending Rate published by Silicon Valley Bank. The proposal also includes
certain covenants related to financial performance, mergers and acquisitions and
other financing activities. The proposal does not constitute a commitment from
Silicon Valley Bank and, accordingly, no assurances can be made that the
proposal will be approved.
The Company is currently in discussions with several financing
companies regarding potential lending arrangements and private equity
placements. There are no assurances that these discussions will result in
additional sources of capital for the Company.
18
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS REPORT, THE FOLLOWING
FACTORS (AS WELL AS OTHER FACTORS NOT LISTED) HAVE THE POTENTIAL TO MATERIALLY
AFFECT THE COMPANY'S FUTURE OPERATIONS.
COMPETITION. The Company's environmental risk and due diligence and
property disclosure information services operate in highly competitive
environments. The ability of competitors to gain market share from VISTA or
to drive down prices for these services may affect the operating margins and
overall profitability of the Company.
TECHNOLOGICAL CHANGE. The Company is dependent upon advanced software
development tools to maintain and upgrade its various database and reporting
systems. As currently popular operating systems and software development tools
are changed or replaced, the Company must continually evaluate the need to
migrate its existing applications to these systems and respond accordingly. The
ability to respond to these changes may affect the performance, compatibility,
level of support and market acceptance the Company is able to achieve for its
services. Furthermore, the cost of maintaining and upgrading technological
software and hardware may affect the profitability and working capital of the
Company. Failure to anticipate the correct relative priorities of these
projects would affect the Company's operating results.
DEPENDENCE ON ISO FOR GUS REVENUES. The Company's 15-year agreement
with ISO grants them the exclusive sales and marketing rights for GUS
services. Sales of the Company's GUS product line, and a significant portion
of the Company's revenues and gross margin, are dependent upon ISO's ability
to penetrate this industry segment.
NEED TO INTEGRATE ACQUISITIONS. The Company has engaged in a number
of acquisitions and may continue to do so. Many of these acquisitions require
substantial integration with existing operations to realize their expected
returns on investment. Integration includes, among other things, absorption
of administrative functions that are eliminated from the acquired company,
combining sales and marketing activities with existing departments and
standardizing technological systems across business units. Failure to execute
business integrations successfully may result in increased costs, customer
attrition and decreases in revenue and would have a material impact on the
operating results of the Company.
19
<PAGE>
YEAR 2000 COMPLIANCE.
Many currently installed computer systems and software products are
coded to accept only two digit entries in the date code field. Beginning in the
year 2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, computer
systems and/or software used by organizations may need to be upgraded to comply
with the "Y2K" requirements. There is significant uncertainty in the software
and information services industries concerning the potential effects associated
with such compliance. The Securities and Exchange Commission ("the SEC" or "the
Commission") has issued specific guidelines for disclosure of known and
potential risks of Y2K issues and of plans to minimize or mitigate those risks.
STATE OF READINESS. The Company believes that the majority of its
software, networks and computer operating systems comply with Y2K readiness
standards. Certificates of Y2K compliance have been obtained from manufacturers
of certain software in use by the Company. The Company is currently seeking such
certificates from all manufacturers of software which it expects could be
affected by Y2K issues. Since the majority of its computer hardware and other
electronic equipment with embedded software have been purchased during the past
18 months, the Company believes that such equipment will not be impaired or
disabled by Y2K issues. The Company has obtained compliance certificates from
substantially all manufacturers of this type of equipment which reasonably could
impact the Company's operations and continues to seek compliance certificates
from additional manufacturers. Lack of readiness for Y2K issues on the part of
suppliers, customers and other third parties could materially impact the
Company's ability to maintain operations. In particular, the lack of readiness
of Internet providers and telecommunications companies could result in an
interruption of its online commerce system. The Company has obtained
confirmation of the readiness of a majority of third parties and continues to
seek confirmation from other third parties. The Company is in the process of
formulating response plans in case of interruptions of this nature and
estimates to have such plans in place by the second quarter of 1999. This
statement is forward-looking and subject to risks and uncertainties. No
assurances can be made regarding the ability of the Company to formulate or
execute any response plans.
COSTS TO ADDRESS Y2K ISSUES. The Company generally addresses Y2K issues
related to internally developed software as a part of its normal software
development and testing procedures. As such, costs previously incurred to
address these Y2K issues are not easily segregated. Purchased software is
normally replaced or updated within 18 months of the date acquired and, as such,
replacements or updates specifically for the purpose of addressing Y2K issues
are not distinguishable from ordinary replacements or updates. For example, in
1998, the Company replaced its accounting software with new software that is Y2K
compliant. This replacement occurred as part of the ordinary course of
maintaining the Company's information systems, not specifically to address
the Y2K compatibility of the prior system. The Company estimates that the costs
incurred for evaluating and addressing Y2K issues relating to its internal and
commercial software and hardware to be less than $250,000 and that future costs
will not exceed $750,000. This statement is forward-looking and subject to risks
and uncertainties. No assurances can be given that, if an effective readiness
plan can be designed and implemented, costs can be held to this level and that
sources of capital to fund such a project could be obtained. Costs to address
Y2K issues with third parties have not been estimated, though the Company
expects that a substantial portion of such costs would be borne by the
respective third parties.
RISKS OF Y2K ISSUES. The Company is not aware of any specific issues
which would have a material effect on its operations, liquidity or financial
condition, but can make projections of reasonably likely, "worst case"
scenarios which could have such an effect. An interruption of Internet or
telecommunications services for an extended period of time would prevent the
Company from providing service to a substantial portion of its customers,
resulting in a material loss of revenue. A protracted "crash" of the
Company's internal networking and operating software would also result in a
material loss of revenue as well as an interruption of research and
development activities. This scenario could also result in the inoperability
of the Company's financial systems which could hinder its ability to collect
revenue and comply with financial reporting requirements.
CONTINGENCY PLANS. The Company has not yet developed a formal
contingency plan to address Y2K issues but is currently evaluating backup
systems and alternative third party providers that may be required if the
actions and plans discussed above are not sufficient to prevent a material
effect on its operations.
20
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and Notes thereto, and
the Reports of its Independent Accountants thereon, are included in this Annual
Report on Form 10-KSB on pages F-1 to F-28.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In June 1998, the Company dismissed McGladrey & Pullen, LLP, the
Company's independent auditors. During the Company's two most recent fiscal
years and the subsequent interim periods up to the date of termination, there
were no disagreements with McGladrey & Pullen on any matters of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures which, if not resolved to the satisfaction of McGladrey & Pullen LLP,
would have caused McGladrey & Pullen LLP to make reference to the matter in
their report. McGladrey & Pullen's report on the Company's financial statements
for each period for which McGladrey & Pullen performed an audit of the Company's
financial statements contained no adverse opinion or disclaimer of opinion and
was not modified or qualified as to uncertainty, audit scope, or accounting
principles. The decision to change accountants was approved by the Board of
Directors of the Company. In July 1998, the Company engaged Deloitte & Touche
LLP to act as its independent auditors to audit the Company's consolidated
financial statements.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT: COMPLIANCE WITH
SECTION 16(A) OF THE EXCHANGE ACT
(A) DIRECTORS OF THE REGISTRANT.
The information under the captions "Election of Directors -- Information about
Nominees" and "-- Other Information about Nominees" contained in the 1999 Proxy
Statement is incorporated herein by reference.
21
<PAGE>
(B) EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, their ages and the offices held,
as of March 25, 1999 are as follows:
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION WITH COMPANY
---- --- -----------------------------
<S> <C> <C>
Thomas R. Gay 53 President, Chief Executive Officer and Director
E. Stevens Hamilton 65 Chief Financial Officer, Secretary
Howard Shuster 48 Vice President, Sales
Arnold E. Jensen 51 Vice President and Manager, VISTA Information Center
Mark F. Catone 41 Vice President, Product Development
Jerome T. Marani 54 Executive Vice President, Property Disclosure Information Services
Jeffrey F. Woodward 50 Executive Vice President, Environmental Risk and Due Diligence Information Services
Scott Clyde 50 Executive Vice President, Internet Marketing
</TABLE>
22
<PAGE>
THOMAS R. GAY has been the President and Chief Executive Officer of the
Company since February 1995. Mr. Gay was a co-founder of VISTA Environmental and
served as the President and CEO of VISTA Environmental from August 1991 to
February 1995. From 1988 to August 1991 Mr. Gay served as President of National
Decision Systems, a company involved in marketing information products,
databases and software, which he also co-founded.
E. STEVENS HAMILTON has been the Chief Financial Officer of the Company
since January 1996. From January 1995 to December 1995, Mr. Hamilton provided
consulting services to emerging high technology companies under the sponsorship
of the High Technology Resource Center of San Diego. From 1991 to January 1995,
Mr. Hamilton was the Chief Financial Officer of SECOR International, Inc., an
environmental engineering and information technology consulting company. In
addition to serving as the Company's Chief Financial Officer, Mr. Hamilton
continues to provide consulting services to emerging businesses on a part-time
basis.
HOWARD SHUSTER has been the Vice President of Sales of the Company
since September 1996. Mr. Shuster previously served as Vice President of Sales
for IHS Engineering, Englewood CO. During his 19 year career with IHS Mr.
Shuster held numerous management positions including service as President of
Logicraft Nashua, NH, an IHS subsidiary.
ARNOLD E. JENSEN has been Vice President and Manager, VISTA Information
Center since February 1995. From 1990 to February 1995, Mr. Jensen was employed
by VISTA Environmental as Vice President and Manager, VISTA Information Center.
Prior to 1990, Mr. Jensen was Vice President of Irving Trust Company, serving as
a manager in the areas of corporate finance consulting, mergers and
acquisitions, marketing research and customer service.
MARK F. CATONE has been Vice President of Product Development since
November 1996. Mr. Catone previously served as Vice President of Systems
Development and Product Marketing for National Decision Systems, a San
Diego-based division of Equifax, Inc., Atlanta, GA. Mr. Catone began with
Equifax in June 1985.
JEROME T. MARANI has been Vice President of the Company's Property
Disclosure Information Services division since July 1998. From 1996 to 1998
Mr. Marani was Vice President of American Business Information, Inc., a
provider of marketing and demographic information. Prior to 1996 Mr. Marani
served as Executive Vice President of Environmental Sales and Operations of
the Company since February 1995. Mr. Marani was employed by VISTA
Environmental from its inception in May 1990 to February 1995 as Vice
President of Marketing and New Business Development. Prior to May 1990, Mr.
Marani was Vice President of Business Information Services at TRW Information
Services
JEFFERY F. WOODWARD has been Executive Vice President of the
Company's Environmental Risk and Due Diligence Information Services division
since January 1999. From July 1996 to January 1999, Mr. Woodward was
Executive Vice President and Chief Financial Officer of GeoSure, LP a
provider of environmental risk and flood information. Mr. Woodward previously
served for eleven years in various senior capacities with Lexis-Nexis, a
distributor of legal information, the most recent position being that of
General Manager of a major customer segment.
SCOTT CLYDE has been Vice President of Internet Marketing Strategy
since March 1999. From 1995 to March 1999, Mr. Clyde was Vice President of
Internet Services with PC Quote, Inc., a distributor of stock, option and
commodity information to Internet users and web sites. From 1989 to 1995 Mr.
Clyde served PC Quote as Vice President of Market Development. Prior to 1989,
Mr. Clyde was Manager of Financial Services for the CompuServe Information
Service, where he managed the launch and early evolution of CompuServe's
financial channel including many of the original online brokerage and home
banking experiments.
23
<PAGE>
(C) COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The information under the caption "Compliance with Section 16(a) of the
Exchange Act" contained in the 1999 Proxy Statement is incorporated herein by
reference.
ITEM 10. EXECUTIVE COMPENSATION
The information under the captions "Executive Compensation and Other
Benefits" and "Election of Directors -- Director Compensation" contained in
the 1999 Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the caption "Principal Shareholders and Beneficial
Ownership of Management" contained in the 1999 Proxy Statement is incorporated
herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Related Transactions" contained in
the 1999 Proxy Statement is incorporated herein by reference.
24
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
(1) FINANCIAL STATEMENTS OF REGISTRANT
The following items are included in this Annual Report on Form 10-KSB
(page numbers refer to pages in this Annual Report on Form 10-KSB):
<TABLE>
<CAPTION>
CONSOLIDATED FINANCIAL STATEMENTS PAGE
--------------------------------- ----
<S> <C>
Index to Consolidated Financial Statements............................ 26
Reports of Independent Accountants.................................... F-1 to F-2
Consolidated Balance Sheets........................................... F-3 to F-4
Consolidated Statements of Operations................................. F-5
Consolidated Statements of Changes in Stockholders' Equity ........... F-6
Consolidated Statements of Cash Flows ................................ F-7 to F-8
Notes to Consolidated Financial Statements............................ F-9 to F-28
</TABLE>
(2) FINANCIAL STATEMENT SCHEDULES
Financial statement schedules are omitted because of the absence of the
conditions under which they are required or because the information required is
included in the financial statements or notes thereto.
(3) EXHIBITS.
The exhibits to this Annual Report on Form 10-KSB are listed in the
Exhibit Index on pages E-1 to E-6 of this Report.
A copy of any of the exhibits listed or referred to above will be
furnished at a reasonable cost to any person who was a shareholder of the
Company as of December 31, 1998, upon receipt from any such person of a written
request for any such exhibit. Such request should be sent to VISTA Information
Solutions, Inc., 5060 Shoreham Place, #300, San Diego, CA 92122 (Attn: Chief
Financial Officer).
(B) REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 1998.
(C) EXHIBITS.
The response to this portion of Item 13 is included as a separate
section of this Annual Report on Form 10-KSB.
25
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Reports F-1 to F-2
Consolidated Balance Sheets F-3 to F-4
Consolidated Statements of Operations F-5
Consolidated Statements of Changes in Stockholders' Equity
F-6
Consolidated Statements of Cash Flows F-7 to F-8
Notes to Consolidated Financial Statements F-9 to F-28
</TABLE>
26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
VISTA Information Solutions, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheet of VISTA
Information Solutions, Inc. and subsidiaries as of December 31, 1998, and the
related statements of operations, changes in stockholders' equity, and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such 1998 financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1998, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
San Diego, California
April 9, 1999
27
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
VISTA Information Solutions, Inc.
San Diego, California
We have audited the accompanying consolidated balance sheet of VISTA
Information Solutions, Inc. and subsidiary as of December 31, 1997, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the accounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Vista
Information Solutions, Inc. and subsidiary as of December 31, 1997 and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
San Diego, California
March 24, 1998
28
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 386,718 $ 341,781
Trade accounts receivable, less allowance for doubtful
accounts of $868,986 and $191,500, respectively (Notes 4 and 6) 3,979,344 2,589,466
Note receivable (Note 8) 2,500,000 -
Prepaid expenses (Note 11) 528,627 272,030
---------------- ------------------
Total current assets 7,394,689 3,203,277
---------------- ------------------
Equipment, furniture and software, at cost
Equipment and furniture 4,272,153 3,767,826
Software 1,324,768 439,884
---------------- ------------------
5,596,921 4,207,710
Less accumulated depreciation and amortization (2,819,916) (2,810,435)
---------------- ------------------
Net equipment, furniture and software 2,777,005 1,397,275
---------------- ------------------
Acquired technology and environmental databases and other
intangible assets, less accumulated amortization of $12,711,912
and $11,728,609, respectively (Note 2) 7,127,345 593,200
Deposits and other assets 285,832 185,134
---------------- ------------------
$ 17,584,871 $ 5,378,886
---------------- ------------------
---------------- ------------------
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEETS (CONTINUED)
DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Liabilities
Obligation to bank (Note 4) $ 1,133,083 $ -
Current maturities of long-term obligations (Notes 5 and 7) 599,363 391,872
Accounts payable 1,163,918 497,744
Accrued compensation and employee benefits (Note 13) 662,415 187,528
Deferred revenue 323,521 243,967
Other current liabilities (Note 3) 959,882 238,795
------------------ ------------------
Total current liabilities 4,842,182 1,559,906
------------------ ------------------
Long-term obligations, less current maturities (Notes 5 and 7) 581,522 471,196
Commitments and contingencies (Notes 6, 7, 11, 13, 14 and 16)
Stockholders' Equity (Notes 8 and 9)
Preferred stock, Series B convertible, par value $.001;
liquidation value $3,000,000, authorized 200,000 shares;
200,000 shares issued and outstanding 200 200
Preferred stock, Series C convertible, par value $.001;
liquidation value $6,195,808, authorized 670,000 shares;
issued and outstanding 1998; 370,607 and 1997; 375,607 shares 371 376
Preferred stock, Series D convertible, par value $.001;
liquidation value $2,499,977, authorized 240,000 shares;
187,124 shares issued and outstanding 187 187
Preferred stock, Series E convertible, par value $.001;
liquidation value $2,500,000, 2,500 shares authorized,
issued and outstanding 3 3
Preferred stock, Series F convertible, par value $.001;
liquidation value $2,500,000, 2,500 shares authorized
issued and outstanding 3 3
Preferred stock, undesignated series, 885,000 shares
authorized, none issued
Common stock, par value $.001; authorized 43,000,000 shares;
issued and outstanding 1998; 11,952,329 and 1997; 9,440,956 shares 11,952 9,441
Additional paid-in capital 49,845,742 37,384,055
Accumulated deficit (37,697,291) (34,046,481)
------------------ ------------------
12,161,167 3,347,784
------------------ ------------------
$ 17,584,871 $ 5,378,886
------------------ ------------------
------------------ ------------------
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 15,067,734 $ 10,391,453
Cost of revenues 3,341,969 2,317,982
------------------ ------------------
Gross margin 11,725,765 8,073,471
Operating expenses:
Selling, general and administrative 9,581,944 6,216,965
Research and development 1,203,929 918,964
Depreciation and amortization, including impairment loss
on acquired technology in 1997 (Note 2) 1,899,664 5,047,746
Restructuring and other charges 1,360,932 -
------------------ ------------------
14,046,469 12,183,675
------------------ ------------------
Operating loss (2,320,704) (4,110,204)
Other expense:
Interest expense (276,960) (1,465,711)
Other expense (21,809) (20,585)
------------------ ------------------
(298,769) (1,486,296)
------------------ ------------------
Net loss before minority interest (2,619,473) (5,596,500)
Minority interest in loss of subsidiary 68,663 -
Net loss (2,550,810) (5,596,500)
Preferred stock dividends declared (Note 8) (600,000) (200,000)
Accretion of convertible preferred stock dividends (Note 8) (500,000) (560,606)
------------------ ------------------
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS $ (3,650,810) $ (6,357,106)
------------------ ------------------
------------------ ------------------
Basic and diluted loss per common share $ (.35) $ (0.87)
------------------ ------------------
------------------ ------------------
Weighted average common shares outstanding 10,394,671 7,328,363
------------------ ------------------
------------------ ------------------
</TABLE>
See Notes to Consolidated Financial Statements.
31
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Common Additional
Stock Stock Paid-in Accumulated
(Note 8) (Note 9) Capital Deficit Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 $ 977 $ 6,143 $ 28,194,061 $ (27,689,375) $ 511,806
Conversion of Series C
preferred stock (Note 8) (214) 1,131 (917) -
Issuance of Series E preferred
stock (Note 8) 3 2,409,167 2,409,170
Issuance of Series F preferred
stock (Note 8) 3 2,409,167 2,409,170
Exercise of incentive stock options (Note 9) 288 897,427 897,715
Conversion of debentures and accrued
interest (Note 5) 1,131 2,327,667 2,328,798
Issuances of warrants (Notes 5 and 9) 283,000 283,000
Exercises of warrants 686 14,314 15,000
Issuance of common stock to lessor 25 24,975 25,000
Dividends declared on Series E and
Series F preferred stock (Note 8) (200,000) (200,000)
Shares issued to effect acquisition (Note 2) 37 264,588 264,625
Accretion of beneficial conversion feature on
Preferred Stock (Note 8 ) 560,606 (560,606)
Net loss (5,596,500) (5,596,500)
--------------- -------------- ---------------- --------------- ----------------
Balance December 31, 1997 769 9,441 37,384,055 (34,046,481) 3,347,784
CONVERSION OF SERIES C
PREFERRED STOCK (NOTE 8) (5) 26 (21) -
EXERCISE OF INCENTIVE STOCK OPTIONS (NOTE 9) 302 501,934 502,236
EXERCISES OF WARRANTS 317 17,683 18,000
ISSUANCE OF COMMON STOCK TO LESSOR 15 94,672 94,687
ISSUANCES OF COMMON STOCK, NET (NOTE 8) 838 4,984,334 4,985,172
DIVIDENDS DECLARED ON SERIES E AND
SERIES F PREFERRED STOCK (NOTE 8) (600,000) (600,000)
SHARES ISSUED TO EFFECT ACQUISITIONS (NOTE 2) 1,013 6,363,085 6,364,098
ACCRETION OF BENEFICIAL CONVERSION FEATURE
ON PREFERRED STOCK (NOTE 8) 500,000 (500,000) -
NET LOSS (2,550,810) (2,550,810)
--------------- -------------- ---------------- --------------- ----------------
BALANCE DECEMBER 31, 1998 $ 764 $ 11,952 $ 49,845,742 $ (37,697,291) $ 12,161,167
--------------- -------------- ---------------- --------------- ----------------
--------------- -------------- ---------------- --------------- ----------------
</TABLE>
See Notes to Consolidated Financial Statements.
32
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (2,550,810) $ (5,596,500)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation 916,361 650,041
Amortization (Note 2) 983,303 4,397,705
Loss on disposal of equipment, furniture and software 52,129 -
Amortization of discount on debt (Note 5) - 704,756
Minority interest in loss of subsidiary (68,663) -
Changes in assets and liabilities, net of effects of
business acquisitions:
Trade accounts receivable (788,366) (1,237,533)
Prepaid expenses (245,054) 54,964
Accounts payable 600,619 (482,205)
Accrued development costs (Note 6) - (487,500)
Deferred revenues 79,554 121,967
Other current liabilities 1,139,514 102,685
----------------- -----------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 118,587 (1,771,620)
----------------- -----------------
Cash Flows from Investing Activities
Purchases of equipment, furniture and software (1,276,376) (317,144)
Net change in deposits and other assets 2,261 (129,341)
Cash paid for business acquisitions, net of cash received (Note 2) (1,305,939) (61,160)
----------------- -----------------
NET CASH USED IN INVESTING ACTIVITIES (2,580,054) (507,645)
----------------- -----------------
----------------- -----------------
</TABLE>
See Notes to Consolidated Financial Statements.
33
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash Flows from Financing Activities
Proceeds from long-term obligations 1,475,000 317,000
Net proceeds from obligation to bank 1,133,083 -
Principal payments on long-term obligations (2,507,087) (4,059,744)
Proceeds from issuance of preferred stock, net - 4,818,340
Proceeds from issuance of common stock 3,005,408 912,715
Proceeds from issuance of convertible debentures - 700,000
Payments of dividends on Series E and
Series F preferred stock (600,000) (123,542)
------------------ ------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,506,404 2,564,769
------------------ ------------------
Net increase in cash 44,937 285,504
CASH,
Beginning of year 341,781 56,277
------------------ ------------------
End of year $ 386,718 $ 341,781
------------------ ------------------
------------------ ------------------
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 276,522 $ 1,016,285
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Note receivable for issuance of common stock (Note 8) $ 2,500,000 -
Convertible debentures and accrued interest
converted into common stock (Notes 5 and 8) - $ 2,328,798
Common stock issued to lessors (Note 8) 94,687 25,000
Capital leases incurred for use of equipment (Note 7) 882,921 720,047
Conversion of Series C preferred stock (Note 8) 26 1,131
Value recognized for issuances of warrants and extension
of stock options (Notes 5 and 9) - 283,000
Issuance of common stock to effect business acquisitions (Note 2) 6,364,098 264,625
Accretion of beneficial conversion feature
on preferred stock (Note 8 ) 500,000 560,606
</TABLE>
See Notes to Consolidated Financial Statements.
34
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
VISTA Information Solutions, Inc. (the "Company") is an information company that
provides environmental risk information and address-based hazard and
classification information to the banking, engineering, real estate and
insurance industries throughout the United States.
MANAGEMENT'S PLANS AND CORPORATE LIQUIDITY
The Company has incurred losses since inception and continues to require cash to
fund its ongoing operations. Management of the Company believes that the level
of revenues realized in 1998 and 1997, continued monitoring of costs and
expenses and the Company's current sources of bank financing available will be
able to support its anticipated level of operations, including being able to
satisfy the Company's cash requirements. There can be no assurance however that
the Company will not find it necessary to obtain additional debt or equity
financing for working capital requirements, capital expenditures or acquisitions
or will be able to maintain positive cash flows from operations.
REVERSE STOCK SPLIT AND REINCORPORATION
On March 27, 1998, the Company's stockholders approved a reincorporation and
one-for-two reverse stock split. All references to common shares, earnings
(loss) per common share and conversion rates in the consolidated financial
statements and in these notes have been restated to retroactively reflect the
effect of the split.
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries, Vista Environmental Information, Inc. (VEI),
E/Risk Information Services and Ensite Corporation of Denver. All significant
intercompany accounts and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
35
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH
The Company maintains its cash accounts in various commercial banks located
throughout the United States. Accounts at each bank are insured by the Federal
Deposit Insurance Corporation (FDIC) up to $100,000 per bank. The Company's
accounts at these institutions, at times, may exceed the federally insured
limit. The Company has not experienced any losses in such accounts.
EQUIPMENT, FURNITURE AND SOFTWARE
Equipment, furniture and software are stated at cost. Depreciation is
computed using accelerated and straight-line methods over the estimated
useful lives of the respective assets, three to seven years for equipment and
furniture and three years for software. The amortization expense on assets
acquired under capital leases is included with depreciation expense on owned
assets.
ACQUIRED TECHNOLOGY AND ENVIRONMENTAL DATABASES AND OTHER INTANGIBLE ASSETS
Acquired technology, environmental databases and goodwill represents the
excess of the purchase price over net assets acquired with the acquisitions
in 1998 and 1997 and is being amortized over their estimated useful lives of
five years.
ASSET IMPAIRMENT
The Company reviews its intangibles and other long-lived assets periodically
in accordance with Statement of Financial Accounting Standards No. 121,
"ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF" (SFAS 121) to determine potential impairment by comparing
the carrying value of the assets with estimated undiscounted future cash
flows expected to result from the use of the assets, including cash flows
from disposition. Should the sum of the expected future undiscounted net cash
flows be less than the carrying value, the Company would determine whether an
impairment loss should be recognized. An impairment loss would be measured by
comparing the amount by which the carrying value exceeds the fair value of
the asset being evaluated for impairment. Management determined that there
was no impairment of the Company's intangible and long-lived assets at
December 31, 1998. See Note 2 for information relating to an impairment of
acquired technology during 1997.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash approximates its fair value due to the demand nature
of these assets. The methods and assumptions used to estimate the fair value of
the Company's current and long-term obligations are based on the current rates
offered to the Company for debt of the same remaining maturities with similar
collateral requirements. The estimated fair value of the Company's notes payable
approximated their fair value at December 31, 1998 and 1997.
36
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUES AND DEFERRED REVENUE
The Company recognizes revenue in the month in which product is shipped or in
which information is transmitted to the customer. Deferred revenue represents
amounts billed in advance for certain software program license fees. The license
fee agreements are typically one year in length, and license revenues are
recognized ratably over the lives of the agreements.
INCOME TAXES
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences, and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
RESEARCH AND DEVELOPMENT COSTS
The Company is involved in activities which include continual development of new
products and improvement of existing products. Research and development costs
are charged to expense as incurred.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has elected to continue to use the intrinsic value method of
accounting prescribed by Accounting Principles Board Opinion No. 25,
"ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES", to account for stock-based
employee compensation costs. As required by Statement of Financial Accounting
Standards No. 123, "ACCOUNTING FOR STOCK-BASED COMPENSATION", certain
proforma disclosures are made at Note 9. All nonemployee stock-based
compensation is recorded at the fair value of the services received or the
equity instrument issued, whichever is more reliably measurable.
LOSS PER COMMON SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "EARNINGS PER SHARE" (SFAS 128).
SFAS 128 establishes standards for computing and presenting earnings per
share (EPS), including replacing the presentation of primary EPS with a
presentation of basic EPS. The Company adopted SFAS 128 for its fiscal year
ended December 31, 1997. SFAS 128 did not have a material impact on the
Company. Because of losses from continuing operations, the effects of stock
options, convertible preferred stock and common stock warrants are
antidilutive. Accordingly, the Company's presentation of diluted loss per
share is the same as that of basic loss per share for 1998 and 1997. For 1998
and 1997, the number of additional shares that would have been added to the
weighted average shares outstanding for diluted loss per share was
approximately 5,695,000 and 8,200,000, respectively.
37
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESTRUCTURING AND OTHER CHARGES
During 1998, the Company recorded pretax restructuring and other unusual
charges of approximately $1,361,000 as part of the Company's strategy to
reduce costs and focus on its core business and improve overall financial
discipline. The following categories comprise the restructuring and other
unusual charges:
<TABLE>
<CAPTION>
Workforce Business Terminated Canceled
Reductions Consolidations Alliance Acquisitions Total
<S> <C> <C> <C> <C> <C>
Labor costs $109,000 $ 523,000 $ 632,000
Legal fees $ 300,000 $ 55,000 355,000
Consulting costs 74,000 112,000 186,000
Equipment disposals 25,000 27,000 52,000
Office rent 7,000 49,000 56,000
Other 50,000 30,000 80,000
-------- ------- ------- ------- ----------
Total $190,000 $ 647,000 $ 357,000 $ 167,000 $1,361,000
-------- ------- ------- ------- ----------
-------- ------- ------- ------- ----------
</TABLE>
In July 1998, the Company's Board of Directors approved a plan to reduce
administrative staff, consolidate management and operations of the Property
Disclosure Information Services department, terminate a strategic alliance
and discontinue certain merger and acquisition activities. Approximately 25
jobs were eliminated as a result of the workforce reduction and business
consolidation. Affected employees were entitled to receive severance benefits
either as part of employment contracts or Company policy. In July 1998, the
Company elected to terminate a strategic alliance to develop and market
certain environmental information products after it was determined that
profitable operations would likely not be achieved. As discussed in Note 14,
the Company's partner in this alliance has alleged that the Company, among
other things, incorrectly terminated the alliance and withheld revenue
distributions. The Company has incurred approximately $110,000 of legal and
accounting fees in 1998 as a result of this dispute and expects to incur an
additional $190,000 of legal and accounting fees in 1999 and, accordingly,
has recorded these costs in 1998. During 1997 and 1998, the Company recorded
deferred costs for acquisition activities. As a result of the cancellation of
these activities, the Company expensed the accumulated deferred costs.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Statement of Financial Accounting Standards No. 130,
"REPORTING COMPREHENSIVE INCOME" (SFAS 130), was issued and became effective
for financial statements for periods beginning after December 15, 1997. SFAS
130 establishes standards for reporting and display of comprehensive income,
its components and accumulated balances. During 1998 and 1997, the Company
did not generate transactions considered part of "other comprehensive income."
In June 1997, the Statement of Financial Accounting Standards No. 131,
"DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION" (SFAS
131), was issued and became effective for financial statements for periods
beginning after December 15, 1997. Management has determined that segment
disclosures are not appropriate because the Company operates in only one
segment.
Revenues for significant product lines are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------- -------------------
<S> <C> <C>
Environmental Risk and Due Diligence Information Services $ 9,014,000 $ 7,065,000
Insurance Risk Information Services 4,472,000 3,326,000
Property Disclosure Information Services 1,582,000 -
</TABLE>
In December 1997, the American Institute of Certified Public Accountants issued
Statement of Position (SOP) 97-2, which supersedes SOP 91-1, "SOFTWARE REVENUE
RECOGNITION." SOP 97-2 was effective for transactions entered into in the
Company's fiscal years beginning January 1, 1998. The adoption of SOP 97-2 did
not have a material effect on the Company's consolidated financial statements or
the timing of the Company's revenue recognition, or cause changes to its revenue
recognition policies.
Statement of Position No. 98-1 "ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE" (SOP 98-1) was adopted by the Company
on January 1, 1998. SOP 98-1 establishes the accounting practice for the
capitalization of certain costs incurred in connection with the acquisition
or development of computer software to be used for internal purposes,
including internal costs.
In accordance with SOP 98-1, the Company has recorded approximately $510,000
of internal costs, which generally consist of direct payroll and other
related costs, during 1998 in connection with the acquisition and development
of computer software to be used by the Company solely for internal purposes.
The Financial Accounting Standards Board has issued SFAS No. 132, "EMPLOYERS'
DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS". In the opinion
of management, this new accounting standard will not have a material effect
on the Company's consolidated financial statements or financial reporting.
In June 1998, Statement of Financial Accounting Standards No. 133, "ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" was issued. This statement
will be effective for the Company on January 1, 2000. The Company is evaluating
its position and has not yet determined the effect this statement will have
on its consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements as of and for the period ended December 31, 1997 in order to conform
to the presentation used for the year ended December 31, 1998. These
reclassifications had no effect on net loss or stockholders' equity as
previously reported.
38
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS
During 1998, 1997 and 1995, the Company completed the business combinations
discussed below, all of which were accounted for by the purchase method of
accounting and, accordingly, results of operations for the acquired
businesses have been included in the consolidated statements of operations
from their respective dates of acquisition. Assets acquired and liabilities
assumed have been recorded at fair value based on the best information
available. Pro forma information is presented where the impact is considered
significant to the results of operations.
ENVIRONMENTAL INFORMATION SERVICES, INC.
In October 1998, the Company purchased substantially all the assets of
Environmental Information Services, Inc. (EIS) which is a provider of
environmental research reports. The purchase price consisted of 53,000 shares
of the Company's common stock issued to the seller. The Company valued the
securities issued at approximately $265,000 based on the approximate fair
market value of the common stock at the date of acquisition. The proforma
results of operations would not have been materially different than the
historical results reported.
E-RISK INFORMATION SERVICES
In July 1998, the Company entered into two separate purchase agreements
whereby the Company acquired 80% of the outstanding stock of E/Risk
Information Services (E/Risk) in exchange for cash and newly issued common
shares of the Company. Under the terms of the agreements, one shareholder
received $1,100,000 in cash and the remaining shareholders collectively
received 842,858 shares of the Company's common stock. Total assets acquired
amounted to approximately $716,000 with liabilities assumed of approximately
$537,000. The Company engaged an outside valuation consultant to determine
the fair value of the unregistered securities issued which was determined to
be approximately $5,400,000 or approximately $6.41 per share, which
represented a 25% discount from the market price of the Company's common
stock on the acquisition date. The value of the remaining 20% of E/Risk stock
not initially acquired by the Company was recorded on the date of acquisition
as minority interest.
Also, as a part of the acquisition, the Company issued an aggregate of 49,830
shares of the Company's common stock to the financial advisor of E/Risk in
satisfaction of the amounts owed by E/Risk to such advisor at the date of
acquisition. The Company valued these shares at approximately $320,000 or
approximately $6.41 per share as discussed above and recorded the amount as
acquired technology at the date of purchase.
In January 1999, the Company reached an agreement to purchase the remaining
20% of the E/Risk outstanding stock and will issue approximately 250,000
shares of the Company's common stock to the sellers valued at approximately
$1,441,000 based on the market value of the stock on the effective date of
the purchase.
39
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2. ACQUISITIONS (CONTINUED)
The following unaudited table presents the pro forma results of operations for
the years ended December 31, 1998 and 1997, assuming the acquisition of E/Risk
occurred at the beginning of each period presented. These results include
certain adjustments, primarily for depreciation and amortization, interest and
other expenses directly attributable to the acquisition and are not necessarily
indicative of what the results would have been had the transactions actually
occurred at the beginning of the periods presented.
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997
(In 000's, except per share data)
- ---------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $ 17,035 $ 11,041
Net loss attributable to common stockholders (3,996) (7,757)
Basic and diluted loss per common share (.35) (.94)
- ---------------------------------------------------------------------------------------
</TABLE>
ENSITE CORPORATION OF DENVER
In April 1998, the Company purchased all the outstanding shares of Ensite
Corporation of Denver (Entrac) which is a provider of detailed environmental
information to engineers and financial institutions. The purchase price
consisted of cash of $141,500 at date of closing and 67,500 shares of the
Company's common stock issued to the seller. The Company valued the
securities issued at approximately $380,000 based on the approximate fair
market value of the common stock at the date of acquisition. The proforma
results of operations would not have been materially different than the
historical results reported.
ENVIROCHECK LTD.
In November 1997, the Company purchased substantially all of the assets of
EnviroCheck Ltd. (EnviroCheck) which was engaged in the business of
developing databases of environmental risk site locations. These assets
included maps, federal and state documents, databases, customer lists, office
equipment, and the rights to the name "EnviroCheck". The purchase price
consisted of cash of $50,000 at date of closing and 36,500 shares of the
Company's common stock issued to the seller. The Company valued the
securities issued at approximately $265,000 based on the approximate fair
market value of the common stock at the date of acquisition. The proforma
results of operations would not have been materially different than the
historical results reported.
VISTA ENVIRONMENTAL INFORMATION, INC.
In February 1995, the Company acquired all of the outstanding stock of VEI in
exchange for newly issued common and preferred shares of the Company. The
acquisition was accounted for using the purchase method of accounting whereby
the purchase price of $11,996,024 was allocated substantially to acquired
technology and environmental databases, which represented the fair value of the
net assets acquired in the acquisition. During September 1997, management of the
Company determined that a portion of the acquired technology and environmental
databases acquired with VEI in 1995 was impaired and therefore the Company
recorded a write-off of $980,072 and charged this amount to operations at the
date the impairment became known.
The estimated fair value of all assets acquired through the aforementioned
acquisitions during 1998 was $8,493,000, and liabilities assumed, including
$467,000 in debt, totaled $589,000. Total assets acquired during 1998
included intangible assets of $7,517,000. The 1997 acquisitions resulted in
the recording of intangible assets of $326,000.
40
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
<CAPTION>
1998 1997
-----------------------------------
<S> <C> <C>
Accrued dividends on preferred stock (Note 8) $ 76,458 $ 76,458
Deferred rent 106,995 95,107
Accrued restructuring charges 666,085 -
Other accrued expenses 110,344 67,230
------------------ ------------------
$ 959,882 $ 238,795
------------------ ------------------
------------------ ------------------
</TABLE>
NOTE 4. OBLIGATION TO BANK
In November 1998, the Company and one of its subsidiaries, E/Risk, entered into
an accounts receivable purchase agreement with a bank. Transactions under the
agreement have been treated as borrowings due to the existence of repurchase
obligations. The borrowings under this arrangement are collateralized by
substantially all of the Company's assets and the arrangement allows the Company
to borrow up to $2,000,000 based on percentages of eligible receivables, as
defined. Outstanding amounts bear interest at rates ranging from 1.5% to 2.5%
per month based on receivables purchased. There are additional administrative
fees of .50% per month based on purchased receivables.
At December 31, 1998, the gross face value of receivables offered to the lender
for purchase pursuant to this agreement amounted to $2,090,876, of which a net
of $1,606,611 was purchased by the lender and for which funds were advanced to
the Company. In addition, the lender required the Company to establish a reserve
for the difference between the gross face value of receivables offered to
purchase and the net value of receivables purchased by the lender which amounted
to $473,528 at December 31, 1998. At December 31, 1998, the oustanding
borrowings, net of the reserve held by the lender, amounted to $1,133,083. All
outstanding balances under the accounts receivable purchase agreement were
repaid in full in January 1999.
NOTE 5. LONG-TERM OBLIGATIONS
LINE OF CREDIT
Prior to the accounts receivable purchase agreement discussed above, the
Company entered into a revolving line of credit agreement with a bank in
April 1998. The terms of the agreement, as amended from time to time, allowed
the Company to borrow up to $2,500,000 based on eligible receivables. In
November 1998, the Company failed to comply with certain financial covenants
and the line of credit was repaid from the proceeds of the accounts
receivable purchase agreement (Note 4). At December 31, 1998 there were no
outstanding borrowings under the line of credit nor were any borrowings
available until the Company cures the default. The line of credit agreement
expires in April 1999.
1998 BORROWINGS
In July 1998, the Company entered into a loan agreement with a bank. The note
bore interest at 9% per annum and was payable in monthly installments of
principal and interest. The loan was repaid in full in December 1998, using
funds from the sale of common stock (Note 8).
1997 BORROWINGS
During 1997, the Company borrowed $300,000 from a finance company. The
borrowings bore interest at 14% per annum and the finance company was issued
warrants for 160,000 shares at an exercise price of $.01. The value assigned
to the warrants of $83,000, which was calculated at the fair market value at
the date of issuance, was recognized as expense in 1997. The note payable was
repaid during 1997.
In 1997, the Company issued a note payable to an individual for $17,000 which
was repaid in 1997 at the option of the noteholder with 17,035 shares of the
Company's common stock based on the fair market value of the common stock on
the date of repayment.
41
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5. LONG-TERM OBLIGATIONS (CONTINUED)
1997 DEBENTURES
During 1997, the Company raised $700,000 through the issuance of convertible
debentures (the 1997 debentures) to members of its Board of Directors and
others. The 1997 debentures bore interest at 16% and were due in twelve months
from the date of execution. They also included warrants to purchase shares of
the Company's common stock at an exercise price of 125% of the fair market value
of the Company's common stock using a 21 day average. The 1997 debentures were
convertible into shares of the Company's common stock at a rate of 70% of the
fair market value of the stock using a 21 day average at a price not less than
the exercise price of the warrants. The 1997 debentures and accrued interest
were converted in 1997 into approximately 319,488 shares of the Company's common
stock.
1995 DEBENTURES
In 1995, the Company received approximately $446,000 from the issuance of
convertible subordinated debentures (the 1995 debentures). In connection with
the 1995 debentures, the Company issued warrants to purchase 123,069 shares
of Common Stock at $ 1.812 per share (Note 9). In June 1997, the Company
modified the terms of the debentures to extend the due date for one year,
resulting in the Company issuing warrants to purchase 184,899 shares of
Common Stock at $1.38 per share. The Company expensed the estimated fair
value of these warrants of approximately $60,000 over the period until
converted. During 1997, the remaining principal and accrued interest totaling
$322,512 was converted by the holders into 328,432 shares of the Company's
common stock.
1994 DEBENTURES
The Company assumed $898,928 of convertible debentures in connection with its
1995 acquisition of VEI. VEI issued these debentures in 1994 (the 1994
debentures). The 1994 debentures were convertible into Series C preferred
stock at a rate of $16.72 per share. In January 1997, the Company issued
warrants to purchase 3,669 shares of Series C preferred stock at $33.40 per
share (Note 9). The fair market value of these warrants was not material and
therefore no expense was recorded. In September 1997, holders of all these
outstanding debentures elected to convert $1,251,338 of principal and accrued
interest directly into 372,976 shares of the Company's common stock (Note 8).
NOTE 6. INSURANCE SERVICES OFFICE, INC. (ISO) AGREEMENT
In October 1992, the Company and ISO signed a 15-year mutually exclusive
contract (Joint Services Agreement) to offer the Geographic Underwriting System
(GUS) system to electronically provide geographically-based information to
insurers. Under the provisions of the agreement, the Company will provide its
proprietary GUS software and support and ISO will provide sales, marketing,
billing and maintenance of the communications network to the GUS users. The
Company and ISO generally share project revenues equally, net of any payments to
third party information providers. The Company's share of revenues under this
agreement were approximately $4,400,000 and $2,700,000 for the years ended
December 31, 1998 and 1997, respectively. In this regard, approximately
$1,954,000 and $1,500,000 of the 1998 and 1997 revenues are from one ISO
customer, respectively.
In January of 1994, under the terms of an addendum to the agreement, both
parties agreed to develop a national public protection underwriting data ("PPC")
layer for the GUS project. During the year ended December 31, 1994, the Company
expensed the maximum of $487,500 for development costs due to ISO under this
agreement. During 1997, at the completion of the project, the Company and ISO
calculated the actual amount of development costs due to ISO to be approximately
$325,000. Based on this calculation, the Company recorded a net reduction of
expense of approximately $162,500 in December 1997 representing the difference
between the estimated liability recorded in 1994 for these development costs and
the actual costs incurred.
42
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6. INSURANCE SERVICES OFFICE, INC. (ISO) AGREEMENT (CONTINUED)
In March 1997, the Company and ISO signed an amendment to the Joint Services
Agreement which required the Company to customize certain of the Company's
database applications for a new ISO customer. As of December 31, 1997, the
Company had completed their obligations as required by this amendment.
In October 1998, the Company filed a complaint against ISO with the
American Arbitration Association alleging, among other things, that ISO has
incorrectly calculated processing fees from GUS transactions submitted
outside ISO's telecommunications network and witheld these fees from the
monthly GUS revenue distribution to the Company. An arbitrator has been
selected and the arbitration is scheduled for April 15 and 16, 1999.
Management and its counsel believe that the Company is entitled to the
withheld revenue distributions in accordance with the relevant provisions of
the ISO agreement and, accordingly, the Company has recorded a receivable of
approximately $750,000 from ISO. However, no assurances can be given about
the outcome or the process of resolving the claims made in this proceeding.
While the Company believes it will be awarded the withheld amounts, no
assurances can be given that the outcome of the process of resolving the
claims made in this proceeding will not adversely affect the Company's
financial results or business condition.
NOTE 7. LEASE COMMITMENTS
The Company leases furniture and equipment under leases that meet the criteria
for capital lease classification. The Company also leases its operating
facilities under noncancelable operating leases with aggregate monthly payments
of approximately $54,000. The facility leases require the payment of taxes,
maintenance, utilities and insurance. Leased assets included in the consolidated
balance sheets are as follows:
<TABLE>
<CAPTION>
Leased Assets 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Equipment and furniture $ 2,436,984 $ 1,544,143
Less accumulated amortization (1,313,845) (797,384)
------------------ ------------------
Net leased assets $ 1,123,139 $ 746,759
------------------ ------------------
------------------ ------------------
</TABLE>
Future annual minimum lease payments due under capital leases and noncancelable
operating leases consist of the following at December 31, 1998:
<TABLE>
<CAPTION>
Capital Operating
Years Ending December 31, Leases Leases
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1999 $ 652,713 $ 567,003
2000 489,820 601,581
2001 165,434 617,441
2002 15,637 526,314
2003 - 540,657
Thereafter - -
------------------ ------------------
Total minimum lease payments 1,323,604 $ 2,852,996
-------------------
-------------------
Less amounts representing interest (8.0% to 15.0%) (142,719)
-------------------
PRESENT VALUE OF NET MINIMUM LEASE PAYMENTS 1,180,885
LESS CURRENT MATURITIES (599,363)
-------------------
Long-term obligations $ 581,522
-------------------
-------------------
</TABLE>
Total rent expense under operating leases for the years ended December 31, 1998
and 1997 totaled approximately $656,500 and $487,000, respectively.
43
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCKHOLDERS' EQUITY
COMMON STOCK
On December 31, 1998, the Company sold 837,521 shares of its common stock to
an institutional lender through a private placement for a total of
$4,993,000, net of offering costs. The Company received cash of approximately
$2,493,000, of which $1,400,000 was used to repay a note payable to a bank
(Note 5), and a note receivable for $2,500,000. The note receivable was
collected in January 1999, with a portion of the funds used to repay the
accounts receivable purchase agreement (Note 4).
During 1998 and 1997, the Company issued 15,000 and 50,000 shares,
respectively, of common stock to two lessors, which were valued by the Company
at approximately $95,000 and $25,000, respectively, based on the fair market
value of the common stock on the date of issuance. The shares of common stock
are being held as an additional security deposit by each respective lessor in
case of default by the Company.
PREFERRED STOCK
The Board of Directors is authorized to issue preferred stock or other senior
securities and determine the series and number of preferred shares to be issued
and any related designations, powers, preferences, rights, qualifications,
limitations or restrictions. The total number of shares authorized is 2,000,000.
The following descriptions are of those designations existing as of December 31,
1998.
SERIES B PREFERRED STOCK
Series B preferred stock has a liquidation preference of $15 per share and is
convertible at any time at the holder's option into 5.2965 shares of the
Company's common stock, after application of certain anti-dilution provisions.
The purchaser of the Series B preferred stock also received options to purchase
187,500 of the Company's common stock at prices ranging from $6.00 to $8.60 per
share, (Note 9), subject to adjustment, and the right to designate one nominee
for a seat on the Board of Directors. The Series B convertible preferred stock
has a number of restrictive covenants including requiring prior approval by the
Company of the preferred stockholders for an increase in the size of the Board
of Directors and before entering into any merger, joint venture, or distribution
agreement.
SERIES C PREFERRED STOCK
Under the terms of the acquisition of VEI, the Company issued 646,146 shares of
Series C preferred stock, which is convertible at any time at the holder's
option into 5.2965 shares of the Company's common stock, after application of
certain anti-dilution provisions. The Series C preferred stockholders are
entitled to a liquidation preference of $16.718 per share and are entitled to
elect two directors of the Company. In addition, the Series C preferred
stockholders have other rights and preferences including the requirement of an
affirmative vote of the holders of a majority of the outstanding shares of the
Series C preferred stockholders to amend the Articles of Incorporation or the
Bylaws of the Company or increase the size of the Board of Directors. During the
years ended December 31, 1998 and 1997, 5,000 and 213,697 shares, respectively
of the Series C preferred stock were converted into 26,483 and 1,131,847 shares
of common stock.
SERIES D PREFERRED STOCK
During 1995, the Company issued 187,134 shares of Series D preferred stock to
certain holders of Series C and Series B preferred stock for approximately
$2,500,000. Each share of the Series D preferred stock is convertible at any
time at the holder's option into 5.2965 shares of the Company's common stock,
after application of certain anti-dilution provisions. The Series D preferred
stock has a liquidation preference of $13.36 per share and other rights and
preferences similar to the Series B and Series C preferred stock except that
Series D preferred stockholders do not have the right to designate a director,
but instead vote, on an as-if-converted basis, along with the holders of common
stock in the election of directors of the Company.
44
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8. STOCKHOLDERS' EQUITY (CONTINUED)
SERIES E PREFERRED STOCK
In August 1997, the Board of Directors authorized the issuance of 2,500
shares of Series E convertible preferred stock at a stated value and purchase
price of $1,000 per share for an aggregate gross purchase price of
$2,500,000. The Series E preferred stockholder is entitled to receive
quarterly dividends of $30.00 per share which will increase by $5.00 per
share each year after August 31, 2002. Management of the Company expects that
the shares will be redeemed or converted prior to August 31, 2002. At
December 31, 1998, the Series E preferred shares are convertible into the
Company's common stock at a conversion price of $4.00 per share. Series E
preferred stock may be redeemed, at the option of the Company, at any time,
provided the average closing bid price of the Company's common stock for the
20 consecutive trading days preceding the date of the redemption notice
exceeds 200 percent of the Series E conversion price. The Series E preferred
stock has a liquidation preference of $1,000 per share, plus unpaid
dividends, and other rights and preferences similar to the Series B and
Series C preferred stock except that Series E preferred stockholders vote on
an as-if-converted basis, along with the holders of common stock in the
election of directors of the Company.
SERIES F PREFERRED STOCK
In August 1997, the Board of Directors authorized the issuance of 2,500
shares of Series F convertible preferred stock at a stated value and purchase
price of $1,000 per share for an aggregate gross purchase price of
$2,500,000. The Series F preferred stockholder is entitled to receive
quarterly dividends of $30.00 per share which will increase by $5.00 per
share for each year after August 31, 2002. Management of the Company expects
that the shares will be redeemed or converted prior to August 31, 2002. At
December 31, 1998, the Series F preferred shares are convertible into the
Company's common stock at a conversion price of $6.37 per share. Series F
preferred stock may be redeemed, at the option of the Company, at any time,
provided the average closing bid price of the Company's common stock for the
20 consecutive trading days preceding the date of the redemption notice
exceeds 200 percent of the Series F conversion price. The Series F preferred
stock has a liquidation preference of $1,000 per share, plus unpaid
dividends, and other rights and preferences similar to the Series B and
Series C preferred stock except that Series F preferred stockholders vote on
an as-if-converted basis, along with the holders of common stock in the
election of directors of the Company.
DIVIDENDS DECLARED
The Board of Directors of the Company has approved the payment of dividends
as they become payable in accordance with the Series E and F preferred stock
agreement at a dividend rate of $30.00 per share, payable quarterly. During
1998 and 1997, $600,000 and $200,000 of dividends were declared of which
$76,458 are payable at December 31, 1998.
BENEFICIAL CONVERSION FEATURE
The Series E and Series F preferred stock contains a beneficial conversion
feature that was recognized as an amount equal to the difference between the
conversion price and the fair value of the common stock at the date of
issuance multiplied by the number of common shares into which the security is
convertible. This amount was accounted for as a return to the preferred
stockholders in a manner similar to a dividend and was therefore accreted
from the date of issuance through June 30, 1998, the date at which the
preferred stock was first convertible. The aggregate value of this conversion
feature for Series E and F preferred stock was $1,061,000, all of which has
been accreted as of December 31, 1998.
45
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTIONS AND INCENTIVE PLANS
At December 31, 1998, the Company has stock-based incentive plans which are
described below. In addition, the Company has granted options and warrants
outside of the plans to officers, directors, consultants and certain debt and
equity holders. As permitted under generally accepted accounting principles,
grants to employees are accounted for following APB 25 and related
interpretations. Accordingly, no compensation cost is recognized for grants
to employees under these plans when the option price is at least equal to the
quoted market price on the date of grant. Had compensation cost for all
awards in 1998 and 1997 under the stock-based compensation plans been
determined based on the grant date fair values of awards (the method
described in SFAS 123), reported net loss attributable to common stockholders
and loss per common share would have been as follows:
<TABLE>
<CAPTION>
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss attributable to common stockholders:
As reported $ (3,650,810) $ (6,357,106)
Proforma (4,067,373) (6,621,597)
Basic and diluted loss per common share:
As reported $ (.35) $ (0.87)
Proforma (.39) (0.90)
</TABLE>
The proforma effects of applying SFAS 123 are not indicative of future amounts
since, among other reasons, the proforma requirements of the Statement have been
applied only to options granted after December 31, 1994.
The Company has a 1990 Stock Option Plan (the 1990 Plan) that reserved 15% of
the then outstanding common stock for issuance. With the approval of the 1995
Stock Incentive Plan (the 1995 Plan) discussed below, the 1990 plan was
terminated and accordingly, there were no further grants under the 1990 Plan.
Awards granted under the plans are exercisable over a period determined at the
time of grant, not to exceed ten years. The types of awards issuable under the
1995 Plan are incentive options, non-qualified options, restricted stock awards,
performance units and stock appreciation rights. Incentive options under the
Plan are granted at an exercise price of not less than 100% of the fair market
value at the date of grant and vest over a period of one to three years.
Non-qualified options may be granted at exercise prices not less than 85% of
market value at the date of grant, with vesting determined at the time of grant.
Incentive options must be granted with exercise prices equal to the fair market
value on the date of grant, except that incentive options granted to persons
owning stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company may not be granted at less that 110% of the fair
market value on the date of grant.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1998 and 1997: no dividend yield for 1998 or
1997; expected volatility of 33 to 120 percent and 56 to 85 percent; risk-free
rates of 5.83 to 6.0 percent and 5.71 to 5.83 percent; and expected lives of two
to five years for both 1998 and 1997.
The 1995 Plan provides for an annual automatic grant of 5,000 non-qualified
options to non-employee members of the Board of Directors.
46
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
A summary of the stock option activity under all of the aforementioned plans is
as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------------------------------------------------------------
WEIGHTED Weighted
AVERAGE Average
EXERCISE Exercise
Fixed Options OPTIONS PRICE Options Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,469,715 $ 3.05 1,214,223 $ 2.04
Granted 361,000 7.62 576,500 4.32
Exercised (263,674) 1.35 (254,758) 3.00
Expired/surrendered (5,000) 8.50 (66,250) 2.92
--------- ------------------- --------- -------------------
Outstanding at end of year 1,562,041 $ 4.37 1,469,715 $ 3.05
--------- ------------------- --------- -------------------
--------- ------------------- --------- -------------------
Exercisable at end of year 881,622 $ 3.05 793,715 $ 2.17
--------- ------------------- --------- -------------------
--------- ------------------- --------- -------------------
Weighted-average fair value per
option of options granted
during the year $ 7.01 $ 2.55
--------- ------------------- --------- -------------------
--------- ------------------- --------- -------------------
</TABLE>
At December 31, 1998 the options available for grant under the 1995 plan was
approximately 279,000.
A further summary about fixed options outstanding under these plans at December
31, 1998 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 0.00 to 2.00 502,022 5.8 $ 0.68 412,936 $ 0.58
2.01 to 4.00 239,830 6.7 2.84 216,497 2.87
4.01 to 6.00 230,889 8.5 5.71 70,889 5.75
6.01 to 8.00 379,350 8.9 6.76 107,350 6.78
8.01 to 10.00 182,450 8.3 8.88 46,450 8.24
10.01 to 12.00 27,500 5.0 11.30 27,500 11.30
------- --- ---------------- ------- ----------------
1,562,041 7.4 $ 4.37 881,622 $ 3.05
------- --- ---------------- ------- ----------------
------- --- ---------------- ------- ----------------
</TABLE>
In addition, the Company has granted options and warrants for the purchase of
common stock outside of the plans to officers, directors, consultants and
certain debt and equity holders as follows (including all options and warrants
to purchase common stock discussed in Notes 5 and 8 but excluding the effect of
any conversion rights):
47
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
<TABLE>
<CAPTION>
1998 1997
-----------------------------------------------------------------------
WEIGHTED Weighted
AVERAGE Average
EXERCISE Exercise
SHARES PRICE Shares Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,172,293 $ 2.54 1,155,559 $ 1.68
Granted - - 734,512 1.32
Exercised (416,125) 1.54 (716,778) .22
Expired/surrendered (195,779) 7.04 (1,000) 4.76
------- ------------------- --------- ------------------
Outstanding at
end of year 560,389 $ 1.71 1,172,293 $ 2.54
------- ------------------- --------- ------------------
------- ------------------- --------- ------------------
Exercisable at end of year 560,389 $ 1.71 1,172,293 $ 2.54
------- ------------------- --------- ------------------
------- ------------------- --------- ------------------
Weighted-average fair value per
option/warrant of options and
warrants granted during the year $ - $ 0.20
------- ------------------- --------- ------------------
------- ------------------- --------- ------------------
</TABLE>
Of the 734,512 options and warrants granted in 1997, 80,000 options and warrants
were at prices which were less than the market price at the date of grant
(weighted average exercise price and fair value of $.02 and $1.48 per share),
184,898 options and warrants were at prices which were equal to the market price
at the date of grant (weighted average exercise price and fair value of $1.38
and $.08 per share), and 469,614 options and warrants were at prices which
exceeded the market price at the date of grant (weighted average exercise price
and fair value of $1.52 and $.02 per share). There were no options or warrants
issued outside of the plans during 1998.
Management determined the fair value of warrants issued to non-employees
considering the Black-Scholes method, the intrinsic value, the Company's
financial condition and other factors considered appropriate.
A further summary about the options and warrants granted outside of the
Company's formal plans outstanding at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Options and Warrants Options and Warrants Exercisable
Outstanding
---------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life in Years Price Exercisable Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.00 to 2.00 509,389 8.1 $ 1.48 509,389 $ 1.48
2.01 to 4.00 51,000 3.9 4.00 51,000 4.00
------- --- ---------------- ------- ----------------
560,389 7.7 $ 1.71 560,389 $ 1.71
------- --- ---------------- ------- ----------------
------- --- ---------------- ------- ----------------
</TABLE>
During 1997, the Board of Directors approved an extension of 187,500 options
held by a Series B preferred shareholder which had an original expiration
date of December 31, 1997. The Company recorded an expense of approximately
$140,000 based upon the fair value of the options at the remeasurement date.
48
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
Not included in the above table are warrants granted in conjunction with
current and prior extensions of the 1994 debentures which were converted in
1997 (Notes 5 and 8). The Company recorded an expense based upon the fair
value of the warrants at the grant date. The former noteholders have received
aggregate warrants for the purchase of 23,306 shares of Series C preferred
stock at exercise prices ranging from $16.00 to $25.08 per share of which
19,304 warrants are outstanding at December 31, 1998.
SHARE CONTINGENCIES
During 1997, the Company executed numerous transactions involving stock
conversions and warrants. Certain errors were made in the mathematical
calculations of the conversions and application of the terms of the
agreements. This resulted in the issuance of certain shares and warrants in
excess of the contractual amounts. The Company intends to correct the number
of shares and warrants issued by requesting the return of certain shares and
warrants. The amounts reflected in these financial statements represent the
amounts that should have been issued under these agreements. The number of
shares which the Company is seeking return of is approximately 150,000 and
the number of warrants which the Company is seeking return of is
approximately 100,000. Management of the Company believes that the correction
of these matters will not result in a material adjustment to the number of
shares issued and outstanding.
NOTE 10. SALE OF PRODUCTS
In February 1996, the Company sold and licensed certain of the Company's
software and service bureau products to a former officer of the Company. The
purchase price is contingent and consists of royalty payments ranging from 5% to
25% on sales of related products for two years, commencing on February 1, 1996,
with no minimum or maximum amounts. The net book value of the assets sold were
not significant. Royalty payments for 1998 and 1997 were not significant.
NOTE 11. TECHNOLOGY LICENSE AGREEMENT
In October 1998, the Company entered into a technology license agreement with
an unrelated entity to provide certain marketing rights and to enter into
revenue sharing arrangements. The initial term of the agreement is for five
years with a renewal option, at the Company's discretion, for an additional
five-year period. The Company will incur royalties at rates ranging from 30% to
40% of gross or net receipts, as defined, on sales of the Company's products
generated from the arrangement. In addition, the Company will pay a
non-refundable, recoupable fee against future royalties of $2,000,000, of
which $250,000 was paid in 1998. The remainder of the prepaid fee is due and
payable in 1999. In the event that after two years the royalties incurred by
the Company are less than the level sufficient to fully exhaust the prepaid
fee, the Company may reduce royalty payment rates to a level of 25% of the
otherwise agreed rate until such time as the remaining unpaid credit is fully
recovered.
49
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12. INCOME TAXES
As of December 31, 1998, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $29,246,000 of which $18,212,000 is
available at December 31, 1998 to offset future taxable income and which include
carryforwards from VEI. These loss carryforwards expire in varying amounts
through 2018. In addition, the Company has investment tax and research credit
carryforwards of approximately $95,000. Future utilization of these loss credit
carryforwards are subject to certain limitations under provisions of the
Internal Revenue Code including limitations subject to Section 382, which
relates to a 50% change in control over a three year period, and are further
dependent upon the Company attaining profitable operations. Shares issued to
acquire VEI and shares issued in previous private placement transactions, have
caused the Company to exceed the 50% change in control threshold. This has
subjected the Company to limitations of annual net operating loss and credit
carryforwards and may result in the expiration of a portion of these
carryforwards before they can be utilized. The utilization of $6,600,000 of the
Company's net operating loss carryforwards available to offset future taxable
income is limited to approximately $302,000 in years 1998 through 2001 and
$692,000 in years 2002 through 2008. In addition, these net operating losses,
which were losses generated by VEI before the merger, can only be used to offset
future VEI income.
A reconciliation of the effective tax rates with the federal statutory rate is
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1998 1997
-------------------------------------
<S> <C> <C>
Income tax benefit at statutory rate $ (867,000) $ (1,903,000)
Change in valuation allowance 1,305,000 2,488,000
Other (137,000) (269,000)
State taxes (301,000) (316,000)
---------------- -----------------
$ - $ -
---------------- -----------------
---------------- -----------------
</TABLE>
The tax effect of temporary differences consisted of the following as of
December 31:
<TABLE>
<CAPTION>
1998 1997
--------------------------------------
Deferred tax assets:
<S> <C> <C>
Net operating loss carryforwards $ 11,725,000 $ 10,757,000
Accrued payroll 67,000 45,000
Allowance for doubtful accounts 109,000 76,000
Tax credit carryforwards 95,000 95,000
Equipment and purchased software 211,000 309,000
Accrued sales tax 32,000 32,000
Acquired technology 538,000 -
------------------ ------------------
Gross deferred tax assets 12,777,000 11,314,000
Less valuation allowance (12,734,000) (11,167,000)
------------------ ------------------
------------------ ------------------
43,000 147,000
------------------ ------------------
Deferred tax liabilities:
Deferred rent (43,000) (38,000)
Acquired technology - (109,000)
------------------ ------------------
(43,000) (147,000)
------------------ ------------------
$ - $ -
------------------ ------------------
------------------ ------------------
</TABLE>
50
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13. 401(K) AND PROFIT SHARING PLAN
During 1992 the Company adopted a 401(k) Plan ("the Plan") for its employees.
Under the terms of the Plan, as amended in 1998, a participant may
contribute, on a pre-tax basis, up to twenty percent (20%) of annual
compensation, subject to IRS limitations. Pursuant to the amended Plan, the
Company will contribute, in the form of the Company's common stock, an amount
equal to 3% of a participant's annual salary to the Plan on behalf of each
participant. In addition, the Company will match 20% of a participant's
contribution to the Plan, up to a maximum of $1,000, also in the form of the
Company's common stock.
During 1998, the Company contributed approximately $288,000 to the Plan, all of
which was payable at December 31, 1998. There were no contributions made by the
Company to the Plan in 1997.
NOTE 14. LITIGATION
On July 28, 1998 the Company terminated a strategic alliance with Phase One
Inc. ("POI"). On August 19, 1998 POI filed a complaint against the Company
with the American Arbitration Association in San Diego, CA, alleging, among
other things, that the Company incorrectly terminated the alliance and
withheld revenue distributions from POI. Management of the Company believes
that these claims have no merit and that any outcome of this arbitration
would not have a material impact on the Company's financial results or
business condition.
See Note 6 for information relating to a complaint filed by the Company in
October 1998.
NOTE 15. RESTATEMENT -- INTERIM FINANCIAL INFORMATION (UNAUDITED)
Subsequent to the issuance of the Company's September 30, 1998 quarterly
financial statements, the Company's management revised the amount of the
purchase price which was allocated to in-process research and development in
accounting for the acquisition of E/Risk in July 1998. The revised allocation
is based upon methods prescribed in a letter from the Securities and Exchange
Commission ("SEC") sent to the American Institute of Certified Public
Accountants in September 1998. The letter sets forth the SEC's views
regarding the valuation methodology to be used in allocating a portion of the
purchase price to acquired in-process research and development at the date of
acquisition. As a result of the revised allocation, the Company's unaudited
interim financial information for the three and nine month periods ended
September 30, 1998 have been restated to reduce the amount of the acquired
in-process research and development expensed by $2,900,000 and to increase
intangible assets by $2,803,000, net of amortization of approximately
$97,000. The change had no impact on net cash flows provided by operations.
The effect of the restatement on the Company's unaudited interim financial
information for the three and nine month periods ended September 30, 1998 is
as follows:
<TABLE>
<CAPTION>
As of
September 30, 1998
---------------------------
As previously As
BALANCE SHEET DATA: reported restated
---------------------------
<S> <C> <C>
Acquired technology, net 3,775,000 6,578,000
Total assets 10,792,000 13,595,000
Stockholders' equity 4,741,000 7,544,000
Total liabilities and stockholders'
equity 10,792,000 13,595,000
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, 1998 September 30, 1998
--------------------------- ---------------------------
As previously As As previously As
STATEMENTS OF OPERATIONS DATA: reported restated reported restated
--------------------------- ---------------------------
<S> <C> <C> <C> <C>
Purchased in process technology 2,900,000 0 2,900,000 0
Operating loss (5,136,000) (2,333,000) (4,717,000) (1,914,000)
Net loss before minority interest (5,255,000) (2,452,000) (4,926,000) (2,123,000)
Net loss attributable to common stockholders (5,325,000) (2,522,000) (5,796,000) (2,993,000)
Basic and diluted net loss per common share (.49) (.23) (.57) (.29)
</TABLE>
NOTE 16. SUBSEQUENT EVENTS
ACQUISITION OF GEOSURE, LP
On January 14, 1999, the Company merged with GeoSure, LP (GeoSure) pursuant
to the terms of a Partnership Interest Purchase Agreement (the GeoSure
Agreement). In exchange for the partnership interests of GeoSure, the Company
issued an aggregate of 2,590,000 shares of its common stock with 259,000 of
such shares being deposited into an escrow account in accordance with the
terms of the GeoSure Agreement.
51
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 15. SUBSEQUENT EVENTS (CONTINUED)
ACQUISITION OF ECOSEARCH ENVIRONMENTAL RESOURCES, INC.
On March 1, 1999, the Company merged with EcoSearch Environmental Resources,
Inc. (EcoSearch) pursuant to the terms of a Stock Purchase Agreement (the
EcoSearch Agreement). In exchange for all the outstanding common stock of
EcoSearch, the Company issued an aggregate of 396,351 shares of its common
stock with 39,635 of such shares being deposited into an escrow account in
accordance with the terms of the EcoSearch Agreement.
The mergers of GeoSure and EcoSearch will be accounted for under the
pooling-of-interests method of accounting and, accordingly, historical
financial data in future reports will be restated to include GeoSure and
EcoSearch data. The following unaudited pro forma data summarizes the
combined results of operations of the Company and GeoSure and EcoSearch as
though the mergers had occurred at the beginning of each period and does not
purport to be indicative of what would have occurred had the acquisitions
actually been effected as of such date or of results which may occur in the
future.
<TABLE>
<CAPTION>
(Unaudited)
(In 000's, except per share data) 1998 1997
- ------------------------------------------------------- -------------- --------------
<S> <C> <C>
Revenues $ 25,423 $ 20,436
Net loss attributable to common stockholders (4,291) (6,821)
Basic and diluted loss per common share (.32) (.66)
- ------------------------------------------------------- -------------- --------------
</TABLE>
52
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
VISTA INFORMATION SOLUTIONS, INC.
(registrant)
Dated: March 31, 1999 By: /s/ Thomas R. Gay
---------------------------------
Thomas R. Gay
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below on March 30, 1998 by the following persons on behalf of
the Company and in the capacities indicated.
SIGNATURE AND TITLE
/s/ Thomas R. Gay
---------------------------------
Thomas R. Gay, Chief Executive
Officer and Director
/s/ Jay D. Seid
---------------------------------
Jay D. Seid, Chairman of the
Board
/s/ Patrick A. Rivelli
---------------------------------
Patrick A. Rivelli, Director
/s/ Martin F. Kahn
---------------------------------
Martin F. Kahn, Director
/s/ Richard J. Freeman
---------------------------------
Richard J. Freeman, Director
/s/ Robert Boscamp
---------------------------------
Robert Boscamp, Director
/s/ Earl Gallegos
---------------------------------
Earl Gallegos, Director
/s/ E. Stevens Hamilton
---------------------------------
Steven Hamilton
(Principal Financial Officer)
/s/ Brian Conn
---------------------------------
Brian Conn
(Principal Accounting Officer)
53
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1998
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3.1 Restated Articles of Incorporation of the
Company, as amended to date.................... Incorporated by reference to the Company's Post
Effective Amendment No. 1 to Form SB-2
Registration Statement on Form S-3 (File No.
33-72248).
3.2 Restated By-Laws of the Company, as amended to
date........................................... Incorporated by reference to the Company's
Definitive Proxy Statement filed February 17,
1998 (File No. 0-20312).
4.1 Specimen form of the Company's Common Stock
Certificate.................................... Incorporated by reference to the Company's
Registration Statement on Form 10 (File No.
0-20312).
4.2 Specimen form of the Company's Warrant
Certificate.................................... Incorporated by reference to the Company's
Registration Statement on Form 10 (File No.
0-20312).
4.3 Warrant Agreement.............................. Incorporated by reference to the Company's
Registration Statement on Form 10 (File No.
0-20312).
4.4 Certificate of Designation of the Rights and
Preferences of the Company's Series B
Convertible Preferred Stock.................... Incorporated by reference to the Company's
Quarterly Report on Form 10-QSB for the quarter
ended September 30, 1993 (File No. 0-20312).
4.5 Certificate of Designation of
the Rights and Preferences of
the Company's Series C
Convertible Preferred Stock.................... Incorporated by reference to the
Company's Current Report on Form
8-K filed March 7, 1995 (File
No. 0-20312).
4.6 Certificate of Designation of the Rights and
Preferences of the Company's Series D
Convertible Preferred Stock.................... Incorporated by reference to the Company's
Current Report on Form 8-K filed March 7, 1995
(File No. 0-20312).
4.9 Option Agreement by and among Paul S. Bachow
Co-Investment Fund, L.P., Paul S. Bachow and the
Company dated September 15, 1993............... Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1993 (File No. 0-20312).
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Item No. Description Method of Filing
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4.10 Rockwin Corp. Warrant Certificate dated
September 3, 1993.............................. Incorporated by reference to the Company's
Registration Statement on Form S-8 (File No.
33-73212).
4.11 Grant Warfield Option Agreement dated October 3,
1991........................................... Incorporated by reference to the Company's
Registration Statement on Form S-8 (File No.
33-73212).
4.12 Alex Tassos Warrant Agreements dated January 1,
1993 and April 19, 1993........................ Incorporated by reference to the Company's
Registration Statement on Form S-8 (File No.
33-73212).
4.13 James Hovis Warrant Agreement dated December 10,
1993........................................... Incorporated by reference to the Company's
Registration Statement on Form S-8 (File No.
33-73212).
4.14 Purchase Agreement dated February 28, 1995 among
the Company and certain investors identified in
the Agreement.................................. Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1994 (File No. 0-20312).
4.15 Standby Bridge Loan Facility dated January 15,
1994 between the Company and certain persons
listed on Exhibit A attached thereto........... Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1995 (File No. 0-20312).
4.16 Amendment to Subordinated Promissory Notes dated
February 28, 1995 between the Company and
certain persons listed on Exhibit A attached
thereto........................................ Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1995 (File No. 0-20312).
4.17 Form of Subordinated Convertible Debenture
issued from October through December 1995...... Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1995 (File No. 0-20312).
4.18 Form of Warrant issued in connection with the
Subordinated Convertible Debenture financing
issued from October through December 1995...... Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1995 (File No. 0-20312).
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Item No. Description Method of Filing
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10.3 Geographic Underwriting System Agreement among
ISO Commercial Risk Services, Inc. and ISO
Telecommunications, Inc. and the Company, dated
June 3, 1991................................... Incorporated by reference to the Company's
Registration Statement on Form 10 (File No.
0-20312).
10.4 Supplement to Joint Service Agreement dated
February 5, 1996 between Insurance Services
Office, Inc. and the Company................... Incorporated by reference to the Company's Annual
Report on Form 10-K for the period ended December 31,
1995 (File No. 0-20312).
10.6 Office Building Lease modification dated March
9, 1997 by and between The Shidler Group and the
Company........................................ Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1996 (File No. 0-20312).
10.8 Agreement of Lease dated January 1997 by and
between the Company and Sibley Real Estate
Services....................................... Incorporated by reference to the Company's Annual
Report on Form 10-K for the period ended December 31,
1996 (File No. 0-20312).
10.9 1990 Stock Option Plan, as amended............. Incorporated by reference to the Company's
Registration Statement on Form S-8 (File No.
33-73212).
10.10 Profit Sharing Plan............................ Incorporated by reference to the Company's
Registration Statement on Form 10 (File No.
0-20312).
10.11 1995 Stock Incentive Plan...................... Incorporated by reference to the Company's
Registration Statement on Form S-8 (File No.
333-09417).
10.13 401(k) Plan.................................... Incorporated by reference to the Company's
Registration Statement on Form 10 (File No.
0-20312).
10.14 Employment Agreement of Donald R. Coley, dated
August 10, 1992................................ Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1993 (File No. 0-20312).
10.17 Geographic Underwriting System Joint Service
Agreement between Insurance Services Offices,
Inc. and the Company, dated October 1, 1992.... Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1993 (File No. 0-20312).
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Item No. Description Method of Filing
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10.19 Agreement for Services between Insurance
Services Office, Inc. and the Company dated
August 28, 1992................................ Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the fiscal year
ended June 30, 1993 (File No. 0-20312).
10.21 Addendum One to Geographic Underwriting System
Joint Service Agreement between Insurance
Services Offices, Inc. and the Company, dated
January 21, 1994............................... Incorporated by reference to the Company's
Annual Report on Form 10-KSB for the transition
period ended December 31, 1993 (File No.
0-20312).
10.26 Employment Agreement with Thomas R. Gay dated
February 28, 1995.............................. Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1994 (File No. 0-20312).
10.30 1993 VISTA Stock Option Plan................... Incorporated by reference to the Company's
Registration Statement on Form S-8 (File No.
333-09417).
10.31 Agreement dated September 26, 1996 between the
Company and Silicon Valley Bank regarding
factoring of receivables....................... Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1996 (File No. 0-20312).
10.34 Agreement Regarding Board Observer dated April
18, 1995 between the Company and Century Capital
Partners, L.P.................................. Incorporated by reference to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 (File No. 0-20312).
10.35 Equipment Lease Agreement dated August 10, 1995
between the Company and Ally Capital Corporation Incorporated by reference to the
Company's Annual Report on Form
10-K for the period ended
December 31, 1995 (File No.
0-20312).
10.36 Asset Purchase Agreement dated February 1, 1996
between the Company and Business Information
Technology Inc................................. Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1995 (File No. 0-20312).
10.37 Equipment Lease Agreement dated August 10, 1995
between the Company and Ally Capital Corporation Incorporated by reference to the Company's
Annual Report on Form 10-K for the period ended
December 31, 1995 (File No. 0-20312).
10.38 Technology Alliance dated October 29, 1998
between the Company and Homeseekers.Com, Inc... Filed herewith, page ___.
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10.39 Agreement dated November 20, 1998 between the
Company and Silicon Valley Bank regarding
purchase of receivables........................ Filed herewith, page ___.
10.40 Agreement dated April 7, 1998
between the Company and Silicon
Valley Bank regarding a
revolving line of
credit....................... Filed herewith, page ___.
10.41 Agreement dated July 23, 1998
between the Company and Silicon
Valley Bank regarding a term
loan........................................... Filed herewith, page ___.
21.1 List of subsidiaries of the
Registrant......... Filed herewith, page ___.
23.1 Consent of Deloitte & Touche,
LLP.............. Filed herewith, page ___.
23.2 Consent of McGladrey & Pullen,
LLP............. Filed herewith, page ___.
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EXHIBIT 10.38
TECHNOLOGY ALLIANCE AGREEMENT
This Technology Alliance Agreement ("Agreement") is entered into as of
October 29, 1998, by and between Vista Information Solutions, Inc., a Delaware
corporation ("Vista") and HomeSeekers.com, Inc., a Nevada corporation ("HSI").
RECITALS
A. Vista is a leading provider of, among other things, offering
to home buyers, real estate agents, mortgage and title
insurance companies home disclosure reports, insurance of all
types to the home seller/buyer or home owner, property risk
reports, market data and demographic information, statistical
data and summary information, and other products desired by a
person in a home real estate transaction.
B. HSI is a leading provider of on-line and desktop residential
real estate information and software for use by home buyers,
real estate agents, mortgage and title insurance companies
through HomeSeekers(TM), HSI's proprietary internet products
available AT WWW.HOMESEEKERS.COM, or through
HomeSeekers/CityNet(TM), HSI's proprietary intranet product,
users can search for a home within a specified geographical
area and with desired features such as number of bedrooms and
baths, security, and other added features, apply for and
arrange for mortgage and title insurance and track the process
of the closing.
C. The parties desire to form a technology alliance providing to
each other certain market place rights, web positioning,
revenue sharing arrangements, and other consideration, all as
is more particularly set forth in this Agreement.
AGREEMENT
1. DEFINITIONS
1.1 CONFIDENTIAL INFORMATION means all nonpublic information,
whether in oral, written or other tangible form that the party
disclosing the information (the "Disclosing Party") designates
as being confidential or which, under the circumstances
surrounding disclosure, the receiving party (the "Recipient")
know or has reason to know should be treated as confidential,
including without limitation, the terms and conditions of this
Agreement. Notwithstanding the foregoing, Confidential
Information does not include information that: (i) is or
becomes generally available to the public other than (a) as a
result of a disclosure by Recipient or its employees or any
other person who directly or indirectly receives such
information from Recipient or its employees or (b) in
violation of a confidentiality obligation to Disclosing Party
known to Recipient, (ii) is or becomes available to Recipient
on a non-confidential basis from a source which is entitled to
disclose it to Recipient, or (iii) was developed by employees
or agents of the Recipient independently of and without
reference to any information communicated to Recipient by the
Disclosing Party.
1.2 EFFECTIVE DATE means the date set forth in the preamble
hereof.
1.3 GROSS RECEIPTS shall mean the purchase price received by Vista
on account of sales of Vista Products to customers. "Gross
Receipts" shall not be reduced by deductions for costs or
expenses incurred in the manufacture, distribution, sale or
advertisement of the Vista Products unless otherwise provided
in this agreement but shall not include freight, taxes, or
royalties paid to third parties or other monies received by
Vista which do not represent the purchase price of the Vista
Product.
1.4 HSI DATABASE CONTENT means one or more databases now existing
or hereafter developed by HSI or licensed by HSI from third
parties, including without limitation lists of agents, real
estate listings, buyers, site users and other customers, users
or affiliated companies marketing services via HSI to the same
intended buyers as Vista is seeking to serve. The HSI Database
Content in existence as of the Effective Date are set forth on
Exhibit 1.4.
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1.5 HSI PRODUCTS means those certain products and services
identified by HSI from time to time during the term of this
Agreement by written notice to Vista, including without
limitation, HSI's proprietary internet products available at
the HSI Web Page known as HomeSeekers.com, or HSI's
proprietary intranet product known as HomeSeekers/CityNet(TM),
REOSeekers, and users or prospects for HSI desktop software
products, channel bars and any other products now existing or
hereafter offered by HSI and targeted to the real estate
industry.
1.6 HSI SOFTWARE means the object code version of HSI's
proprietary software which provides access to certain HSI
Products and access to the HSI Database Content.
1.7 HSI WEB PAGE means the web sites owned and maintained by HSI
for the purposes of serving the real estate industry in any
form or manner. INTELLECTUAL PROPERTY means copyright rights
(including, without limitation, the exclusive right to use,
reproduce, modify, distribute, publicly display and publicly
perform the copyrighted work), trademark rights (including,
without limitation, trade names, trademarks, service marks,
and trade dress), patent rights (including, without
limitation, the exclusive right to make, use and sell), trade
secrets, moral rights, right of publicity, authors' rights,
contract and licensing rights, goodwill and all other
intellectual property rights as may exist now and/or hereafter
come into existence and all renewals and extensions thereof,
regardless of whether such rights arise under the law of the
United States or any other state, country or jurisdiction.
1.8 INTERNET means that network of computer networks integrated
through the use of all TCP/IP protocol.
1.9 NET RECEIPTS shall mean the royalties, fees and other sums
received by Vista on account of sales of Vista Products to
customers, less returns, rebates and other costs and expenses
incurred in the manufacture, distribution, sale or
advertisement of the Vista Products or royalties or fees paid
to third parties based on the sales of Vista's products. In
addition, "Net Receipts" shall not include freight, taxes or
other monies received by Vista which do not represent the
purchase price of the Vista Product.
1.10 ORDER INFORMATION is defined in Section 2.3.
1.11 ROYALTY ADVANCE is defined in Section 8.1.
1.12 SALES INFORMATION is defined in Section 2.5.
1.13 SUPPORT TOOLS is defined in Section 3.7.
1.14 TRADEMARKS shall mean, collectively, the Vista trademarks and
the HSI Trademarks listed on Exhibit 1.14 hereto, and HSI
Trademarks and Vista Trademarks commonly owned or applied for
in the future.
1.15 VISTA PRODUCTS means those certain products and services
identified by Vista from time to time during the term of this
Agreement by written notice to HSI, including without
limitation, home disclosure reports, insurance, property risk
reports, market data demographic information, statistical data
and summary information, prospect lists and target marketing
information derived from the combination of HSI Database
Content or Products and other related or new products in
Vista's discretion.
2. ON-LINE PRODUCT OFFERINGS
2.1 PRODUCT OFFERING. HSI authorizes Vista to offer the Vista
Products through dedicated areas on the HSI Web Page. The
advertising, manufacturing and shipping of all Vista Products
sold or offered for sale by Vista under this Agreement shall
be the sole responsibility of Vista. Vista also shall be
responsible for providing customer service and support to all
customers ordering Vista Products from Vista. Title and risk
of loss for the Vista Products remain with Vista until
shipment to the customer and does not transfer to or vest in
HSI.
2.2 PRODUCT INFORMATION. Vista will provide to HSI information to
prepare dedicated areas and linkages on the HSI Web Page to
advertise and offer the Vista Products for sale to customers.
Vista hereby grants to HSI a non-exclusive, royalty-free,
worldwide, license to reproduce, distribute, make derivative
works of, and
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publicly display the Product Information during the term of
this Agreement, for the sole purpose of allowing Vista to
promote the Vista Products on the HSI Web Page.
2.3 CUSTOMER ORDERS. Customer will place on-line orders for Vista
Products via linking from the HSI Web Page, using such order
process as Vista may, in its sole discretion, determine Vista
will be responsible for fulfilling all customer orders in a
manner it sees fit and customary to how it currently fulfills
customers in the same markets intended by this agreement.
Vista shall, at its sole discretion, determine its own
pricing, shipping and handling fees, billing and collection
policy, delivery methods and sales policies, except as
provided in Section 7 ("Royalty"). HSI shall provide the
capability within the HSI software to record and transmit
certain information and databases about prospective customers
or customer order to Vista, including, without limitation, (i)
the name, address and telephone number of the customer, and
other information collected in the HSI database known as the
MLS databases (provided it is available to HSI) which Vista
may reasonably require to solicit or fulfill customer orders.
2.4 PHASE-OUT OF VISTA PRODUCTS. If Vista decides to phase-out a
particular Vista Product it will provide HSI with ten (10)
days notice prior to such Vista Product becoming unavailable.
HSI will remove the relevant information for such Vista
Product from Vista's dedicated area on the HSI Web Page within
seven (7) calendar days after receipt of Vista's notice.
2.5 SALES AND INVENTORY REPORT. Each calendar month Vista shall
provide HSI with an electronic report showing, for that month,
the date Vista Products were ordered by a customer, the
quantity of each type of Vista Product ordered, the customers'
names and addresses and the payment due to Vista for Vista
Products sold to customers placing orders through the HSI Web
Page (the "Sales Information"). Vista will deliver this report
within ten (10) days of the end of the calendar month.
3. JOINT MARKETING
3.1 VISTA AND HSI MARKETING SUPPORT. Both parties agree that it
will use commercially reasonable efforts to promote the Vista
Products to HSI customers. To assist in these efforts, each
agrees to provide the other with reasonable quantities of
marketing materials, for which they shall reimburse the other
for its out of pocket costs for such materials in the event
they exceed $1000 a month.
3.2 BRANDING AND POSITIONING. HSI agrees to use best efforts to
promote and provide market positioning of the Vista Products
and Trademarks without limiting the promotional obligations
described elsewhere in this Agreement. HSI agrees to feature
prominently the Vista Trademarks and web links on the HSI Web
Page, in other HSI Products and in promotional and
merchandising materials used in connection with promoting the
HSI Real Estate Offerings and to permit Vista to participate
in all seminars and sales events in order to specifically
promote Vista Products covered by this Agreement. HSI shall
provide Vista with a copy of any such placement, and Vista
shall have the right, in the reasonable exercise of its
discretion, to select in which HSI products the Vista
Trademarks will be displayed, and the specific location in
which such display shall take place.
3.3 LINKING. HSI agrees to use best efforts to promote the Vista
Products, including without limitation by linking the HSI Web
Page to one or more Vista web sites in a manner to facilitate
the purchase of Vista products. Without limiting the
promotional obligations described elsewhere in this Agreement,
HSI agrees to link the HSI Web Page to such URLs as Vista may
from time to time reasonably request during the term of this
Agreement.
3.4 RELATIONSHIP MANAGERS. Each party shall appoint a Relationship
Manager. As of the Effective Date, the HSI Relationship
Manager shall be Doug Swanson and the Vista Relationship
Manager shall be Thomas Gay. Either party may change its
relationship manager by providing notice as provided in
Section 15.3 ("Notice and Service").
3.5 RESPONSIBILITIES OF RELATIONSHIP MANAGERS. The HSI and Vista
Relationship Managers shall be responsible for the following
activities:
(a) Determining the location and use of the Vista
Trademarks in the HSI Real Estate Offerings as
required by Section 3.2;
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(b) Determining the location and linking of the HSI Web
Page to Vista sites as required by Section 3.3;
(c) Working on the evaluation and development of the
Support Tools as described in Section 3.7 for use on
the HSI Web Page or in connection with the Vista
Products; and
(d) Working to coordinate the training of each party's
personnel; and the coordination of customer training
seminars]
(e) Working to develop marketing strategies for the Vista
Products as contemplated by this Agreement;
(f) Meet as required under Section 14.5 ("Escalation
Procedure") to settle disputes between the parties.
3.6 PERIODIC MEETINGS. The parties agree that the Relationship
Managers, and any other persons designated by the Relationship
Managers, shall meet, electronically, telephonically or
otherwise, not less frequently than monthly and, in addition,
as reasonably requested by Vista or HSI for a general review
of the ongoing marketing of the Vista Products and any other
issues of concern to the parties.
3.7 SUPPORT TOOLS. HSI and Vista agree to mutually use reasonable
efforts to cooperate with the other to identify and evaluate
(i) potential banner advertising and other management tools,
(ii) a mechanism to aggregate the reporting of usage
statistics and registration data for the users of the HSI Web
Page, and (iii) interfaces to support database transfers as
contemplated for providing Vista services to the real estate
markets served by HSI. The Support Tools may be either third
party software or proprietary software developed by Vista or
HSI with input from the other, as mutually agreed upon by
Vista or HSI.
3.8 TECHNICAL SUPPORT. The parties acknowledge and agree that HSI
shall be solely responsible for the maintenance and support of
the HSI Web Page, all third party licenses in connection
therewith, all ISP fees and charges in connection therewith
and otherwise with respect to the maintenance and operation of
the HSI Web Page. Without limiting the foregoing, HSI shall be
responsible for all programming efforts associated with the
development of any custom Support Tools pursuant to this
Agreement. Vista's responsibility for such development efforts
shall be limited to (i) providing input into the desired
features for such Support Tools; (ii) the evaluation of such
Support Tools and (iii) the integration and testing of such
Support Tools into the Vista software and Web sites, and the
technical support needed to fulfill customer orders, where
applicable.
3.9 LICENSE. Each party grants the other a nonexclusive,
worldwide, nontransferable license to reproduce, distribute,
publicly perform and publicly display the Support Tools
developed by such part.
4. EXCLUSIVITY AND NON-COMPETITION
4.1 EXCLUSIVITY. During the term of this Agreement, including any
renewal term (but except as described in Section 8.3), HSI
agrees that it shall not permit any person or entity to
display product offerings or web linkages on the HSI Web Page,
which product offerings are competitive with the Vista
Products or where the person or entity uses the HSI Web Page
to link to other services which may be competitive to the
Vista Products without the express written consent of Vista.
Without limiting the foregoing, the parties agree that
competitive products include products described in Section
1.15. Additionally, Vista will not enter into agreement with
another entity operating as an "MLS" internet web listings
provider without the express written consent of HSI. In either
case, such consent shall not be unreasonably withheld.
4.2 NON-COMPETITION. During the term of this Agreement, including
any renewal term, neither party shall, directly or indirectly,
develop, produce, manufacture, distribute, license or sell any
products which are competitive with (I) with respect to HSI,
the HomeSeekers(TM) and HomeSeekers/CityNet(TM), and (ii) with
respect to Vista, the Vista Products except where they are
provided directly through other Vista sales affiliate
organizations or web sites which are not directly competitive
with the HSI Web Page for its intended real estate agent or
consumer markets or in the case of Vista where prior
relationships may already exist provided they are disclosed to
HSI.
5. DATABASE LICNESES
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5.1 DELIVERY OF HSI DATABASE CONTENT. On or before the expiration
of fifteen (15) days from the date requested by Vista, HSI
shall deliver to Vista the database content more particularly
described on Exhibit 1.4 attached and incorporated herein by
reference. Such delivery shall be on such media and in such
format as is more particularly described on Exhibit 1.4. HSI
will deliver to Vista an updated version of the HSI Database
Content at a minimum of one time per week. HSI shall deliver
the initial HSI Database Content, and each date thereof in a
manner to be mutually agreed upon but minimally to allow
electron handling of the database to facilitate its intended
use as a source from providing Vista Products. Vista shall
have the right to load the HSI Database Content on one or more
servers or CPUs, in Vista's discretion. Vista may change the
location of the Vista servers containing the HSI Database
Content upon written notice to HSI.
5.2 LICENSE TO HSI DATABASE CONTENT. Subject to the terms and
conditions of this Agreement, HSI grants to Vista a limited
non-exclusive license to the HSI Database Content for the
following applications:
(a) Vista may publish, reproduce, and publicly display
the HSI Database Content in hard copy or in
electronic form on a secure Intranet or network
within Vista, for access by Vista employees and
agents for the purpose of developing leads or
otherwise marketing and promoting the Vista Products;
(b) Vista may conduct any sorting necessary to organize
the HSI Database Content to be useful for such
marketing and promotional purposes;
(c) Vista may download or print mailing or telemarketing
lists from the HSI Database Content, and distribute
such lists;
(d) Vista may produce Home Disclosure and other property
information reports and provide them to agents,
buyers or sellers of real estate or other parties
seeking to present services to the same within the
industries reflected by Section 1.15 Controls on HSI
Database Content. Vista shall maintain a system of
controls that will:
(e) Protect the integrity and confidentiality of the HSI
Database Content by ensuring that only authorized
personnel of Vista may alter the HSI Database
Content,
(f) Control access to the HSI Database such that access
is limited to Vista employees and agents who are
authorized by Vista;
6. TRADEMARK LICENSES
6.1 VISTA LICENSE. During the term of this Agreement, HSI grants
to Vista a nonexclusive, worldwide an non-transferable license
to use the HSI Trademarks in connection with Vista's marketing
and promotion of the Vista Products, including without
limitation representing itself to be a strategic partner of
HSI. This license does not include the right to sublicense the
use of the HSI Trademarks. The Trademark license is subject to
the restrictions set forth in Section 6.3.
6.2 HSI LICENSE. During the term of this Agreement, Vista grants
to HSI a nonexclusive, worldwide and non-transferable license
to use the Vista Trademarks in connection with HSI's marketing
and promotion of the Vista Products. This license does not
include the right to sublicense the use of the Vista Marks.
The Trademark license is subject to the restrictions set forth
in Section 6.3.
6.3 TRADEMARK LICENSE RESTRICTIONS. Vista's use of the HSI
Trademarks and HSI's use of the Vista Trademarks are subject
to the following license restrictions:
(a) A party's use (the "trademark licensee") use of the
other party's Trademarks (the "trademark licensor")
shall be in compliance with the trademark licensor's
Trademark Usage Guidelines, as amended from time to
time, a copy of which will be provided to the
trademark licensee concurrently with the execution of
this Agreement.
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(b) The trademark licensee agrees that the nature and
quality of any materials supplied by the trademark
licensee bearing the trademark licensor Trademarks
shall be of high quality as measured by standards
generally observed in the Internet industry. The
trademark licensor shall have the right to determine,
in its reasonable discretion, whether such materials
or services conform to such quality standards. Upon
trademark licensor's written request, the trademark
licensee shall promptly provide trademark licensor
with specimens of all materials bearing the trademark
licensor Trademarks. If the trademark licensor
determines that any materials bearing the trademark
licensor Trademarks or any services provided under
the trademark licensor Trademarks fail to conform to
such quality standards, the trademark licensor shall
notify the trademark licensee in writing of such
non-conformance and shall specify whether such
non-conformance is material. If the non-conformance
is material, the trademark licensee shall provide a
corrected specimen to trademark licensor for review
within thirty (30) days from the date of notice or
cease the use of all trademark licensor Trademarks on
such materials upon written notice from trademark
licensor.
(c) The trademark licensee acknowledges that the
trademark licensor is the sole and exclusive owner of
the trademark licensor Trademarks. Except as
prohibited by law, the trademark licensee agrees that
it will do nothing inconsistent with such ownership,
either during the term of this Agreement or
afterwards. The trademark licensee agrees that the
use of the trademark licensor Trademarks by the
trademark licensee shall inure to the benefit of and
be on behalf of the trademark licensor. The trademark
licensee acknowledges that the trademark licensor
Trademarks are valid under applicable law and that
the trademark licensee's utilization of the trademark
licensor Trademarks will not create any right, title
or interest in such trademark licensor Trademarks.
Except as permitted in this Agreement, the trademark
licensee agrees that it will not adopt or use as part
or all of any corporate name, trade name, domain
names, trademark or service mark or any other
trademark based on the trademark licensor Trademarks
or any other designation confusingly similar to the
trademark licensor Trademarks. Trademark licensee
shall use the trademark licensor Trademarks so that
they create a separate and distinct impression from
any other trademark licensor Trademark that may be
used or affixed to materials bearing the trademark
licensor Trademarks or used in connection with
services provided under the trademark licensor
Trademarks.
(d) Trademark licensee agrees to use reasonable
commercial efforts to notify trademark licensor of
any unauthorized use of (I) the trademark licensor
Trademarks, or (ii) trademarks or service marks in
the on-line or electronic industries by third parties
based on or confusingly similar to the trademark
licensor Trademarks. Trademark licensee shall assist
trademark licensor or its authorized representatives,
at trademark licensor's expense, in investigating or
prosecuting an action against such third parties. The
trademark licensor shall have the sole right and
discretion to bring, prosecute and settle
infringement, unfair competition and similar
proceedings based on the trademark licensor
Trademarks.
(e) Trademark licensee agrees not to apply to register
the trademark licensor Trademarks either as a
trademark, servicemark, tradename, corporate name or
domain name or any word or combination of words
confusingly similar to the trademark licensor
Trademarks anywhere in the world. If an application
for registration is or has been filed y or on behalf
of Trademark licensee in any country and relates to
any trademark licensor Trademark which, in the
reasonable opinion of trademark licensor, is
confusingly similar, deceptive or misleading with
respect to, or dilutes or in any way damages the
trademark licensor Trademarks, Trademark licensee
shall, at trademark licensor's request, abandon all
use of such trademark licensor Trademark, and any
registration or application for registration thereof
and shall reimburse trademark licensor all costs and
expenses of any opposition or related legal
proceeding, including attorney's fees, instigated by
trademark licensor or its authorized representative
on account of such usage.
7. ROYALTY
7.1 ROYALTY RATE.
(a) Vista shall pay to HSI a royalty of forty percent
(40%) of Gross Receipts on sales of Vista Products,
for orders which were placed by customers from the
HSI Web Page (under the process more particularly
described in Section 2.3 above).
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(b) Vista shall pay to HSI a royalty of thirty percent
(30%) of Net Receipts on sales of Vista Products to
customers, which sales were generated by information
obtained by Vista from the HSI Database Content. As
used herein, "generated" means that leads for such
sales were obtained by Vista from the names in the
HSI Database Content, or marketing materials were
sent to names obtained in the HSI Database Content.
7.2 EXCEPTIONS FROM ROYALTY OBLIGATION. No royalty shall be owed
or paid with respect to (a) copies of the Vista Product
distributed as "free", "complimentary", "no charge",
"demonstration copies", or at nominal prices less than eight
dollars per unit to promote or stimulate sales of the Vista
Product, (b) copies of the Vista Product delivered to
customers without the "certification" or other authenticating
document, which sale shall be deemed to occur only upon the
delivery of such certificate and where no revenues are
received by Vista.
7.3 BUNDLE PRICING. For purposes of determining Gross Receipts and
Net Receipts, if Vista receives an indivisible price for two
(2) or more Vista products, including the Vista Product (a
"Bundle"), then such indivisible price for all products in the
Bundle shall be allocated among the products involved
(including the Vista Product) in proportion to their
respective full product single user prices in the United
States.
7.4 OTHER PRICING. In the event that Vista plans to distribute the
Vista Product in any manner for which Gross Receipts or Net
Receipts will be indeterminate or otherwise not clearly
identifiable, Vista and HSI shall negotiate in good faith for
such distribution the appropriate earned royalty therefor.
Vista shall use reasonable commercial efforts to ensure that
whenever possible, such negotiations shall be conducted prior
to Vista engaging in such manner of distribution.
8. PAYMENT AND PAYMENT TERMS
8.1 POSITIONING FEE. Vista will pay HSI a non-refundable (except
as otherwise set forth in Section 8.3), recoupable fee against
future royalties (the "positioning fee"), as follows:
(a) an amount equal to Two Hundred and Fifty Thousand
Dollars ($250,000), payable on November 1, 1998,
(b) an amount equal to Two Hundred and Fifty Thousand
Dollars ($250,000), payable on January 1, 1999,
(c) an amount equal to Two Hundred and Fifty Thousand
Dollars ($250,000), payable on March 1, 1999,
(d) an amount equal to Two Hundred and Fifty Thousand
Dollars ($250,000), payable on May 1, 1999,
(e) an amount equal to Five Hundred Thousand Dollars
($500,000), payable on August 1, 1999,
(f) an amount equal to Five Hundred Thousand Dollars
($500,000), payable on November 1, 1999,
8.2 CREDIT FOR POSITIONING FEE AGAINST EARNED ROYALTIES. Earned
royalties owned by Vista to HSI will first be recouped against
the total positioning fee paid to date before any royalty
payments will be made to HSI. HSI shall not receive any
additional payments until earned royalties exceed the total of
positioning fees paid.
8.3 REFUND OF POSITIONING FEE. In the event that, upon the
expiration of two (2) years from the Effective Date, sales of
Vista Products on which royalties area payable hereunder shall
not be at the level sufficient to fully exhaust the credit for
paid positioning fees under the terms of Section 8.2 Vista, at
its discretion, may reduce royalty payment rates to a level of
25% of the otherwise agreed rate until such time as the
remaining unpaid credit is fully recovered. All other
provisions of this Agreement shall remain in force with the
exception that this Agreement shall also become non-exclusive
and either party may participate in competitive activities
without violating this Agreement. In the event of a breach, as
defined herein, by SSI, then Vista may elect to suspend
further payments of Positioning Fees as described in Section
8.1 and elect to demand repayment of the then outstanding and
unused Positioning Fee credit remaining.
8.4 PAYMENT. Royalties shall be paid and a royalty statement shall
be provided to HSI by Vista on a quarterly basis throughout
the term of the Agreement, within forty-five (45) days after
the close of each respective quarter. Quarters shall be based
on a standard calendar year. The royalty statement shall be
based upon Gross Receipts
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and Net Receipts for the quarter then ended, and shall contain
information sufficient to discern how the royalty payment was
computed on the sales of the Vista Product. Such statement of
Vista's sales of the Vista Product will be delivered to HSI
whether or not royalties are due for the respective quarter.
All amounts past due shall be subject to a late charge of one
percent (1%) per month (or the highest rate allowed by law if
lower), from the date such payments were due.
8.5 NO OTHER PAYMENTS. The parties agree that no royalties,
license fees, residuals, service charges, fees for creative
materials or any other fees, except as stated in this
Agreement are due as between the parties and neither party
will invoice the other party for such charges without prior
written agreement.
9. AUDITS
9.1 RECORDS. Vista agrees to keep, for at least three (3) years,
all proper records and books of account and all proper entries
therein relating to the distribution and sale of the Vista
Products and Vista's Gross and Net Receipts therefrom.
9.2 AUDIT. HSI may cause an audit to be made, at its expense, of
Vista's applicable records relating to the Vista Product (and
the manner in which royalties were calculated) in order to
verify statements rendered hereunder. Any such audit shall be
conducted only by an independent certified public accountant
(other than on a contingency fee basis) after prior written
notice to Vista, and shall be conducted during regular
business hours at Vista's offices and in such a manner as not
to interfere with Vista's normal business activities. The
auditor may make copies and extracts of the records audited.
The results of any such audit shall be subject to the
nondisclosure obligation set forth in Section 10.
10. CONFIDENTIALITY
10.1 EXCEPTIONS FROM SCOPE OF CONFIDENTIALITY OBLIGATIONS. The
parties acknowledge that a fundamental aspect of the
relationship between the parties hereunder is the joint
marketing and promotion of Vista Products. In furtherance of
that purpose, HSI has licensed to Vista the HSI Database
Content. The use by Vista of the HSI Database Content is
governed by the license terms of Section 5 and not by this
Section 10.
10.2 OBLIGATION OF CONFIDENTIALITY. During the term of this
Agreement, the Disclosing Party may provide Confidential
Information to the Recipient. Recipient shall hold the
Confidential Information in strict confidence, provided that
the Confidential Information may be disclosed to such of
Recipient's employees, contractor and advisors and employees,
contractors and advisors of Vista who have a need to know for
the purpose of fulfilling Recipient's obligations under this
Agreement. Recipient shall advise any such individuals that
the Confidential Information is confidential and that by
receiving such information such individuals are agreeing to be
bound by the terms of this Section 10 ("Confidentiality") and
are agreeing not to use such information for any purpose other
than described herein. Without the Disclosing Party's prior
written consent, Recipient shall not, and shall direct such
individuals not to, disclose the Confidential Information in
whole or in part, except to the extent compelled by law.
Recipient shall employ all reasonable steps to protect the
Confidential Information from unauthorized or inadvertent
disclosure or use, including, without limitation, all steps
that it takes to protect its own information that it considers
a trade secret.
10.3 INJUNCTIVE RELIEF. It is further understood and agreed that
money damages would not be a sufficient remedy for any breach
of Recipient's obligations under Section 10
("Confidentiality") by Recipient, or any employees,
contractors or advisors under Recipient's supervision and that
Disclosing Party shall be entitled to specific injunctive
relief as a remedy for any such breach. Such remedy shall not
be deemed to be the exclusive remedy for the breach of
obligations under Section 10 ("Confidentiality") but shall be
in addition to all other available legal or equitable
remedies. Recipient agrees to reimburse Disclosing Party for
costs and expenses (including, without limitation, reasonable
outside attorney's fees) incurred by Disclosing Party in
connection with the enforcement of this Agreement.
11. REPRESENTATIONS
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11.1 HSI REPRESENTATION. HSI represents and warrants to Vista that
(i) HSI has the right to grant the licenses herein granted and
to make the covenants made herein, and (ii) the provision of
the HSI Database Content and the granting of the licenses
governed hereby do not breach any agreement to which HSI is a
party or by which its assets are bound.
11.2 VISTA REPRESENTATION. Vista represents and warrants to HSI
that (i) Vista has the right to grant the licenses herein
granted and to make the covenants made herein, and (ii) the
granting of the licenses governed hereby do not breach any
agreement to which HSI is a party or by which its assets are
bound.
11.3 LIMITED WARRANTY. HSI acknowledges that Vista does not
guarantee or warrant the accuracy of any information provided
in connection with the Vista Products. HSI further
acknowledges that Vista does not provide legal, accounting or
other professional advice or services. Vista and/or Vista's
vendors, suppliers or licensors have obtained the information
contained in the Vista Products from sources which it (or
they) believe(s) reliable, but neither Vista nor Vista's
vendors, suppliers or licensors has verified the accuracy of
any information set forth in the Vista Products and cannot and
does not guarantee or warrant the accuracy thereof. Vista
shall not be liable for any loss, injury, claim, liability or
damage of any kind resulting in any way from (a) any errors in
or omissions from the Vista Products, (b) the unavailability
or interruption of the delivery of the Vista Products, (c)
HSI's use or the use by HSI customers of the Vista Products,
or (d) the content of the Vista Products.
11.4 EXCEPT AS SPECIFICALLY PROVIDED IN THIS SECTION 11, NO OTHER
REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESSED OR IMPLIED,
INCLUDING WITHOUT LIMITATION TITLE, NONINFRINGEMENT, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE, ARE MADE.
12. INDEMNIFICATION. Each party ("the indemnifying party") hereby indemnifies,
defends, and holds harmless the other and its officers, directors, employees and
agents (the "indemnified parties") from and against any and all losses,
liabilities, claims, obligations, costs, expenses, (including, without
limitation, reasonable attorney's fees) which result from, arise in connection
with or are related I any way to (i) any breach or alleged breach by the
indemnifying party of any of its representations and warranties set forth
herein, or (ii) the misrepresentation, or error or omission by the indemnifying
party. The obligations of this paragraph are conditioned on the indemnified
parties (i) giving the indemnifying party prompt written notice of any such
claim, and (ii) providing reasonable cooperation in the defense and all related
settlement negotiations.
13. TERM AND TERMINATION.
13.1 TERM. The term of this Agreement will commence upon the
Effective Date and will terminate five (5) years thereafter.
13.2 CHANGE OF CONTROL. In the event of a change in control of the
ownership of either HSI or Vista, the other party shall have
the right to extend this Agreement for a period of ten (10)
years provided they deliver written notice to the other within
ninety (90) days of the change of control event actually
occurring.
13.3 RENEWAL. Vista may renew this Agreement, at Vista's
discretion, for an additional five (5) year period (the
"Renewal Period") exercisable by providing HSI not less than
six (6) month's notice of intent to renew prior to the
expiration of the initial term.
13.4 TERMINATION FOR CAUSE. Either party may terminate this
Agreement upon written notice of a material breach by the
other party as provided below. Each party agrees to use best
efforts to resolve all conflicts arising under this Agreement
in accordance with the terms of Section 14.5 ("Escalation
Procedure"). However, if a material breach of this Agreement
remains unresolved after the steps in Section 14.5
("Escalation Procedure") have been exhausted, this Agreement
may be terminated in its entirely by the non-breaching party.
For the purposes of this Agreement, material breach shall
include, without limitation, the failure by Vista or HSI to
make payments when due or HSI's failure or inability to
deliver the HSI Database Content for whatever reason. If the
breaching party has failed to cure the breach within ninety
(90) days after the receipt by the breaching party of written
notice of such breach, (except for breaches by a party of the
confidentiality obligations or payment obligations, for which
the period will be thirty (30) days after receipt
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by the breaching party of written notice of such breach), the
non-breaching party may give a second notice to the breaching party
terminating the Agreement. In addition, this Agreement may be
terminated immediately upon the occurrence of one of the events of
default described in (a) through (f) below ("Specified Event");
provided, however, that the breaching party will have ninety (90) days
to cure the occurrence of a Specified Event identified in subparagraphs
(a) through (f) below.
(a) the filing of an application for or the consenting to or
directing the appointment of, or the taking of possession by,
a receiver, a custodian, trustee or liquidator of all or
substantially all of a party's property, whether tangible or
intangible, wherever located;
(b) the making of a general assignment for the benefit of
creditors;
(c) the commencing or the intention to commence a voluntary case
under federal bankruptcy laws (as now or hereinafter may be in
effect);
(d) the adjudication that a party is bankrupt or insolvent;
(e) the filing of or the intent to file by a party of a petition
seeking to take advantage of any other law providing for the
relief of debtors, or
(f) the acquiescence to or the failure to have dismissed within
ninety (90) days, any petition filed against a party in any
involuntary case under such bankruptcy law.
14. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION
14.1 REMOVAL OF VISTA PRODUCT OFFERING VISTA TRADEMARKS. Upon the
expiration or termination of this Agreement, HSI shall
immediately remove all Vista Trademarks from the HSI Web Page
and shall otherwise immediately cease all representation of
itself as an authorized distributor of Vista Products and
strategic partner of HSI. Notwithstanding the foregoing, HSI
shall permit Vista to fill orders received by Vista prior to
such expiration or termination (subject to the obligation to
pay HSI in accordance with the terms of Section 7).
14.2 REDELIVERY OF HSI DATABASE CONTENT. Upon the expiration or
termination of this Agreement, Vista shall immediately
redeliver to HSI all copies of the HSI Database Content and
shall otherwise immediately cease all representation of itself
as a strategic partner of HSI. Notwithstanding the foregoing,
HSI shall permit Vista to fill orders received by Vista prior
to such expiration or termination (subject to the obligation
to pay HSI in accordance with the terms of Section 7).
14.3 NO EFFECT ON CUSTOMERS. Expiration or termination of this
Agreement for any reason shall not affect customer agreements
for the Vista Product, which shall continue in full force and
effect in accordance with their terms.
14.4 RETURN OF PROPERTY. Within thirty (30) days after any
termination or expiration of this Agreement, each party shall
immediately deliver to the other party all copies of
Confidential Information or other materials then in its
possession owned solely by such other party.
14.5 ESCALATION PROCEDURE. The Relationship Managers for both
parties have the primary responsibility to resolve conflicts
under this Agreement in a timely manner. Any conflicts
unresolved by the Relationship Managers within fifteen (15)
business days of the Relationship Managers' first meeting to
discuss such conflict will be escalated in writing to CHIEF
EXECUTIVE OFFICER of Vista and of HSI, their successors or
such other officers of the parties as are designated in
writing in accordance with the notice provisions of Section
15.3 ("Notice and Service"). Such individuals will use best
efforts to resolve the conflict as soon as possible and to
record the resolution of the conflict in writing. These
efforts shall not prevent termination of the Agreement in the
periods provided in Section 13.1 ("Termination for Cause").
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15. GENERAL
15.1 NO PARTNERSHIP OR JOINT VENTURE. HSI and Vista are independent
contractors and neither party is the legal representative,
agent, joint venturer, partner, or employee of the other party
for any purpose whatsoever. Neither party has any right or
authority to assume or create any obligations of any kind or
to make any representation or warranty on behalf of the other
party, whether express or implied, or to bind the other party
in any respect whatsoever.
15.2 LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO OTHER PARTY FOR ANY INCIDENTAL, CONSEQUENTIAL,
SPECIAL, OR PUNITIVE DAMAGES ARISING OUT OF THIS AGREEMENT OR
ITS TERMINATION, WHETHER LIABILITY IS ASSERTED IN CONTRACT OR
TORT (INCLUDING NEGLIGENCE AND STRICT PRODUCT LIABILITY) AND
IRRESPECTIVE OF WHETHER SUCH PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF ANY SUCH LOSS OR DAMAGE.
15.3 NOTICE AND SERVICE. All notices or requests, including
communications and statements which are required or permitted
under the terms of this Agreement, shall be in writing and
shall be sent by facsimile, or recognized commercial overnight
courier. Notices shall be deemed received upon receipt of
written confirmation of transmissions when sent by facsimile
or signing for receipt of delivery if sent by overnight
courier. Notices shall be sent to the parties at the following
addresses:
For HSI: HomeSeekers.com, Inc.
2241 Park Place, Suite E
Minden, NV 89423
Phone: (702) 782-2977
Fax: (702) 782-6931
Attention: Greg Johnson
For Vista: Vista Information Solutions, Inc.
5060 Shoreham Place
San Diego, CA 92122
Phone: (619) 450-6100
Fax: (619) 450-6185
15.4 CAPTIONS. All indices, titles, subject headings, section
titles and similar items contained in this Agreement are
provided for the purpose of reference and convenience only and
are not intended to be inclusive, definitive or to affect the
meaning, content or scope of this Agreement.
15.5 ASSIGNMENTS. Vista may not assign, voluntarily, by operation
of law, or otherwise, any rights or delegate any duties under
this Agreement (other than the right to receive payments)
without HSI's prior written consent. This Agreement will bind
and inure to the benefit of the parties and their respective
successors and permitted assigns.
15.6 SURVIVAL. Upon any termination of this Agreement, the
following Sections shall remain in full force and effect: 10
("Confidentiality"), 12 ("Indemnification"), 13 ("Term and
Termination"), 14 ("Return of Property"), and 15 ("General").
15.7 GOVERNING LAW AND JURISDICTION. This Agreement shall be
governed by and construed under the laws of the State of
California without regard to conflict of laws principles.
15.8 WAIVERS; MODIFICATION. No failure or delay by either party in
exercising any right, power, or remedy under this Agreement
shall operate as a waiver of any such right, power, or remedy.
No waiver or modification of any provision of this Agreement
shall be effective unless in writing and signed by both
parties. Any waiver by either party of any provision of this
Agreement shall not be construed as a waiver of any other
provision of this Agreement, nor shall such waiver operate as
or be construed as a waiver of such provision respecting any
future event or circumstance.
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15.9 SEVERABILITY. In the event any provision of this Agreement (or
portion thereof) is determined by a court of competent
jurisdiction to be invalid, illegal, or otherwise
unenforceable, such provision shall be deemed to have been
deleted from this Agreement, while the remainder of this
Agreement shall remain in full force and effect according to
its terms.
15.10 CONSTRUCTION. This Agreement reflects the wording accepted by
the parties and no rule of construction shall apply against
either party. Each party retains the right to correct any
typographical or other clerical errors in this Agreement.
15.11 ENTIRE AGREEMENT. This Agreement (together with the Exhibits
hereto) constitute the entire agreement and understanding
between the parties hereto with respect to the subject matter
hereof and supersede any and all other agreements, written or
oral, that the parties heretofore may have had with respect to
the subject matter herein.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed.
HOMESEEKERS.COM, Inc. Vista Information Solutions, Inc.
HSI Corp.
----------------------------
By: By:
----------------------------- --------------------------
Title: Title:
---------------------------- ------------------------
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EXHIBIT 10.39
SILICON VALLEY FINANCIAL SERVICES
A Division of Silicon Valley Bank
3003 Tasman Drive
Santa Clara, Ca. 95054
(408) 654-1000 - Fax (408)980-6410
ACCOUNTS RECEIVABLE PURCHASE AGREEMENT
This Accounts Receivable Purchase Agreement (the "Agreement") is made on
this Twentieth day of November1998, by and between Silicon Valley Financial
Services (a division of Silicon Valley Bank) ("Buyer') having a place of
business at the address specified above and VISTA Information Solutions, Inc., a
Minnesota corporation, ("Parent') and EIRISK Information Services, a California
corporation, ("Subsidiary"), Parent and Subsidiary are referred to as ("Seller)
having their principal place of business and chief executive office at
Street Address: 5060 Shoreham Place, Suite 300
City: San Diego
County:
State: California
Zip code: 92123
Phone: 619/450-6100
1. Definitions. When used herein, the following terms shall have the following
meanings.
1.1, "Account Balance" shall mean, on any given day, the gross amount of
all Purchased Receivables unpaid on that day.
1.2. "Account Debtor' shall have the meaning set forth in the California
Uniform Commercial Code and shall include any person liable on any Purchased
Receivable, including without limitation, any guarantor of the Purchased
Receivable and any issuer of a letter of credit or banker's acceptance.
1.3. "Adjustments" shall mean all discounts, allowances, returns, disputes,
counterclaims, offsets, defenses, rights of recoupment, rights of return,
warranty claims, or short payments, asserted by or on behalf of any Account
Debtor with respect to any Purchased Receivable.
1.4, "Administrative Fee" shall have the meaning as set forth in Section
3.3 hereof.
1.5, "Advance" shall have the meaning set forth in Section 2.2 hereof.
1.6. "Collateral" shall have the meaning set forth in Section 8 hereof.
1.7. "Collections" shall mean all good funds received by Buyer from or on
behalf of an Account Debtor with respect to Purchased Receivables.
1.8 "Compliance Certificate" shall mean a certificate, in a form provided
by Buyer to Seller, which contains the certification of the chief financial
officer of Seller that, among other things, the representations and warranties
set forth in this Agreement are true and correct as of the date such certificate
is delivered.
1.9. "EVENT OF Default' shall have the meaning set forth in Section 9
hereof.
1.10."Finance Charges" shall have the meaning set forth in Section 3.2
hereof.
1.11."Invoice Transmittal" shall mean a writing signed by an authorized
representative of Seller which accurately identifies the receivables which
Buyer, at its election, may purchase, and includes for each such receivable the
correct amount owed by the Account Debtor, the name and address of the Account
Debtor, the invoice number, the invoice date and the account code.
1.12."Obligations" shall mean all advances, financial accommodations,
liabilities, obligations, covenants and duties owing, arising, due or payable by
Seller to Buyer of any kind or nature, present or future, arising under or in
connection with this Agreement or under any other document, instrument or
agreement, whether or not evidenced by any note, guarantee or other instrument,
whether arising on account or by overdraft, whether direct or indirect
(including those acquired by assignment) absolute or contingent, primary or
secondary, due or to become due, now owing or hereafter arising, and however
acquired: including, without limitation, all Advances, Finance Charges,
Administrative Fees, interest, Repurchase Amounts, fees, expenses, professional
fees and attorneys' fees and any other sums chargeable to Seller hereunder or
otherwise.
1.13."Purchased Receivables" shall mean all those accounts, receivables,
chattel paper, instruments, contract rights, documents, general intangibles,
letters of credit, drafts, bankers acceptances, and rights to payment, and all
proceeds thereof (all of the foregoing being referred to as "receivables"),
arising out of the invoices and other agreements identified on or delivered with
any Invoice Transmittal delivered by Seller to Buyer which Buyer elects to
purchase and for which Buyer makes an Advance.
1.13.1 "Parent Purchased Receivables" those Purchased Receivables arising
out of the invoices and other agreements
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identified on or delivered with any Invoice Transmittal delivered by Parent to
Buyer which Buyer elects to purchase and for which Buyer makes an advance.
1.13.2. "Subsidiary Purchased Receivables" those Purchased Receivables
arising out of the invoices and other agreements identified on or delivered with
any Invoice Transmittal delivered by Subsidiary to Buyer which Buyer elects to
purchase and for which Buyer makes an advance.
1.14."Refund" shall have the meaning set forth in Section 3.5 hereof
1.15."Reserve" shall have the meaning set forth in Section 2.4 hereof.
1.16."Repurchase Amount' shall have the meaning set forth in Section 4.2
hereof.
1.17,"Reconciliation Date" shall mean the last calendar day of each
Reconciliation Period.
1.18."Reconciliation Period" shall mean each calendar month of every year.
2. Purchase and Sale of Receivables.
2.1. Offer to Sell Receivables. During the term hereof, and provided that
there does not then exist any Event of Default or any event that with notice,
lapse of time or otherwise would constitute an Event of Default, Seller may
request that Buyer purchase receivables and Buyer may, in its sole discretion,
elect to purchase receivables. Seller shall deliver to Buyer an Invoice
Transmittal with respect to any receivable for which a request for purchase is
made. An authorized representative of Seller shall sign each Invoice Transmittal
delivered to Buyer. Buyer shall be entitled to rely on all the information
provided by Seller to Buyer on or with the Invoice Transmittal and to rely on
the signature on any Invoice Transmittal as an authorized signature of Seller.
2.2. Acceptance of Receivables. Buyer shall have no obligation to purchase
any receivable listed on an Invoice Transmittal. Buyer may exercise its sole
discretion in approving the credit of each Account Debtor before buying any
receivable. Upon acceptance by Buyer of all or any of the receivables described
on any Invoice Transmittal, Buyer shall pay to Parent 85 percent of the face
amount of each Parent Purchased Receivable and (50%) percent of the face amount
of each Subsidiary Purchased Receivable. Such payment shall be the "Advance"
with respect to such receivable. Buyer may, from time to time, in its sole
discretion, change the percentage of the Advance. Upon Buyer's acceptance of the
receivable and payment to Seller of the Advance, the receivable shall become a
"Purchased Receivable." It shall be a condition to each Advance that (i) all of
the representations and warranties set forth in Section 6 of this Agreement be
true and correct on and as of the date of the related Invoice Transmittal and on
and as of the date of such Advance as though made at and as of each such date
and (ii) no Event of Default or any event or condition that with notice, lapse
of time or otherwise would constitute an Event of Default shall have occurred
and be continuing, or would result from such Advance. Notwithstanding the
foregoing, in no event shall the aggregate amount of all Purchased Receivables
outstanding at any time exceed Two Million Dollars.
2.3. Effectiveness of Sale to Buyer. Effective upon Buyer's payment of an
Advance, and for and in consideration therefor and in consideration of the
covenants of this Agreement, Seller hereby absolutely sells, transfers and
assigns to Buyer all of Seller's right, title and interest in and to each
Purchased Receivable and all monies due or which may become due on or with
respect to such Purchased Receivable. Buyer shall be the absolute owner of each
Purchased Receivable Buyer shall have with respect to any goods related to the
Purchased Receivable, all the rights and remedies of an unpaid seller under the
California Uniform Commercial Code and other applicable law, including the
rights of replevin, claim and delivery, reclamation and stoppage in transit,
2.4. Establishment of a Reserve. Upon the purchase by Buyer of each
Purchased Receivable, Buyer shall establish a reserve. The reserve shall be the
amount by which the face amount of the Purchased Receivable exceeds the Advance
on that Purchased Receivable (the "Reserve"): provided, the Reserve with respect
to all Parent Purchased Receivables outstanding at any one time shall be an
amount not less than 15 percent of the Account Balance at that time and may be
set at a higher percentage at Buyer's sole discretion. The Reserve with respect
to all Subsidiary Purchased Receivables outstanding at any one time shall be an
amount not less than 50 percent of the Account Balance at that time and may be
set a higher percentage at Buyers sole discretion. The reserve shall be a book
balance maintained on the records of Buyer and shall not be a segregated fund,
3. Collections, Charges and Remittances.
3.1. Collections. Upon receipt by Buyer of Collections, Buyer shall
promptly credit such Collections to Seller's Account Balance on a daily basis;
provided, that if Seller is in default under this Agreement, Buyer shall apply
all Collections to Seller's Obligations hereunder in such order and manner as
Buyer may determine. If an item of collection is not honored or Buyer does not
receive good funds for any reason, the amount shall be included in the Account
Balance as if the Collections had not been received and Finance Charges under
Section 3.2 shall accrue thereon.
3.2. Finance Charges. On each Reconciliation Date, Parent shall pay to
Buyer a finance charge in an amount equal to 1.50 percent per month of the
average daily Account Balance on Parent Purchased Receivables and 2.50 percent
per month of the
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average Account Balance net of Reserves on Subsidiary Purchased Receivables,
outstanding during the applicable Reconciliation Period (the "Finance Charge").
Buyer shall deduct the accrued Finance Charges from the Reserve as set forth in
Section 3.5 below.
3.3. Administrative Fee. On each Reconciliation Date Parent shall pay to
Buyer an Administrative Fee equal to .50 percent of the face amount of each
Purchased Receivable first purchased from Parent during that Reconciliation
Period (the Administrative Fee"). Buyer shall deduct the Administrative Fee from
the Reserve as set forth in Section 3.5 below.
3.4. Accounting. Buyer shall prepare and send to Seller after the close of
business for each Reconciliation Period, an accounting of the transactions for
that Reconciliation Period, including the amount of all Purchased Receivables,
all Collections, Adjustments, Finance Charges, and the Administrative Fee. The
accounting shall be deemed correct and conclusive unless Seller makes written
objection to Buyer within thirty (30) days after the Buyer mails the accounting
to Seller.
3.5, Refund to Seller. Provided that there does not then exist an Event of
Default or any event or condition that with notice, lapse of time or otherwise
would constitute an Event of Default, Buyer shall refund to Seller by check
after the Reconciliation Date, the amount, if any, which Buyer owes to Seller at
the end of the Reconciliation Period according to the accounting prepared by
Buyer for that Reconciliation Period (the "Refund'). The Refund shall be an
amount equal to:
(A)(1) The Reserve as of the beginning of that Reconciliation Period, plus
(2) the Reserve created for each Purchased Receivable purchased during
that Reconciliation Period, minus
(B) The total for that Reconciliation Period of:
(1) the Administrative Fee;
(2) Finance Charges;
(3) Adjustments;
(4) Repurchase Amounts, to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund;
(5) the Reserve for the Account Balance as of the first day of the
following Reconciliation Period in the minimum percentage set forth
in Section 2.4 hereof; and
(6) all amounts due, including professional fees and expenses, as set forth
in Section 12 for which oral or written demand has been made by Buyer to Seller
during that Reconciliation Period to the extent Buyer has agreed to accept
payment thereof by deduction from the Refund. In the event the formula set forth
in this Section 3.5 results in an amount due to Buyer from Seller, Seller shall
make such payment in the same manner as set forth in Section 4.3 hereof for
repurchases. If the formula set forth in this Section 3.5 results in an amount
due to Seller from Buyer, Buyer shall make such payment by check, subject to
Buyer's rights under Section 4.3 and Buyer's rights of offset and recoupment.
4. Recourse and Repurchase Obligations.
4.1. Recourse. Buyers acquisition of Purchased Receivables from Seller
shall be with full recourse against Seller. In the event the Obligations exceed
the amount of Purchased Receivables and Collateral, Seller shall be liable for
any deficiency.
4.2. Seller's Agreement to Repurchase. Seller agrees to pay to Buyer on
demand, the full face amount, or any unpaid portion, of any Purchased
Receivable:
(A) which remains unpaid ninety (90) calendar days after the invoice date;
or
(B) which is owed by any Account Debtor who has filed, or has had filed
against it, any bankruptcy case, assignment for the benefit of creditors,
receivership, or insolvency proceeding or who has become insolvent (as
defined in the United States Bankruptcy Code) or who is generally not
paying its debts as such debts become due, or
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(C) with respect to which there has been any breach of warranty or
representation set forth in Section 6 hereof or any breach of any covenant
contained in this Agreement: or
(D) with respect to which the Account Debtor asserts any discount,
allowance, return, dispute, counterclaim, offset defense, right of recoupment,
right of return, warranty claim, or short payment: together with all reasonable
attorneys' and professional fees and expenses and all court costs incurred by
Buyer in collecting such Purchased Receivable and/or enforcing its rights under,
or collecting amounts owed by Seller in connection with, this Agreement
(collectively, the "Repurchase Amount").
4.3. Seller's Payment of the Repurchase Amount or Other Amounts Due Buyer.
When any Repurchase Amount or other amount owing to Buyer becomes due, Buyer
shall inform Seller of the manner of payment which may or more of the following
in Buyer's sole discretion: (a) in cash immediately upon demand therefor: (b) by
delivery of substitute invoices and an Invoice Transmittal acceptable to Buyer
which shall thereupon become Purchased Receivables: (c) by adjustment to the
Reserve pursuant to Section 3.5 hereof; (d) by deduction from or offset against
the Refund that would otherwise be due and payable to Seller: (e) by deduction
from or offset against the amount that otherwise would be forwarded to Seller in
respect of any further Advances that may be made by Buyer; or (f) by any
combination of the foregoing as Buyer may from time to time choose.
4.4. Seller's Agreement to Repurchase All Purchased Receivables. Upon and
after the occurrence of an Event of Default, Seller shall, upon Buyer's demand
(or, in the case of an Event of Default under Section 9(B), immediately without
notice or demand from Buyer) repurchase all the Purchased Receivables then
outstanding , or such portion thereof as Buyer may demand. Such demand may, at
Buyer's option, include and Seller shall pay to Buyer immediately upon demand,
cash in an amount equal to the Advance with respect to each Purchased Receivable
then outstanding together with all accrued Finance Charges, Adjustments,
Administrative Fees, attorney's and professional fees, court costs and expenses
as provided for herein, and any other Obligations. Upon receipt of payment in
full of the Obligations, Buyer shall immediately instruct Account Debtors to pay
Seller directly, and return to Seller any Refund due to Seller. For the purpose
of calculating any Refund due under this Section only, the Reconciliation Date
shall be deemed to be the date Buyer receives payment in good funds of all the
Obligations as provided in this Section 4.4.
5. Power of Attorney. Seller does hereby irrevocably appoint Buyer and its
successors and assigns as Seller's true and lawful attorney in fact, and hereby
authorizes Buyer, regardless of whether there has been an Event of Default, (a)
to sell, assign, transfer, pledge, compromise, or discharge the whole or any
part of the Purchased Receivables: (b) to demand, collect, receive, sue, and
give releases to any Account Debtor for the monies due or which may become due
upon or with respect to the Purchased Receivables and to compromise, prosecute,
or defend any action, claim, case or proceeding relating to the Purchased
Receivables, including the filing of a claim or the voting of such claims in any
bankruptcy case, all in Buyers name or Seller's name, as Buyer may choose: (c)
to prepare, file and sign Seller's name on any notice, claim, assignment, demand
draft, or notice of or satisfaction of lien or mechanics' lien or similar
document with respect to Purchased Receivables; (d) to notify all Account
Debtors with respect to the Purchased Receivables to pay Buyer directly; (e) to
receive, open, and dispose of all mail addressed to Seller for the purpose of
collecting the Purchased Receivables; (f) to endorse Seller's name on any checks
or other forms of payment on the Purchased Receivables; (g) to execute on behalf
of Seller any and all instruments, documents, financing statements and the like
to perfect Buyer's interests iti the Purchased Receivables and Collateral; and
(h) to do all acts and things necessary or expedient, in furtherance of any such
purposes. If Buyer receives a check or item which is payment for both a
Purchased Receivable and another receivable, the funds shall first be applied to
the Purchased Receivable and, so long as there does not exist an Event of
Default or an event that with notice, lapse of time or otherwise would
constitute an Event of Default, the excess shall be remitted to Seller. Upon the
occurrence and continuation of an Event of Default, all of the power of attorney
rights granted by Seller to Buyer hereunder shall be applicable with respect to
all Purchased Receivables and all Collateral.
6. Representations, Warranties and Covenants.
6.1. Receivables' Warranties, Representations and Covenants. To induce
Buyer to buy receivables and to render its services to Seller, and with full
knowledge that the truth and accuracy of the following are being relied upon by
the Buyer in determining whether to accept receivables as Purchased Receivables,
Seller represents, warrants, covenants and agrees, with respect to each Invoice
Transmittal delivered to Buyer and each receivable described therein, that:
(A) Seller is the absolute owner of each receivable set forth in the
Invoice Transmittal and has full legal right to sell, transfer and
assign such receivables;
(B) The correct amount of each receivable is as set forth in the
Invoice Transmittal and is not in dispute;
(C) The payment of each receivable is not contingent upon the
fulfillment of any obligation or contract, past or future and any and
all obligations required of the Seller have been fulfilled as of the
date of the Invoice Transmittal:
(D) Each receivable set forth on the Invoice Transmittal is based on
an actual sale and delivery of goods and/or services actually
rendered, is presently due and owing to Seller, is not past due or in
default, has not been previously sold, assigned, transferred, or
pledged, and is free of any and all liens, security interests
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and encumbrances other than liens, security interests or encumbrances
in favor of Buyer or any other division or affiliate of Silicon Valley
Bank; (E) There are no defenses, offsets, or counterclaims against any
of the receivables, and no agreement has been made under which the
Account Debtor may claim any deduction or discount, except as
otherwise stated in the Invoice Transmittal; (F) Each Purchased
Receivable shall be the property of the Buyer and shall be collected
by Buyer, but if for any reason it should be paid to Seller, Seller
shall promptly notify Buyer of such payment, shall hold any checks,
drafts, or monies so received in trust for the benefit of Buyer, and
shall promptly transfer and deliver the same to the Buyer: (G) Buyer
shall have the right of endorsement, and also the right to require
endorsement by Seller, on all payments received in connection with
each Purchased Receivable and any proceeds of Collateral; (H); Seller,
2nd to Seller's best knowledge, each Account Debtor set forth in the
Invoice Transmittal, are and shall remain solvent as that term is
defined in the United States Bankruptcy Code and the California
Uniform Commercial Code, and no such Account Debtor has filed or had
tiled against it a voluntary or involuntary petition for relief under
the United States Bankruptcy Code; (I) Each Account Debtor named on
the Invoice Transmittal will not object to the payment for, or the
quality or the quantity of the subject mailer of, the receivable and
is liable for the amount set forth on the Invoice Transmittal; (J)
Each Account Debtor shall promptly be notified, after acceptance by
Buyer, that the Purchased Receivable has been transferred to and is
payable to Buyer, and Seller shall not take or permit any action to
countermand such notification; and (K) All receivables forwarded to
and accepted by Buyer after the date hereof, and thereby becoming
Purchased Receivables, shall comply with each and every one of the
foregoing representations, warranties, covenants and agreements
referred to above in this Section 6.1.
6.2. Additional Warranties, Representations and Covenants. In addition to
the foregoing warranties representations and covenants, to induce Buyer to buy
receivables and to render its services to Seller, Seller hereby represents
warrants covenants and agrees that:
(A) Seller will not assign, transfer, sell, or grant, or permit any
lien or security interest in any Purchased Receivables or Collateral to
or in favor of any other party, without Buyer's prior written consent;
(B) The Seller's name, form of organization, chief executive office,
and the place where the records concerning all Purchased Receivables
and Collateral are kept is set forth at the beginning of this Agreement
Collateral is located only at the location set forth in the beginning
of this Agreement, or, if located at any additional location, as set
forth on a schedule attached to this Agreement, and Seller will give
Buyer at least thirty (30) days prior written notice if such name,
organization, chief executive office or other locations of Collateral
or records concerning Purchased Receivables or Collateral is changed or
added and shall execute any documents necessary to perfect Buyer's
interest in the Purchased Receivables and the Collateral;
(C) Seller shall (i) pay all of its normal gross payroll for
employees, and all federal and state taxes, as and when due, including
without limitation all payroll and withholding taxes and state sales
taxes; (ii) deliver at any time and from time to time at Buyer's
request, evidence satisfactory to Buyer that all such amounts have
been paid to the proper taxing authorities; and (iii) if requested by
Buyer, pay its payroll and related taxes through a bank or an
independent payroll service acceptable to Buyer.
(D) Seller has not, as of the time Seller delivers to Buyer an Invoice
Transmittal, or as of the time Seller accepts any Advance from Buyer,
filed a voluntary petition for relief under the United States
Bankruptcy Code or had filed against it an involuntary petition for
relief;
(E) If Seller owns, holds or has any interest in, any copyrights
(whether registered, or unregistered), patents or trademarks, and
licenses of any of the foregoing, such interest has been disclosed to
Buyer and is specifically listed and identified on a schedule to this
Agreement, and Seller shall immediately notify Buyer if Seller
hereafter obtains any interest in any additional copyrights, patents,
trademarks or licenses that are significant in value or are material
to the conduct of its business; and
(F) Seller shall provide Buyer with a Compliance Certificate (i) on a
quarterly basis to be received by Buyer no later than the fifth
calendar day following each calendar quarter, and; (ii) on a more
frequent or other basis if and as requested by Buyer.
(0) Seller permits Buyer to have access to Seller's financial book's
and record's for the purpose of quarterly audits provided the Buyer
shall give Seller reasonable notice.
(H) Seller shall provide Buyer with quarterly 10K and 10Q reports to
be received by Buyer no later than the fifth calendar day following
Seller's Security and Exchange Commission filing.
(I) Parent and Subsidiary shall provide Buyer with an accounts payable
and accounts receivable aging on a monthly basis to be received by
Buyer no later than 5 days following each month end.
7. Adjustments. In the event of a breach of any of the representations,
warranties, or covenants set forth in Section 6.1, or in the event any
Adjustment or dispute is asserted by any Account Debtor, Seller shall promptly
advise Buyer and shall, subject to the Buyer's approval, resolve such disputes
and advise Buyer of any adjustments. Unless the disputed Purchased Receivable is
repurchased by
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Seller and the full Repurchase Amount is paid, Buyer shall remain the absolute
owner of any Purchased Receivable which is subject to Adjustment or repurchase
under Section 4.2 hereof, and any rejected, returned, or recovered personal
property, with the right to take possession thereof at any time. If such
possession is not taken by Buyer, Seller is to resell it for Buyer's account at
Seller's expense with the proceeds made payable to Buyer. While Seller retains
possession of said returned goods, Seller shall segregate said goods and mark
them "property of Silicon Valley Financial Services."
8. Security Interest. To secure the prompt payment and performance to Buyer
of all of the Obligations, Seller hereby grants to Buyer a continuing lien upon
and security interest in all of Seller's now existing or hereafter arising
rights and interest in the following ,whether now owned or existing or hereafter
created, acquired, or arising, and wherever located (collectively, the
"Collateral"):
(A) All accounts, receivables, contract rights, chattel paper, instruments,
documents, letters of credit, bankers acceptances, drafts, checks, cash,
securities, and general intangibles (including, without limitation, all
claims, causes of action, deposit accounts, guaranties, rights in and
claims under insurance policies (including rights to premium refunds),
rights to tax refunds, copyrights, patents, trademarks, rights in and under
license agreements, and all other intellectual property);
(B) All inventory, including Seller's rights to any returned or rejected
goods, with respect to which Buyer shall have all the rights of any unpaid
seller, including the rights of replevin, claim and delivery, reclamation,
and stoppage in transit;
(C) All monies, refunds and other amounts due Seller, including, without
limitation, amounts due Seller under this Agreement (including Seller's
right of offset and recoupment);
(D) All equipment, machinery, furniture, furnishings, fixtures, tools,
supplies and motor vehicles;
(E) All farm products, crops, timber, minerals and the like (including oil
and gas);
(F) All accessions to, substitutions for, and replacements of, all of the
foregoing;
(G) All books and records pertaining to all of the foregoing; and
(H) All proceeds of the foregoing, whether due to voluntary or involuntary
disposition, including insurance proceeds. Seller is not authorized to
sell, assign, transfer or otherwise convey any Collateral without Buyer's
prior written consent, except for the sale of finished inventory in the
Seller's usual course of business. Seller agrees to sign UCC financing
statements, in a form acceptable to Buyer, and any other instruments and.
documents requested by Buyer to evidence perfect, or protect the interests
of Buyer in the Collateral. Seller agrees to deliver to Buyer the originals
of all instruments, chattel paper and documents evidencing or related to
Purchased Receivables and Collateral.
9. Default. The occurrence of any one or more of the following shall
constitute an Event of Default hereunder.
(A) Seller fails to pay any amount owed to Buyer as and when due;
(B) There shall be commenced by or against Seller any voluntary or
involuntary case under the United States Bankruptcy Code, or any assignment
for the benefit of creditors, or appointment of a receiver or custodian for
any of its assets;
(C) Seller shall become insolvent in that its debts are greater than the
fair value of its assets, or Seller is generally not paying its debts as
they become due or is left with unreasonably small capital;
(0) Any involuntary lien, garnishment, attachment or the like is issued
against or attaches to the Purchased Receivables or any Collateral;
(E) Seller shall breach any covenant, agreement, warranty, or
representation set forth herein, and the same is not cured to Buyer's
satisfaction within ten (10) days after Buyer has given Seller oral or
written notice thereof; provided, that if such breach is incapable of being
cured it shall constitute an immediate default hereunder;
(F) Seller is not in compliance with, or otherwise is in default under, any
term of any document, instrument or agreement evidencing a debt, obligation
or liability of any kind or character of Seller, now or hereafter existing,
in favor of Buyer or any division or affiliate of Silicon Valley Bank,
regardless of whether such debt, obligation or liability is direct or
indirect, primary or secondary, joint, several or joint and several, or
fixed or contingent together with any and all renewals and extensions of
such debts, obligations and liabilities, or any part thereof
(C) An event of default shall occur under any guaranty executed by any
guarantor of the Obligation of Seller to Buyer under this Agreement, or any
material provision of any such guaranty shall for any reason cease to be
valid or enforceable or any such guaranty shall be repudiated or
terminated, including by operation of law
(H) A default or event of default shall occur under any agreement between
Seller and any creditor of Seller that has entered into a subordination
agreement with Buyer: or
(I) Any creditor that has entered into a subordination agreement with Buyer
shall breach any of the terms of or not comply with such subordination
agreement.
10. Remedies Upon Default. Upon the occurrence of an Event of Default, (1)
without implying any obligation to buy receivables, Buyer may cease buying
receivables or extending any financial accommodations to Seller: (2) all or a
portion of the Obligations shall be, at the option of and upon demand by Buyer,
or with respect to an Event of Default described in Section 9(B), automatically
and without notice or demand, due and payable in full: and (3) Buyer shall have
and may exercise all the rights and remedies under this Agreement and under
applicable law, including the rights and remedies of a secured party under the
California Uniform Commercial
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Code, all the power of attorney rights described in Section 5 with respect to
all Collateral, and the right to collect, dispose of, sell, tease, use, and
realize upon all Purchased Receivables and all Collateral in any commercial
reasonable manner. Seller and Buyer agree that any notice of sale required to be
given to Seller shall be deemed to be reasonable if given five(S) days prior to
the date on or after which the sale may be held. In the event that the
Obligations are accelerated hereunder, Seller shall repurchase all of the
Purchased Receivables as set forth in Section 4.4.
11. Accrual of Interest, If any amount owed by Seller hereunder is not paid
when due, including, without limitation, amounts due under Section 3.5,
Repurchase Amounts, amounts due under Section 12, and any other Obligations,
such amounts shall bear interest at a per annum rate equal to the per annum rate
of the Finance Charges until the earlier of (i) payment in good funds or (ii)
entry of a final judgment thereof, at which time the principal amount of any
money judgment remaining unsatisfied shall accrue interest at the highest rate
allowed by applicable law.
12 Fees, Costs and Expenses; Indemnification. The Seller will pay to Buyer
immediately upon demand all fees, costs and expenses (including fees of
attorneys and professionals and their costs and expenses ) that Buyer incurs or
may from time to time impose in connection with any of the following: (a)
preparing, negotiating , administering, and enforcing this Agreement or any
other agreement executed in connection herewith, including any amendments,
waivers or consents in connection with any of the foregoing, (b) any litigation
or dispute (whether instituted by Buyer, Seller or any other person) in any way
relating to the Purchased Receivables, the Collateral, this Agreement or any
other agreement executed in connection herewith or therewith, (d) enforcing any
rights against Seller or any guarantor, or any Account Debtor, (e) protecting or
enforcing its interest in the Purchased Receivables or the Collateral, (f)
collecting the Purchased Receivables and the Obligations, and (g) the
representation of Buyer in connection with any bankruptcy case or insolvency
proceeding involving Seller, any Purchased Receivable, the Collateral, any
Account Debtor, or any guarantor. Seller shall indemnify and hold Buyer harmless
from and against any and all claims, actions, damages, costs, expenses, and
liabilities of any nature whatsoever arising in connection with any of the
foregoing.
13. Severability, Waiver, and Choice of Law. In the event that any
provision of this Agreement is deemed invalid by reason of law, this Agreement
will be construed as not containing such provision and the remainder of the
Agreement shall remain in full force and effect, Buyer retains all of its
rights, even if it makes an Advance after a default. If Buyer waives a default,
it may enforce a later default. Any consent or waiver under, or amendment of,
this Agreement must be in writing. Nothing contained herein, or any action taken
or not taken by Buyer at any time, shall be construed at any time to be
indicative of any obligation or willingness on the part of Buyer to amend this
Agreement or to grant to Seller any waivers or consents. This Agreement has been
transmitted by Seller to Buyer at Buyer's office in the State of California and
has been executed and accepted by Buyer in the State of California. This
Agreement shall be governed by and interpreted in accordance with the internal
laws of the State of California.
14. Lockbox Account Collection Service. Seller shall enter into a three
party agreement (the Lockbox Agreement') with Buyer and a lockbox provider (the
"Lockbox Provider"). The Lockbox Agreement and the Lockbox Provider shall be
acceptable to Buyer. Seller shall use the lockbox address as the payment address
on all invoices issued by Seller and shall direct all its account debtors to
remit their payments to the lockbox address. The Lockbox Agreement shall provide
that the Lockbox Provider shall remit all collections received in the lockbox to
Buyer. Upon Buyer's receipt of such collections and provided that there does not
then exist an Event of Default or event that with nice, lapse or time or
otherwise would constitute an Event of Default, and subject to Buyer's rights in
the Collateral, Buyer agrees to remit to Seller the amount of the receivables
collections it receives with respect to receivables other than Purchased
Receivables. It is understood and agreed that by Seller that this Section does
not impose any affirmative duty on Buyer to do any act other than to turn over
such amounts. All such receivables and collections are collateral and in the
event of Seller's default hereunder, Buyer shall have no duty to remit
collections of Collateral and may apply such collections to the obligations
hereunder and Buyer shall have the rights of a secured party under the
California Uniform Commercial Code.
15. Notices. All notices shall be given to Buyer and Seller at the
addresses or faxes set forth on the first page of this Agreement and shall be
deemed to have been delivered and received: (a) if mailed, three (3) calendar
days after deposited in the United States mail, first class, postage pre-paid,
(b) one (1) calendar day after deposit with an overnight mail or messenger
service: or (c) on the same date of confirmed transmission if sent by hand
delivery, telecopy, telefax or telex.
16. Jury Trial. SELLER AND BUYER EACH HEREBY (a) WAIVE THEIR RESPECTIVE
RIGHTS TO A JURY TRIAL ON ANY CLAIM OR ACTION ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, ANY RELATED AGREEMENTS, OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREBY OR THEREBY: (b) RECOGNIZE AND AGREE THAT THE FOREGOING
WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT;
AND (c) REPRESENT AND WARRANT THAT IT HAS REVIEWED THIS WAIVER, HAS DETERMINED
FOR ITSELF THE NECESSITY TO REVIEW THE SAME WITH ITS LEGAL COUNSEL, AND
KNOWINGLY AND VOLUNTARILY WAIVES ALL RIGHTS TO A JURY TRIAL.
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17. Term and Termination. The term of this Agreement shall be for one (1)
year from the date hereof, and from year to year thereafter unless terminated in
writing by Buyer or Seller. Seller and Buyer shall each have the right to
terminate this Agreement at any time. Notwithstanding the foregoing, any
termination of this Agreement shall not affect Buyer's security interest in the
Collateral and Buyer's ownership of the Purchased Receivables, and this
Agreement shall continue to be effective, and Buyer's rights and remedies
hereunder shall survive such termination, until all transactions entered into
and Obligations incurred hereunder or in connection herewith have been completed
and satisfied in full.
18. Titles and Section Headings. The titles and section headings used
herein are for convenience only and shall not be used in interpreting this
Agreement.
19. Other Agreements. The terms and provisions of this Agreement shall not
adversely affect the rights of Buyer or any other division or affiliate of
Silicon Valley Bank under any other document, instrument or agreement. The terms
of such other documents, instruments and agreements shall remain in full force
and effect notwithstanding the execution of this Agreement. In the event of a
conflict between any provision of this Agreement and any provision of any other
document, instrument or agreement between Seller on the one hand, and Buyer or
any other division or affiliate of Silicon Valley Bank on the other hand, Buyer
shall determine in its sole discretion which provision shall apply. Seller
acknowledges specifically that any security agreements, liens and/or security
interests currently securing payment of any obligations of Seller owing to Buyer
or any other division or affiliate of Silicon Valley Bank also secure Seller's
obligations under this Agreement, and are valid and subsisting and are not
adversely affected by execution of this Agreement. Seller further acknowledges
that (a) any collateral under other outstanding security agreements or other
documents between Seller and Buyer or any other division or affiliate of Silicon
Valley Bank secures the obligations of Seller under this Agreement and (b) a
default by Seller under this Agreement constitutes a default under other
outstanding agreements between Seller and Buyer or any other division or
affiliate of Silicon Valley Bank.
IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement on the
day and year above written.
PARENT: VISTA Information Solutions, Inc.
By
Title
SUBSIDIARY: E/RISK Information Systems
By
Title
BUYER: SILICON VALLEY FINANCIAL SERVICES
A division of Silicon Valley Bank
By
Title
8
<PAGE>
EXHIBIT 10.40
SILICON VALLEY BANK
LOAN AND SECURITY AGREEMENT
by and between
SILICON VALLEY BANK
as Bank
and
VISTA INFORMATION SOLUTIONS, INC.
as Borrower
Dated April 7, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
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1. DEFINITIONS AND CONSTRUCTION...................................... 1
1.1 Definitions.................................................. 1
1.2 Accounting and Other Terms................................... 7
2. LOAN AND TERMS OF PAYMENT......................................... 7
2.1 Credit Extensions............................................ 7
2.2 Overadvances................................................. 9
2.3 Interest Rates, Payments, and Calculations................... 9
2.4 Crediting Payments........................................... 10
2.5 Fees......................................................... 10
2.6 Additional Costs............................................. 10
2.7 Terms........................................................ 11
3. CONDITIONS OF LOANS............................................... 11
3.1 Conditions Precedent to Initial Credit Extension............. 11
3.2 Conditions Precedent to all Credit Extensions................ 11
4. CREATION OF SECURITY INTEREST..................................... 12
4.1 Grant of Security Interest................................... 12
4.2 Delivery of Additional Documentation Required................ 12
4.3 Right to Inspect............................................. 12
5. REPRESENTATIONS AND WARRANTIES.................................... 12
5.1 Due Organization and Qualification........................... 12
5.2 Due Authorization; No Conflict............................... 12
5.3 No Prior Encumbrances........................................ 12
5.4 Bona Fide Eligible Accounts.................................. 12
5.5 Merchantable Inventory....................................... 12
5.6 Intellectual Property........................................ 13
5.7 Name: Location of Chief Executive Office..................... 13
5.8 Litigation................................................... 13
5.9 No Material Adverse Change in Financial Statements........... 13
5.10 Solvency..................................................... 13
5.11 Regulatory Compliance........................................ 13
5.12 Environmental Condition...................................... 13
5.13 Taxes........................................................ 14
5.14 Subsidiaries................................................. 14
5.15 Government Consents.......................................... 14
5.16 Full Disclosure.............................................. 14
6. AFFIRMATIVE COVENANTS............................................. 14
6.1 Good Standing................................................ 14
6.2 Government Compliance........................................ 14
6.3 Financial Statements, Reports, Certificates.................. 14
6.4 Inventory; Returns........................................... 15
6.5 Taxes........................................................ 15
6.6 Insurance.................................................... 15
</TABLE>
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TABLE OF CONTENTS (CONTD)
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6.7 Principal Depository......................................... 16
6.8 Quick Ratio.................................................. 16
6.9 Debt-Net Worth Ratio......................................... 16
6.10 Tangible Net Worth........................................... 16
6.11 Profitability................................................ 16
6.12 Registration of Intellectual Property Rights................. 16
6.13 Further Assurances........................................... 17
7. NEGATIVE COVENANTS
7.1 Dispositions................................................. 17
7.2 Changes in Business, Ownership, or Management,
Business Locations........................................... 17
7.3 Merges or Acquisitions....................................... 17
7.4 Indebtedness................................................. 17
7.5 Encumbrances................................................. 17
7.6 Distributions................................................ 17
7.7 Investments; Loans; Guarantees............................... 17
7.8 Transactions with Affiliates................................. 18
7.9 Intellectual Property Agreements............................. 18
7.10 Subordinated Debt............................................ 18
7.11 Inventory.................................................... 18
7.12 Compliance................................................... 18
8. EVENTS OF DEFAULT................................................. 18
8.1 Payment Default.............................................. 18
8.2 Covenant Default............................................. 18
8.3 Material Adverse Change...................................... 19
8.4 Attachment................................................... 19
8.5 Insolvency................................................... 19
8.6 Other Agreements............................................. 19
8.7 Subordinated Debt............................................ 19
8.8 Judgements................................................... 19
8.9 Misrepresentations........................................... 19
8.10 Guaranty..................................................... 19
9. BANK'S RIGHTS AND REMEDIES........................................ 20
9.1 Rights and Remedies.......................................... 21
9.2 Power of Attorney............................................ 21
9.3 Accounts Collection.......................................... 21
9.4 Bank Expenses................................................ 21
9.5 Bank's Liability for Collateral.............................. 22
9.6 RemediesCumulative........................................... 22
9.7 Demand; Protest.............................................. 22
10. NOTICES........................................................... 22
11. CHOICE OF LAW AND VENUE; JURY WAIVER.............................. 23
12. GENERAL PROVISIONS................................................ 23
12.1 Successors and Assigns....................................... 23
12.2 Indemnifications............................................. 23
</TABLE>
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12.3 Time of Essence.............................................. 23
12.4 Severability of Provisions................................... 23
12.5 Amendments in Writing, Integration........................... 23
12.6 Counterparts................................................. 24
12.7 Survival..................................................... 24
</TABLE>
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<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of April 7, 1998 by and
between SILICON VALLEY BANK ("Bank") and VISTA INFORMATION SOLUTIONS, INC., a
Minnesota corporation ("Borrower").
RECITALS
Borrower wishes to obtain credit from time to time from Bank, and Bank desires
to extend credit to Borrower. This Agreement sets forth the terms on which
Bank will advance credit to Borrower, and Borrower will repay the amounts
owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Definitions. As used in this Agreement; the following terms shall
have the following definitions:
"Accounts" means all presently existing and hereafter arising
accounts, contract rights, and all other forms of obligations owing to
Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering
of services by Borrower, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by Borrower and Borrower's Books
relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the Committed
Revolving Line.
"Affiliate" means, with respect to any Person, any Person that owns
or controls directly or indirectly such Person, any Person that controls or
is controlled by or is under common control with such Person, and each of
such Person's senior executive officers, directors, partners and, for any
Person that is a limited liability company, such Persons, managers and
members.
"Bank Expenses" means all reasonable costs or expenses (including
reasonable attorneys' fees and expenses) incurred in connection with the
preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding)
whether or not suit is brought.
"Borrower's Books" means all of Borrower's books and records
including, without limitation: ledgers; records concerning Borrower's assets
or liabilities, the Collateral, business operations or financial condition;
and all computer programs, or tape files, and the equipment, containing such
information.
"Borrowing Base" means an amount equal to 80% of Eligible Accounts,
as determined by Bank with reference to the most recent Borrowing Base
Certificate delivered by Borrower.
"Business Day" means any day that is not a Saturday, Sunday, or
other day on which banks in the State of California are authorized or
required to close.
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"Closing Date" means the date of this Agreement.
"Code" means the California Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A attached
hereto.
"Committed Revolving Line" means a credit extension of up to
$1,500,000.
"Contingent Obligation" means, as applied to any Person, any direct
or indirect liability, contingent or otherwise, of that Person with respect
to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold
with recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or
other agreement or arrangement designated to protect a Person against
fluctuation in interest rates, currency exchange rates or commodity prices;
provided, however, that the term "Contingent Obligation" shall not include
endorsements for collection or deposit in the ordinary course of business.
The amount of any Contingent Obligation shall be deemed to be an amount equal
to the stated or determined amount of the primary obligation in respect of
which such Contingent Obligation is made or, if not stated or determinable,
the maximum reasonably anticipated liability in respect thereof as determined
by such Person in good faith; provided, however, that such amount shall not
in any event exceed the maximum amount of the obligations under the guarantee
or other support arrangement.
"Copyrights" means any and all copyright rights, copyright
applications, copyright registrations and like protections in each work or
authorship and derivative work thereof, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held.
"Credit Card Sublimit" shall have the meaning set forth in Section
2.1.3 hereof.
"Credit Extension" means each Advance, Letter of Credit, or any
other extension of credit by Bank for the benefit of Borrower hereunder.
"Current Assets" means, as of any applicable date, all amounts that
should, in accordance with GAAP, be included as current assets on the
consolidated balance sheet of Borrower and its Subsidiaries as at such date.
"Current Liabilities" means, as of any applicable date, all amounts
that should, in accordance with GAAP, be included as current liabilities on
the consolidated balance sheet of Borrower and its Subsidiaries, as at such
date, plus, to the extent not already included therein, all outstanding
Credit Extensions made under this Agreement, including all Indebtedness that
is payable upon demand or within one year from the date of determination
thereof unless such Indebtedness is renewable or extendable at the option of
Borrower or any Subsidiary to a date more than one year from the date of
determination, but excluding Subordinated Debt.
"Eligible Accounts" means those Accounts that arise in the ordinary
course of Borrower's business that comply with all of Borrower's
representations and warranties to Bank set forth in Section 5.4; PROVIDED,
that standards of eligibility may be fixed and revised from time to time by
Bank in Bank's reasonable judgment and upon notification thereof to Borrower
in accordance with the provisions hereof. Unless otherwise agreed to by Bank
in writing, Eligible Accounts shall not include the following:
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<PAGE>
(a) Accounts that the account debtor has failed to pay within
ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty percent
(50%) of whose Accounts the account debtor has failed to pay within ninety
(90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five percent
(25%) of all Accounts, to the extent such obligations exceed the
aforementioned percentage, except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does not
have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof, except for those Accounts of the United States or any
department, agency or instrumentality thereof as to which the payee has
assigned its rights to payment thereof to Bank and the assignment has been
acknowledged, pursuant to the Assignment of Claims Act of 1940, as amended
(31 U.S.C. 3727);
(f) Accounts with respect to which Borrower is liable to the
account debtor, but only to the extent of any amounts owing to the account
debtor (sometimes referred to as "contra" accounts, e.g. accounts payable,
customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment,
guaranteed sale, sale or return, sale on approval, bill and hold, or other
terms by reason of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is an
Affiliate, officer, employee, or agent of Borrower;
(i) Accounts with respect to which the account debtor disputes
liability or makes any claim with respect thereto as to which Bank believes,
in its sole discretion, that there may be a basis for dispute (but only to
the extent of the amount subject to such dispute or claim), or is subject to
any Insolvency Proceeding, or becomes insolvent, or goes out of business; and
(j) Accounts the collection of which Bank reasonably
determines to be doubtful.
"Equipment" means all present and future machinery, equipment,
tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"ERISA" means the Employment Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as in effect
in the United States from time to time.
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"Indebtedness" means (a) all indebtedness for borrowed money or the
deferred purchase price of property or services, including without limitation
reimbursement and other obligations with respect to surety bonds and letters
of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by or
against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or
proceedings seeking reorganization, arrangement, or other relief.
"Intellectual Property Collateral" means
(a) copyrights, Trademarks, Patents, and Mask Works;
(b) Any and all trade secrets, and any and all intellectual
property rights in computer software and computer software products
now or hereafter existing, created, acquired or held;
(c) Any and all design rights which may be available to
Borrower now or hereafter existing, created, acquired or held;
(d) Any and all claims for damages by way of past, present
and future infringement of any of the rights included above, with the
right, but not the obligation, to use for and collect such damages
for said use or infringement of the intellectual property rights
identified above;
(e) All licenses or other rights to use any of the
Copyrights, Patents, Trademarks, or Mask Works, and all license fees
and royalties arising from such use to the extent permitted by such
license or rights;
(f) All amendments, renewals and extensions of any of the
Copyrights, Trademarks, Patents, or Mask Works; and
(g) All proceeds and products of the foregoing, including
without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing.
"Inventory" means all present and future inventory in which
Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished
products intended for sale or lease or to be furnished under a contract of
service, of every kind and description now or at any time hereafter owned by
or in the custody or possession, actual or constructive, of Borrower,
including such inventory as is temporarily out of its custody or possession
or in transit and including any returns upon any accounts or other proceeds,
including insurance proceeds, resulting from the sale or disposition of any
of the foregoing and any documents of title representing any of the above.
"Investment" means any beneficial ownership of (including stock,
partnership interest or other securities) any Person, or any loan, advance or
capital contribution to any Person.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
4
<PAGE>
"Letter of Credit" means a letter of credit or similar undertaking
issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in Section
2.1.2.
"Lien" means any mortgage, lien, deed of trust, charge, pledge,
security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, any note or
notes executed by Borrower, and any other present or future agreement
entered into between Borrower and/or for the benefit of Bank in connection
with this Agreement, all as amended, extended or restated from time to time.
"Mask Works" means all mask work or similar rights available for the
protection of semiconductor chips, now owned or hereafter acquired;
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of Borrower and its
Subsidiaries taken as a whole or (ii) the ability of Borrower to repay the
Obligations or otherwise perform its obligations under the Loan Documents.
"Maturity Date" means the Revolving Maturity Date.
"Negotiable Collateral" means all of Borrower's present and future
letters of credit of which it is a beneficiary, notes, drafts, instruments,
securities, documents of title, and chattel paper.
"Obligations" means all debt, principal, interest, Bank Expenses and
other amounts owned to Bank by Borrower pursuant to this Agreement or any
other agreement, whether absolute or contingent, due or to become due, now
existing or hereafter arising, including any interest that accrues after the
commencement of an Insolvency Proceeding and including any debt, liability,
or obligation owing from Borrower to others that Bank may have obtained by
assignment or otherwise.
"Patents" means all patents, patent applications and like
protections including without limitation improvements, divisions,
continuations, renewals, reissues, extensions and continuations-in-part of
the same.
"Payment Date" means the first calendar day of each month commencing
on the first such date after the Closing Date and ending on the Revolving
Maturity Date.
"Permitted Distributions" shall have the meaning ascribed to such
term in Section 7.6 hereof.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrower in favor of Bank arising under
this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and disclosed in
the Schedule;
(c) Subordinated Debt;
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(d) Indebtedness to trade creditors incurred in the ordinary
course of business;
and
(e) Indebtedness secured by Permitted Liens, provided that
such Indebtedness incurred in the future for the purchase price of or
lease of equipment shall not exceed, in the aggregate a total of
$1,000,000 at any time outstanding.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in the
Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency
or any State thereof maturing within one (1) year from the date of
acquisition thereof, (ii) commercial paper maturing no more than one (1)
year from the date of creation thereof and currently having the highest
rating obtainable from either Standard & Poor's Corporation or Moody's
Investors Service, Inc., and (iii) certificates of deposit maturing no
more than one (1) year from the date of investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed in
the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith
by appropriate proceedings and as to which adequate reserves are
maintained on Borrower's Books in accordance with GAAP, PROVIDED the same
have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or indebtedness incurred solely for the purpose of financing
the acquisition of such Equipment, or (ii) existing on such equipment at
the time of its acquisition, PROVIDED that the Lien is confined solely to
the property so acquired and improvements thereon, and the proceeds of
such equipment;
(d) Liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by Liens of the type described
in clauses (a) through (c) above, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness being
extended, renewed or refinanced does not increase.
"Person" means any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit
corporation, firm, joint stock company, estate, entity or governmental
agency.
"Prime Rate" means the variable rate of interest, per annum, most
recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
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"Quick Assets" means, as of any applicable date, the consolidated
cash, cash equivalents, accounts receivable and investments with maturities
of fewer than 90 days of Borrower determined in accordance with GAAP.
"Responsible Officer" means each of the Chief Executive Officer, the
President, the Chief Financial Officer and the Controller of Borrower.
"Revolving Maturity Date" means the date that is one day prior to the
first anniversary of the date of this Agreement.
"Schedule" means the schedule of exceptions attached hereto, if any.
"Subordinated Debt" means any debt incurred by Borrower that is
subordinated to the debt owing by Borrower to Bank on terms acceptable to
Bank (and identified as being such by Borrower and Bank).
"Subsidiary" means with respect to any Person, corporation,
partnership, company association, joint venture, or any other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests is owned or controlled, directly or indirectly, by such Person or
one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets of Borrower and its Subsidiaries MINUS, without
duplication, (i) the sum of any amounts attributable to (a) goodwill, (b)
intangible items such as unamortized debt discount and expense, patents,
trade and service marks and names, copyrights and research and development
expenses except prepaid expenses, and (c) all reserves not already deducted
from assets, AND (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any date as of
which the amount thereof shall be determined, all obligations that should, in
accordance with GAAP be classified as liabilities on the consolidated balance
sheet of Borrower, including in any event all Indebtedness, but specifically
excluding Subordinated Debt.
"Trademarks" means any trademark and servicemark rights, whether
registered or not, applications to register and registrations of the same and
like protections, and the entire goodwill of the business of Assignor
connected with and symbolized by such trademarks.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance
with GAAP. When used herein, the term "financial statements" shall include
the notes and schedules thereto. The terms "including"/"includes" shall always
be read as meaning "including (or includes) without limitation", when used
herein or in any other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 CREDIT EXTENSIONS. Borrower promises to pay to the order of Bank, in
lawful money of the United States of America, the aggregate unpaid principal
amount of all Credit Extensions made by Bank to Borrower hereunder. Borrower
shall also pay interest on the unpaid principal amount of all Credit
Extensions at rates in accordance with the terms hereof.
2.1.1 Advances
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(a) Subject to and upon the terms and conditions of this
Agreement. Bank agrees to make Advances to Borrower in an aggregate
outstanding amount not to exceed (i) the Committed Revolving Line or the
Borrowing Base, whichever is less, minus (ii) the face amount of all
outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit), minus (iii) the Credit Card Sublimit. Subject to the terms
and conditions of this Agreement, amounts borrowed pursuant to this
Section 2.1 may be repaid and reborrowed at any time during the term of
this Agreement.
(b) Whenever Borrower desires an Advance, Borrower will notify
Bank by facsimile transmission or telephone no later than 3:00 p.m.
Pacific time, on the Business Day that the Advance is to be made. Each
such notification shall be promptly confirmed by a Payment/Advance Form
in substantially the form of EXHIBIT B hereto. Bank is authorized to
make Advances under this Agreement, based upon instructions received
from a Responsible Officer or a designee of a Responsible Officer, or
without instructions if in Bank's discretion such Advances are necessary
to meet Obligations which have become due and remain unpaid. Bank shall
be entitled to rely on any telephone notice given by a person who Bank
reasonably believes to be a Responsible Officer or a designee thereof,
and Borrower shall indemnify and hold Bank harmless for any damages or
loss suffered by Bank as a result of such reliance. Bank will credit the
amount of Advances made under this Section 2.1 to Borrower's deposit
account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section
2.1 and other amounts due under this Agreement (except as otherwise
expressly specified herein) shall be immediately due and payable.
2.1.2 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the
account of Borrower in an aggregate outstanding face amount not to
exceed (i) the lesser of the Committed Revolving Line or the Borrowing
Base, whichever is less, minus (ii) the then outstanding principal
balance of the Advances, minus (iii) the Credit Card Sublimit; PROVIDED
that the face amount of outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit and any Letter of Credit Reserve)
shall not in any case exceed $250,000. Each Letter of Credit shall have
an expiry date no later than twelve months beyond the then applicable
Revolving Maturity Date, PROVIDED that on the Maturity Date or any
earlier date of termination Borrower shall immediately provide to and
pledge to the Bank immediately available funds in the outstanding
aggregate amount of Letters of Credit (including drawn but unreimbursed
Letters of Credit) and Borrower shall execute the Bank's standard form
of cash pledge agreement in connection therewith. All Letters of Credit
shall be, in form and substance, acceptable to Bank in its sole
discretion and shall be subject to the terms and conditions of Bank's
form of standard Application and Letter of Credit Agreement.
(b) The obligation of Borrower to immediately reimburse Bank
for drawings made under Letters of Credit shall be absolute,
unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters of Credit,
under all circumstances whatsoever. Borrower shall indemnify, defend,
protect, and hold Bank harmless from any loss, cost, expense or
liability, including, without limitation, reasonable attorney's fees,
arising out of or in connection with any Letters of Credit.
(c) Borrower may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for
payment is made under any
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such Letter of Credit, Bank shall treat such demand as an Advance to
Borrower of the equivalent of the amount thereof (plus cable charges) in
United States currency at the then prevailing rate of exchange in San
Francisco, California, for sales of that other currency for cable
transfer to the country of which it is the currency.
(d) Upon the issuance of any letter of credit payable in a
currency other than United States Dollars, Bank shall create a reserve
under the Committed Revolving Line for letters of credit against
fluctuations in currency exchange rates, in an amount equal to ten
percent (10%) of the face amount of such letter of credit. The amount of
such reserve may be amended by Bank from time to time to account for
fluctuations in the exchange rate. The availability of funds under the
Committed Revolving Line shall be reduced by the amount of such reserve
for so long as such letter of credit remains outstanding.
2.1.3 CREDIT CARD SUBLIMIT.
(a) Up to $25,000 of the loan availability (the "Credit Card
Sublimit") may be utilized for advances under corporate credit cards to
be issued by the Bank for Borrower, provided that at the time of the
issuance of any such credit cards Borrower has available to it Advances
in an amount equal to or greater than $25,000. Further, after the
issuance of any such credit cards, the loan availability hereunder shall
be permanently reduced by $25,000 while any of such credit cards remain
available for use or there remain any outstanding Obligations thereunder.
2.2 OVERADVANCES. If, at any time or for any reason, the amount of
Obligations owed by Borrower to Bank pursuant to Section 2.1.1, 2.1.2 and
2.1.3 of this Agreement is greater than the lesser of (i) the Committed
Revolving Line or (ii) the Borrowing Base, Borrower shall immediately pay to
Bank, in cash, the amount of such excess.
2.3 INTEREST RATES, PAYMENTS AND CALCULATIONS.
(a) INTEREST RATE. Except as set forth in Section 2.3(b), any
Advances shall bear interest, on the average daily balance thereof, at a per
annum rate equal to .50% above the Prime Rate, provided that on and after
such time that the Borrower has earned positive net profit (after taxes) for
one quarter, the above interest rate shall be reduced to a per annum rate
equal to .25% above the Prime Rate.
(b) DEFAULT RATE. All Obligations shall bear interest, from and
after the occurrence of an Event of Default, at a rate equal to three (3)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) PAYMENT. Interest hereunder shall be due and payable on each
Payment Date, Borrower hereby authorizes Bank to debit any accounts with
Bank, including, without limitation, Account Number ____________ for payments
of principal and interest due on the Obligations and any other amounts owing
by Borrower to Bank. Bank will notify Borrower of all debits which Bank has
made against Borrower's accounts. Any such debits against Borrower's accounts
in no way shall be deemed a set-off. Any interest not paid when due shall be
compounded by becoming a part of the Obligations, and such interest shall
thereafter accrue interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from time
to time hereafter, the applicable rate of interests hereunder shall be
increased or decreased effective as of
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12:01 a.m. on the day the Prime Rate is changed, by an amount equal to such
change in the Prime Rate. All interest chargeable under the Loan Documents
shall be computed on the basis of a three hundred sixty (360) day year for
the actual number of delays elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of Default,
Bank shall credit a wire transfer of funds, check or other item of payment to
such deposit account or Obligation as Borrower specifies. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer
of funds, check, or other item of payment, whether directed to Borrower's
deposit account with Bank or to the Obligations or otherwise, shall be
immediately applied to conditionally reduce Obligations, but shall not be
considered a payment in respect of the Obligations unless such payment is of
immediately available federal funds or unless and until such check or other
item of payment is honored when presented for payment. Notwithstanding
anything to the contrary contained herein, any wire transfer or payment
received by Bank after 12:00 noon Pacific time shall be deemed to have been
received by Bank as of the opening of business on the immediately following
Business Day. Whenever any payment to Bank under the Loan Documents would
otherwise be due (except by reason of acceleration) on a date that is not a
Business Day, such payment shall instead be due on the next Business Day, and
additional fees or interest, as the case may be, shall accrue and be payable
for the period of such extension.
2.5 FEES. Borrower shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to $3,750, which fee shall
be due on the Closing Date and shall be fully earned and non-refundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents;
(c) BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the
date hereof, all Bank Expenses, including reasonable attorneys' fees and
expenses, as and when they become due.
2.6 ADDITIONAL COSTS. In case any law, regulation, treaty or official
directive or the interpretation or application thereof by any court or any
governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law);
(a) subjects Bank to any tax with respect to payments of principal
or interest or any other amounts payable hereunder by Borrower or otherwise
with respect to the transactions contemplated hereby (except for taxes on the
overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit insurance,
reserve, special deposit or similar requirement against assets held by, or
deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement.
and the result of any of the foregoing is to increase the cost to Bank,
reduce the income receivable by Bank or impose any expense upon Bank with
respect to any loans, Bank shall notify Borrower thereof. Borrower agrees to
pay to Bank the amount of such increase in cost, reduction in income
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or additional expense as and when such cost, reduction or expense is incurred
or determined, upon presentation by Bank of a statement of the amount and
setting forth Bank's calculation thereof, all in reasonable detail, which
statement shall be deemed true and correct absent manifest error.
2.7 TERM. Except as otherwise set forth herein, this Agreement shall
become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSION. The obligation
of Bank to make the initial Credit Extension is subject to the condition
precedent that Bank shall have received, in form and substance satisfactory
to Bank, the following:
(a) this Agreement;
(b) a certificate of the Secretary of Borrower with respect to
articles, bylaws, incumbency and resolutions authorizing the execution and
delivery of this Agreement;
(c) an intellectual property security agreement;
(d) financing statements (Forms UCC-1);
(e) insurance certificate;
(f) payment of the fees and Bank Expenses then due specified in
Section 2.5 hereof;
(g) Certificate of Foreign Qualification (if applicable); and
(h) such other documents, and completion of such other matters, as
Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. The obligation of
Bank to make each Credit Extension, including the initial Credit Extension,
is further subject to the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as provided
in Section 2.1; and
(b) the representations and warranties contained in Section 5 shall
be true and correct in all material respects on and as of the date of such
Payment/Advance Form and on the effective date of each Credit Extension as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Credit Extension.
The making of each Credit Extension shall be deemed to be a representation and
warranty by Borrower on the date of such Credit Extension as to the accuracy
of the facts referred to in this Section 3.2(b).
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4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Borrower grants and pledges to Bank a
continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt payment of any and all
obligations and in order to secure prompt performance by Borrower of each of
its covenants and duties under the Loan Documents. Except as set forth in the
Schedule, such security interest constitutes a valid, first priority security
interest in the presently existing Collateral, and will constitute a valid,
first priority security interest in Collateral acquired after the date
hereof. Borrower acknowledges that Bank may place a "hold" on any Deposit
Account pledged as Collateral to secure the Obligations. Notwithstanding
termination of this Agreement, Bank's Lien on the Collateral shall remain in
effect for so long as any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrower shall from
time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that
Bank may reasonably request, in form satisfactory to Bank, to perfect and
continue perfected Bank's security interests in the Collateral and in order
to fully consummate all of the transactions contemplated under the Loan
Documents.
4.3 RIGHT TO INSPECT: Bank (through any of its officers, employees, or
agents) shall have the right, upon reasonable prior notice, from time to time
during Borrower's usual business hours, to inspect Borrower's Books and to
make copies thereof and to check, test, and appraise the Collateral in order
to verify Borrower's financial condition or the amount, condition of, or any
other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Borrower and each Subsidiary is
a corporation duly existing and in good standing under the laws of its state
of incorporation and qualified and licensed to do business in, and is in good
standing in, any state in which the conduct of its business or its ownership
of property requires that it be so qualified.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery, and
performance of the Loan Documents are within Borrower's powers, have been
duly authorized, and are not in conflict with nor constitute a breach of any
provision contained in Borrower's Articles/Certificate of Incorporation or
Bylaws, nor will they constitute an event of default under any material
agreement to which Borrower is a party or by which Borrower is bound.
Borrower is not in default under any agreement to which it is a party or by
which it is bound, which default could have a Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Borrower has good and indefeasible title to
the Collateral, free and clear of Liens, except for Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are bona fide
existing obligations. The service or property giving rise to such Eligible
Accounts has been performed or delivered to the account debtor or to the
account debtor's agent for immediate shipment to and unconditional acceptance
by the account debtor. Borrower has not received notice or actual or imminent
Insolvency Proceedings of any account debtor whose accounts are included in
any Borrowing Base Certificate as an Eligible Account.
5.5 MERCHANTABLE INVENTORY. All Inventory is in all material respects of
good and marketable quality, free from all material defects.
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5.6 INTELLECTUAL PROPERTY. Borrower is the sole owner of the
intellectual Property Collateral, except for non-exclusive licenses granted
by Borrower to its customers in the ordinary course of business. Each of the
Patents is valid and enforceable, and no part of the intellectual Property
Collateral has been judged invalid or unenforceable, in whole or in part, and
no claim has been made that any part of the intellectual Property Collateral
violates the rights of any third party. Except for and upon the filing with
the United States Patent and Trademark Office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights and
Mask Works necessary to perfect the security interests created hereunder, and
except as has been already made or obtained, no authorization, approval or
other action by, and no notice to or filing with, any United States
governmental authority or United States regulatory body is required either
(i) for the grant by Borrower of the security interest granted hereby or for
the execution, delivery or performance of Loan Documents by Borrower in the
United States or (ii) for the perfection in the United States or the
exercise by Bank of its rights and remedies hereunder.
5.7 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as disclosed in
the Schedule, Borrower has not done business and will not without at least
thirty (30) days prior written notice to Bank do business under any name
other than that specified on the signature page hereof. The chief executive
office of Borrower is located at the address indicated in Section 10 hereof.
5.8 LITIGATION. Except as set forth in the Schedule, there are no
actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against Borrower or any Subsidiary before any court or administrative agency
in which an adverse decision could have a Material Adverse Effect or a
material adverse effect on Borrower's interest or Bank's security interest in
the Collateral.
5.9 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to Borrower and any Subsidiary that
have been delivered by Borrower to Bank fairly present in all material
respects Borrower's consolidated financial condition as of the date thereof
and Borrower's consolidated results of operations for the period then ended.
There has not been a material adverse change in the consolidated financial
condition of Borrower since the date of the most recent of such financial
statements submitted to Bank on or about the Closing Date.
5.10 SOLVENCY. The fair saleable value of Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities;
the Borrower is not left with unreasonably small capital after the
transactions contemplated by this Agreement; and Borrower is able to pay its
debts (including trade debts) as they mature.
5.11 REGULATORY COMPLIANCE. Borrower and each Subsidiary has met the
minimum funding requirements of ERISA with respect to any employee benefit
plans subject to ERISA. No event has occurred resulting from Borrower's
failure to comply with ERISA that is reasonably likely to result in
Borrower's incurring any liability that could have a Material Adverse Effect.
Borrower is not an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of
1940. Borrower is not engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G, T
and U of the Board of Governors of the Federal Reserve System). Borrower has
complied with all the provisions of the Federal Fair Labor Standards Act.
Borrower has not violated any statutes, laws, ordinances or rules applicable
to it, violation of which could have a Material Adverse Effect.
5.12 ENVIRONMENTAL CONDITION. None of Borrower's or any Subsidiary's
properties or assets has ever been used by Borrower or any Subsidiary or, to
the best of Borrower's knowledge, by previous owners or operators, in the
disposal of, or to produce, store, handle, treat, release, or transport, any
hazardous waste or hazardous substance other than in accordance with
applicable law; to the best of Borrower's knowledge, none of Borrower's
properties or assets
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has ever been designated or identified in any manner pursuant to any
environmental protection statute as a hazardous waste or hazardous substance
disposal site, or a candidate for closure pursuant to any environmental
protection statute; no lien arising under any environmental protection
statute has attached to any revenues or to any real or personal property
owned by Borrower or any Subsidiary; and neither Borrower nor any Subsidiary
has received a summons, citation, notice, or directive from the Environmental
Protection Agency or any other federal, state or other governmental agency
concerning any action or omission by Borrower or any Subsidiary resulting in
the release, or other disposition of hazardous waste or hazardous substances
into the environment.
5.13 TAXES. Borrower and each Subsidiary has filed or caused to be
filed all tax returns required to be filed on a timely basis, and has paid,
or has made adequate provision for the payment of, all taxes reflected
therein.
5.14 SUBSIDIARIES. Borrower does not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.15 GOVERNMENT CONSENTS. Borrower and each Subsidiary has obtained all
consents, approvals and authorizations of, made all declarations or filings
with, and given all notices to, all governmental authorities that are
necessary for the continued operation of Borrower's business as currently
conducted.
5.16 FULL DISCLOSURE. No representation, warranty or other statement
made by Borrower in any certificate or written statement furnished to Bank
contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that, until payment in full of all
outstanding Obligations, and for so long as Bank may have any commitment to
make a Credit Extension hereunder, Borrower shall do all of the following:
6.1 GOOD STANDING. Borrower shall maintain its and each of its
Subsidiaries' corporate existence and good standing in its jurisdiction of
incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Borrower shall meet, and shall cause each
Subsidiary to meet, the minimum funding requirements of ERISA with respect to
any employee benefit plans subject to ERISA. Borrower shall comply, and shall
cause each Subsidiary to comply, with all statutes, laws, ordinances and
government rules and regulations to which it is subject, noncompliance with
which could have a Material Adverse Effect or a material adverse effect on
the Collateral or the priority of Bank's Lien on the Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Borrower shall deliver
to Bank: (a) as soon as available, but in any event within thirty (30) days
after the end of each month, a company prepared consolidated balance sheet
and income statement covering Borrower's consolidated operations during such
period, in a form and certified by an officer of Borrower reasonably
acceptable to Bank; (b) as soon as available, but in any event within ninety
(90) days after the end of Borrower's fiscal year, audited consolidated
financial statements of Borrower prepared in accordance with GAAP,
consistently applied, together with an unqualified opinion on such accordance
with GAAP, consistently applied, together with an unqualified opinion on such
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financial statements of an independent certified public accounting firm
reasonably acceptable to Bank; (c) [reserved]; (d) promptly upon receipt of
notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower
or any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; (e)
prompt notice of any material change in the composition of the Intellectual
Property Collateral, including, but not limited to, any subsequent ownership
right of the Borrower in or any Copyright, Patent or Trademark not specified
in any intellectual property security agreement between Borrower and Bank or
knowledge of an event that materially adversely effects the value of the
Intellectual Property Collateral; and (f) such budgets, sales projections,
operating plans or other financial information as Bank may reasonably request
from time to time.
Within TWENTY (20) days after the last day of each MONTH, Borrower shall
deliver to Bank a Borrowing Base Certificate signed by a Responsible Officer
in substantially the form of EXHIBIT C hereto, together with aged listings of
accounts receivable and accounts payable.
Within THIRTY (30) days after the last day of each MONTH, Borrower shall
deliver to Bank with the MONTHLY financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of
EXHIBIT D hereto.
Bank shall have a right from time to time hereafter to audit Borrower's
Accounts at Borrower's expense, provided that such audits will be conducted no
more often than every six (6) months unless an Event of Default has occurred
and is continuing.
6.4 INVENTORY: RETURNS. Borrower shall keep all Inventory in good and
marketable condition, free from all material defects. Returns and allowances,
if any, as between Borrower and its account debtors shall be on the same
basis and in accordance with the usual customary practices of Borrower, as
they exist at the time of the execution and delivery of this Agreement.
Borrower shall promptly notify Bank of all returns and recoveries and of all
disputes and claims, where the return, recovery, dispute or claim involves
more than Fifty Thousand Dollars ($50,000).
6.5 TAXES. Borrower shall make, and shall cause each Subsidiary to
make, due and timely payment or deposit of all material federal, state, and
local taxes, assessments, or contributions required of it by law, and will
execute and deliver to Bank, on demand, appropriate certificates attesting to
the payment or deposit thereof; and Borrower will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments
and withholding taxes required of it by applicable laws, including, but not
limited to, those laws concerning F.I.C.A., F.U.T.A., state disability, and
local, state, and federal income taxes, and will, upon request, furnish Bank
with proof satisfactory to Bank indicating that Borrower or a Subsidiary has
made such payments or deposits; provided that Borrower or a Subsidiary need
not make any payment if the amount or validity of such payment is (I)
contested in good faith by appropriate proceedings, (ii) is reserved against
(to the extent required by GAAP) by Borrower and (iii) no lien other than a
Permitted Lien results.
6.6 INSURANCE.
(a) Borrower, at its expense, shall keep the Collateral insured
against loss or damage by fire, theft, explosion, sprinklers, and all other
hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar business conducted in the locations where Borrower's
business is conducted on the date hereof. Borrower shall also maintain
insurance relating to Borrower's ownership and use of the Collateral in
amounts and of a type that are customary to businesses similar to Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank.
All such policies of property
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insurance shall contain a lender's loss payable endorsement, in a form
satisfactory to Bank, showing Bank as an additional loss payee thereof and all
liability insurance policies shall show the Bank as an additional insured,
and shall specify that the insurer must give at least twenty (20) days notice
to Bank before canceling its policy for any reason. At Bank's request,
Borrower shall deliver to Bank certified copies of such policies of insurance
and evidence of the payments of all premiums therefor. All proceeds payable
under any such policy shall, at the option of Bank, be payable to Bank to be
applied on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrower shall maintain its principal
depository and operating accounts with Bank.
6.8 QUICK RATIO. Borrower shall maintain, as of the last day of each
calendar month, a ratio of Quick Assets to Current Liabilities of at least
1.25 to 1.0. For purposes of the foregoing, however, Current Liabilities
shall not include deferred revenues.
6.9 DEBT-NET WORTH RATIO. Borrower shall maintain, as of the last day
of each calendar month, a ratio of Total Liabilities less Subordinated Debt
to Tangible Net Worth plus Subordinated Debt of not more than 1.50 to 1.0. For
purposes of the foregoing, however, deferred revenues shall not be taken into
account in computing Total Liabilities or Tangible Net Worth.
6.10 TANGIBLE NET WORTH. Borrower shall maintain, as of the last day of
each calendar month, a Tangible Net Worth of not less than $1,750,000.
6.11 PROFITABILITY. For the fiscal quarter ending December 31, 1997,
Borrower shall attain positive earnings before interest, taxes, depreciation
and amortization. Thereafter, Borrower shall not incur a loss (after taxes)
for any fiscal quarter.
6.12 REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
(a) Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those
intellectual property rights listed on Exhibits A, B and C to the
Intellectual Property Security Agreement delivered to Bank by Borrower in
connection with this Agreement within thirty (30) days of the date of this
Agreement. Borrower shall register or cause to be registered with the United
States Patent and Trademark or the United States Copyright Office, as
applicable, those additional intellectual property rights developed or
acquired by Borrower from time to time in connection with any product prior
to the sale or licensing of such product to any third party, including
without limitation revisions or additions to the intellectual property rights
listed on such Exhibits A, B and C.
(b) Borrower shall execute and deliver such additional instruments
and documents from time to time as Bank shall reasonably request to perfect
Bank's security interest in the Intellectual Property Collateral.
(c) Borrower shall (i) protect, defend and maintain the validity
and enforceability of the Trademarks, Patents, Copyrights, and Mask Works,
(ii) use its best efforts to detect infringements of the Trademarks, Patents,
Copyrights and Mask Works and promptly advise Bank in writing of material
infringements detected and (iii) not allow any Trademarks, Patents,
Copyrights, or Mask Works to be abandoned, forfeited or dedicated to the
public without the written consent of Bank, which shall not be unreasonably
withheld, unless Bank determines that reasonable business practices suggest
that abandonment is appropriate.
(d) Bank shall have the right, but not the obligation, to take, at
Borrower's sole expense, any actions that Borrower is required under this
Section 6.14 to take but which Borrower
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fails to take, after fifteen (15) days' notice to Borrower. Borrower shall
reimburse and indemnify Bank for all reasonable costs and reasonable expenses
incurred in the reasonable exercise of its rights under this Section 6.14.
6.13 FURTHER ASSURANCES. At any time and from time to time Borrower
shall execute and deliver such further Instruments and take such further
action as may reasonably be requested by Bank to effect the purposes of this
Agreement.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that, so long as any Credit Extension
hereunder shall be available and until payment in full of the outstanding
Obligations or for so long as Bank may have any commitment to make any
Advances, Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise dispose of
(collectively, a "Transfer"), or permit any of its Subsidiaries to Transfer,
all or any part of its business or property, other than Transfers: (i) of
inventory in the ordinary course of business, (ii) of non-exclusive licenses
and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; (iii) that constitute
payment of normal and usual operating expenses in the ordinary course of
business; or (iii) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT BUSINESS LOCATIONS.
Engage in any business, or permit any of its Subsidiaries to engage in any
business, other than the businesses currently engaged in by Borrower and any
business substantially similar or related thereto (or incidental thereto), or
suffer a change in Borrower's ownership of greater than 20% or management.
Borrower will not, without at least thirty (30) days prior written
notification to Bunk, relocate its chief executive office or add any new
offices or business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit any of its
Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all
or substantially all of the capital stock or property of another Person,
except that the Borrower may merge or consolidate with another corporation if
the Borrower is the surviving corporation in the merger and the aggregate
value of the assets acquired in the merger does not exceed 25% of Borrower's
Tangible Net Worth as of the end of the month prior to the effective date of
the merger, and the assets of the corporation acquired in the merger are not
subject to any liens or encumbrances, except Permitted Liens.
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable with
respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any Lien with
respect to any of its property, or assign or otherwise convey any right to
receive income, including the sale of any Accounts, or permit any of its
Subsidiaries to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other distribution or
payment on account of or in redemption, retirement or purchase of any capital
stock, PROVIDED that if, both before and after the Permitted Distributions
have been given effect, no Event of Default exists and no event, which with
notice or passage of time, or both, would constitute an Event of Default,
occurs, the Borrower may pay dividends on its Series E and F Preferred Stock
in an aggregate amount for both such series of stock not to exceed $175,000
per quarter (the "Permitted Distributions").
7.7 INVESTMENTS; LOANS; GUARANTEES. Directly or indirectly acquire or
own, or make any Investment in or to any Person, or permit any of its
Subsidiaries so to do, other than Permitted
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Investments, or make any loans of any money or any other assets to any
Person, or guarantee or otherwise become liable with respect to the
obligations of any other Person.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of Borrower
except for transactions that are in the ordinary course of Borrower's
business, upon fair and reasonable terms that are no less favorable to
Borrower than would be obtained in an arm's length transaction with a
nonaffiliated Person.
7.9 INTELLECTUAL PROPERTY AGREEMENTS. Borrower shall not permit the
inclusion in any material contract to which it becomes a party of any
provisions that could or might in any way prevent the creation of a security
interest in Borrower's rights and interests in any property included within
the definition of the Intellectual Property Collateral acquired under such
contracts, except to the extent that such provisions are necessary in
Borrower's exercise of its reasonable business judgement, in which case
written notice thereof shall be given to Bank.
7.10 SUBORDINATED DEBT. Make any payment in respect of any Subordinated
Debt, or permit any of its Subsidiaries to make any such payment, except in
compliance with the terms of such Subordinated Debt, or amend any provision
contained in any documentation relating to the Subordinated Debt without
Bank's prior written consent.
7.11 INVENTORY. Store the Inventory with a bailee, warehouseman, or
similar party unless Bank has received a pledge of any warehouse receipt
covering such Inventory. Except for Inventory sold in the ordinary course of
business and except for such other locations as Bank may approve in writing,
Borrower shall keep the Inventory only at the location set forth in Section
10 hereof and such other locations of which Borrower gives Bank prior written
notice and as to which Borrower signs and files a financing statement where
needed to perfect Bank's security interest.
7.12 COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for
such purpose; fail to meet the minimum funding requirements of ERISA; permit
a Reportable Event or Prohibited Transaction, as defined in ERISA, to occur,
fail to comply with the Federal Fair Labor Standards Act or violate any other
law or regulation, which violation could have a Material Adverse Effect or a
material adverse effect on the Collateral or the priority of Bank's Lien on
the Collateral; or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
Any one or more of the following events shall constitute an Event of
Default by Borrower under this Agreement:
8.1 PAYMENT DEFAULT. If Borrower fails to pay, when due, any of the
Obligations.
8.2 Covenant Default.
(a) If Borrower fails to perform any obligation under Sections
6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11, 6.12 or 6.13 or violates any of the
covenants contained in Article 7 of this Agreement, or
(b) If Borrower fails or neglects to perform, keep, or observe
any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can
be cured, has
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failed to cure such default within ten (10) days after the occurrence thereof;
provided, however, that if the default cannot by its nature be cured within
the ten (10) day period or cannot after diligent attempts by Borrower be
cured within such ten (10) day period, and such default is likely to be cured
within a reasonable time, then Borrower shall have an additional reasonable
period (which shall not in any case exceed thirty (30) days) to attempt to
cure such default, and within such reasonable time period the failure to have
cured such default shall not be deemed an Event of Default (provided that no
Advances will be required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material adverse
change in the business, operations, or condition (financial or otherwise) of
the Borrower, or (ii) is a material impairment of the prospect of repayment
of any portion of the Obligations or (iii) is a material impairment of the
value or priority of Bank's security interests in the Collateral;
8.4 ATTACHMENT. If any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon,
or comes into the possession of any trustee, receiver or person acting in a
similar capacity and such attachment, seizure, writ or distress warrant or
levy has not been removed, discharged or rescinded within ten (10) days, or
if Borrower is enjoined, restrained, or in any way prevented by court order
from continuing to conduct all or any material part of its business affairs,
or if a judgment or other claim becomes a lien or encumbrance upon any
material portion of Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any of Borrower's assets by the
United States Government, or any department, agency, or instrumentality
thereof, or by any state, county, municipal, or governmental agency, and the
same is not paid within ten (10) days after Borrower receives notice thereof,
provided that none of the foregoing shall constitute an Event of Default
where such action or event is stayed or an adequate bond has been posted
pending a good faith contest by Borrower (provided that no Credit Extensions
will be required to be made during such cure period);
8.5 INSOLVENCY. If Borrower becomes insolvent, or if an Insolvency
Proceeding is commenced by Borrower, or if an Insolvency Proceeding is
commenced against Borrower and is not dismissed or stayed within 30 days
(provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement to which
Borrower is a party with a third party or parties resulting in a right by
such third party or parties, whether or not exercised, to accelerate the
maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 SUBORDINATED DEBT. If Borrower makes any payment on account of
Subordinated Debt, except to the extent such payment is allowed under any
subordination agreement entered into with Bank;
8.8 JUDGMENTS. If a judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Fifty Thousand Dollars
($50,000) shall be rendered against Borrower and shall remain unsatisfied and
unstayed for a period of ten (10) days (provided that no Credit Extensions
will be made prior to the satisfaction or stay of such judgment); or
8.9 MISREPRESENTATIONS. If any material misrepresentation or material
misstatement exists now or hereafter in any warranty or representation set
forth herein or in any certificate or writing delivered to Bank by Borrower
or any Person acting on Borrower's behalf pursuant to this Agreement or to
induce Bank to enter into this Agreement or any other Loan Document.
8.10 GUARANTY. Any guaranty of all or a portion of the Obligations ceases
for any reason to be in full force and effect, or any Guarantor fails to
perform any obligation under any guaranty
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<PAGE>
of all or a portion of the Obligations, or any material misrepresentation or
material misstatement exists now or hereafter in any warranty or
representation set forth in any guaranty of all or a portion of the
Obligations or in any certificate delivered to Bank in connection with such
guaranty, or any of the circumstances described in Sections 8.4, 8.5 or 8.8
occur with respect to any Guarantor.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the continuance
of an Event of Default, Bank may, at its election, without notice of its
election and without demand, do any one or more of the following, all of
which are authorized by Borrower.
(a) Declare all Obligations, whether evidenced by this Agreement,
by any of the other Loan Documents, or otherwise, immediately due and payable
(provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without
any action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement or under any other agreement between
Borrower and Bank;
(c) Demand that Borrower (i) deposit cash with Bank in an amount
equal to the amount of any Letters of Credit remaining undrawn, as collateral
security for the repayment of any future drawings under such Letters of
Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable
over the remaining term of the Letters of Credit;
(d) [reserved];
(e) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(f) Without notice to or demand upon Borrower, make such payments
and do such acts as Bank considers necessary or reasonable to protect its
security interest in the Collateral. Borrower agrees to assemble the
Collateral if Bank so requires, and to make the Collateral available to Bank
as Bank may designate. Borrower authorizes Bank to enter the premises where
the Collateral is located, to take and maintain possession of the Collateral,
or any part of it, and to pay, purchase, contest, or compromise any
encumbrance, charge, or lien which in Bank's determination appears to be
prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any of Borrower's premises,
Borrower hereby grants Bank a license to enter such premises and to occupy
the same, without charge in order to exercise any of Bank's rights or
remedies provided herein, at law, in equity, or otherwise;
(g) Without notice to borrower set off and apply to the
Obligations any and all (i) balances and deposits of Borrower held by Bank,
or (ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Bank;
(h) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section
9.1, to use, without charge, Borrower's labels, patents, copyrights, mask
works, rights of use of any name, trade secrets, trade names, trademarks,
service marks, and advertising matter, or any property of a similar nature,
as it pertains to the Collateral, in completing production of, advertising
for sale, and selling any Collateral and, in connection with Bank's exercise
of its rights
-20-
<PAGE>
under this Section 9.1, borrower's rights under all licenses and all
franchise agreements shall inure to Bank's benefit;
(i) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(j) Bank may credit bid and purchase at any public sale, or at any
private sale as permitted by law; and
(k) Any deficiency that exists after disposition of the Collateral
as provided above will be paid immediately by Borrower.
(l) Bank shall have a non-exclusive, royalty-free license to use
the Intellectual Property Collateral to the extent reasonably necessary to
permit Bank to exercise its rights and remedies upon the occurrence of an
Event of Default.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and during
the continuance of an Event of Default, Borrower hereby irrevocably appoints
Bank (and any of Bank's designated officers, or employees) as Borrower's true
and lawful attorney to: (a) send requests for verification of Accounts or
notify account debtors of Bank's security interest in the Accounts; (b)
endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice
or bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices
to account debtors; (d) make, settle, and adjust all claims under and
decisions with respect to Borrower's policies of insurance; and (e) settle
and adjust disputes and claims respecting the accounts directly with account
debtors, for amounts and upon terms which Bank determines to be reasonable;
(f) to modify, in its sole discretion, any intellectual property security
agreement entered into between Borrower and Bank without first obtaining
Borrower's approval of or signature to such modification by amending Exhibit
A, Exhibit B, Exhibit C, and Exhibit D, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents,
Trademarks, Mask Works acquired by Borrower after the execution hereof or to
delete any reference to any right, title or interest in any Copyrights,
Patents, Trademarks, or Mask Works in which Borrower no longer has or claims
any right, title or interests; (g) to file, in its sole discretion, one or
more financing or continuation statements and amendments thereto, relative to
any of the Collateral without the signature of Borrower where permitted by
law; and (h) to transfer the Intellectual Property Collateral into the name
of Bank or a third party to the extent permitted under the California
Uniform Commercial Code] provided Bank may exercise such power of attorney to
sign the name of Borrower on any of the documents described in Section 4.2
regardless of whether an Event of Default has occurred. The appointment of
Bank as Borrower's attorney in fact, and each and every one of Bank's rights
and powers, being coupled with an interest, is irrevocable until all of the
Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the continuance
of an Event of Default, Bank may notify any Person owing funds to Borrower of
Bank's security interest in such funds and verify the amount of such Account.
Borrower shall collect all amounts owing to Borrower for Bank, receive in
trust all payments as Bank's trustee, and if requested or required by Bank,
immediately deliver such payments to Bank in their original form as received
from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If Borrower fails to pay any amounts or furnish any
required proof of payment due to third persons or entities, as required under
the terms of this Agreement,
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<PAGE>
then Bank may do any or all of the following: (a) make payment of the same or
any part thereof; (b) set up such reserves under the Committee Revolving Line
as Bank deems necessary to protect Bank from the exposure created by such
failure; or (c) obtain and maintain insurance policies of the type discussed
in Section 6.6 of this Agreement, and take any action with respect to such
policies as Bank deems prudent. Any amounts so paid or deposited by Bank
shall constitute Bank Expenses, shall be immediately due and payable, and
shall bear interest at the then applicable rate hereinabove provided, and
shall be secured by the Collateral. Any payments made by Bank shall not
constitute an agreement by Bank to make similar payments in the future or a
waiver by Bank of any Event of Default under this Agreement.
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies with
reasonable banking practices, Bank shall not in any way or manner be liable
or responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause;
(c) any diminution in the value thereof; or (d) any act or default of any
carrier, warehouseman, bailee, forwarding agency, or other person whomsoever.
All risk of loss, damage or destruction of the Collateral shall be borne by
Borrower.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein
as provided under the Code, by law, or in equity. No exercise by Bank of one
right or remedy shall be deemed an election, and no waiver by Bank of any
Event of Default on Borrower's part shall be deemed a continuing waiver. No
delay by Bank shall constitute a waiver, election, or acquiescence by it. No
waiver by Bank shall be effective unless made in a written document signed on
behalf of Bank and then shall be effective only in the specific instance and
for the specific purpose for which it was given.
9.7 DEMAND; PROTEST. Borrower waives demand, protest, notice of
protest, notice of default or dishonor, notice of payment and nonpayment,
notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments,
chattel paper, and guarantees at any time held by Bank on which Borrower may
in any way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or demands by
any party relating to this Agreement, or any other agreement entered into in
connection herewith shall be in writing and (except for financial statements
and other information documents which may be sent by first-class mail, postage
prepaid) shall be personally delivered or sent by a recognized overnight
delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrower or to Bank, as the case may be, at
its addresses set forth below:
If to Borrower Vista Information Solutions, Inc.
5060 Shoreham Place, Suite 300
San Diego, California 92122
Attn: Steve Hamilton, CFO
FAX: 619-450-6185
If to Bank Silicon Valley Bank
5414 Oberlin Drive, Suite 230
San Diego, CA 92121
Attn: Manager
FAX: 619-535-1611
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<PAGE>
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE AND VENUE; JURY WAIVER
The Loan Documents shall be governed by, and construed in accordance
with, the internal laws of the State of California, without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to
the exclusive jurisdiction of the state and Federal courts located in the
County of San Diego, State of California. BORROWER AND BANK EACH HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH
PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVERS ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL.
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and inure to
the benefit of the respective successors and permitted assigns of each of the
parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights
hereunder may be assigned by Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank
shall have the right without the consent of or notice to Borrower to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrower shall, indemnify, defend, protect and
hold harmless Bank and its officers, employees, and agents against: (a) all
obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses in any way suffered, incurred,
or paid by Bank as a result of or in any way arising out of, following,
consequential to transactions between Bank and Borrower whether under the
Loan Documents, or otherwise (including without limitation reasonable
attorneys fees and expenses), except for losses caused by Bank's gross
negligence or willful misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the performance of
all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the
purpose of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot be
amended or terminated except by a writing signed by Borrower and Bank. All
prior agreements, understandings, representations, warranties, and
negotiations between the parties hereto with respect to the subject matter of
this Agreement, if any, are merged into this Agreement and the Loan Documents.
23
<PAGE>
12.6 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of
which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 SURVIVAL. All covenants, representations and warranties made in this
Agreement shall continue in full force and effect so long as any Obligations
remain outstanding. The obligations of Borrower to indemnify Bank with respect
to the expenses, damages, losses, costs and liabilities described in Section
12.2 shall survive until all applicable statute of limitations periods with
respect to the actions that may be brought against the Bank have run.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
VISTA INFORMATION SOLUTIONS, INC.
By: [illegible]
-------------------------------
Title:
----------------------------
By: [illegible]
-------------------------------
Title:
----------------------------
SILICON VALLEY BANK
By: [illegible]
-------------------------------
Title:
----------------------------
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- ------------------------------------------------------------------------------
EXHIBIT 10.41
SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: VISTA INFORMATION SOLUTIONS, INC.
DATED: JULY 23, 1998
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend, effective as of the date hereof, the Loan and
Security Agreement between them dated April 7, 1998, as amended from time to
time (the "Loan Agreement": terms defined in the Loan Agreement are used
herein as therein defined).
1. NEW DEFINITION. Section 1.1 of the Loan Agreement is hereby amended
to add the following new definition of "Overadvance Amount" that is to be
inserted immediately after the definition of "Obligations".
"Overadvance Amount" means the amount of $250,000 through and including
August 14, 1998, and shall mean S-0- on and after such date.
2. AMENDED SECTION 2.1.1(a). Section 2.1.1(a) of the Loan Agreement is
hereby amended to read as follows:
"(a) Subject to and upon the terms and conditions of this Agreement, Bank
agrees to make Advances to Borrower in an aggregate outstanding amount
not to exceed: (i) the lesser of (x) the Committed Revolving Line or (y)
the Borrowing Base plus the applicable Overadvance Amount, if any, MINUS
(ii) the face amount of all outstanding Letters of Credit (including
drawn but unreimbursed Letters of Credit), MINUS (iii) the Credit Card
Sublimit. Subject to the terms and conditions of this Agreement, amounts
borrowed pursuant to this Section 2.1 may be repaid and reborrowed at any
time during the term of this Agreement."
3. REVISED PERMITTED INDEBTEDNESS. Permitted Indebtedness under the
Loan Agreement shall include an unsecured loan by the president of the
Borrower, Tom Gay, to the Borrower in an amount not to exceed $250,000.
4. ADDITIONAL REPRESENTATION. Borrower hereby represents and warrants
to the Bank that all Advances arising from the Overadvance Amount shall be
used exclusively in connection with its acquisition of E/Risk Information
Services.
5. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower,
and the other written documents and agreements between Silicon and the
Borrower set forth in full all of the representations and agreements of the
parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the
parties with respect to the subject hereof. Except as herein expressly
amended, all of the terms
1
<PAGE>
and provisions of the Loan Agreement, and all other documents and agreements
between Silicon and the Borrower shall continue in full force and effect and
the same are hereby ratified and confirmed. This Amendment shall be
controlling in the event of any conflicts between any prior written
agreements and amendments between Silicon and the Borrower, on the one hand,
and this Amendment.
SILICON VALLEY BANK AMENDMENT TO LOAN AGREEMENT
- ------------------------------------------------------------------------------
Borrower: Silicon:
VISTA INFORMATION SOLUTIONS, SILICON VALLEY BANK
INC.
By /s/ [ILLEGIBLE] By /s/ [ILLEGIBLE]
------------------------------ ------------------------------
President or Vice President Title Vice President
----------------------------
By ------------------------------
Secretary or Ass't Secretary
2
<PAGE>
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LEVY, SMALL & LALLAS
815 Moraga Drive
Los Angeles, California 90049
Telephone (310) 471-3000
TELECOPY COVER LETTER
- ------------------------------------------------------------------------------
July 31, 1998
0052-1641
TO: MR. STEVE HAMILTON (23 PAGES) FAX # (619) 450-6185
cc: MR. JOHN OTTERSON (3 PAGES) FAX # (619) 535-1611
FROM: Angel F. Castillo
RE: Silicon Valley Bank/Vista Information Solutions, Inc.
- ------------------------------------------------------------------------------
PLEASE NOTIFY WENDY HUEY AT (310) 471-3000 IF YOU DO NOT RECEIVE ALL PAGES OF
THIS TRANSMISSION. OUR TELECOPY NUMBER IS (310) 471-7990.
NOTES/COMMENTS:
The information contained in this facsimile message is privileged and
confidential and is intended only for the use of the addressee. If the
reader of this message is not the addressee, or the person responsible
for delivery to the addressee, you are hereby notified that any
dissemination, distribution or copying of the message is strictly
prohibited. If you have received this message in error, please immediately
notify us by telephone and return the original message to us at the above
address via the U.S. Postal Service.
3
<PAGE>
[LETTERHEAD]
July 31, 1998
VIA TELECOPIER (619) 450-6185
Mr. Steve Hamilton
Vista Information Solutions, Inc.
5060 Shoreham Place, Suite 300
San Diego, CA 92122
Re: Silicon Valley Bank/Vista Information Solutions Inc.
and E/Risk Information Services
Dear Mr. Hamilton:
At the request of Mr. John Otterson, enclosed for execution please find
the following documents with respect to the above-referenced transaction.
1. Assumption Agreement.
2. Amendment to Loan Agreement.
3. Amendment to Security Agreement.
4. Corporate Borrowing Resolution (E/Risk)
5. Cross-Corporate Continuing Guaranty.
6. Certified Resolution-Guarantee (Vista information).
7. Certified Resolution-Guarantee (E/Risk Information).
Please make two (2) copies of each of the enclosed and execute where
indicated. please forward both sets of executed documents to Mr. John
Otterson at Silicon Valley Bank, 5414 Oberlin Drive, Suite 230, San Diego, CA
92121 via messenger/hand delivery as soon as possible. I understand from Mr.
Otterson that the signatures of E/Risk will need to be provided to a Silicon
office in Northern California. Please contact Mr. Otterson regarding the
details of E/Risk's signature.
4
<PAGE>
Mr. Steve Hamilton
July 31, 1997
Page 2
If you have any other questions regarding any of the enclosed, please
contact Mr. Otterson.
Sincerely,
/s/ Angel F. Castillo
Angel F. Castillo
AFC:wbh
Enclosures
cc: Mr. John Otterson (w/o encls. via telecopier (619)535-1611)
(w/encls. via UPS Air)
5
<PAGE>
------------------------------------------------
SILICON VALLEY BANK
ASSUMPTION AGREEMENT
THIS ASSUMPTION AGREEMENT dated as of July 31, 1998 is entered into
between SILICON VALLEY BANK ("Silicon"), on the one side, VISTA INFORMATION
SOLUTIONS, INC. and E/RISK INFORMATION SERVICES ("New Borrower"), on the
other side. Capitalized terms used but not defined in this Agreement, shall
have the meanings set forth in the Loan and Security Agreement between
Silicon, on the one side, and Vista Information Solutions, Inc. (referred to
as the "Existing Borrower"), on the other side, dated April 7, 1998 (as
amended from time to time, the "Loan Agreement").
The parties agree as follows:
1. ASSUMPTION. New Borrower hereby assumes and agrees to pay and
perform when due all present and future indebtedness, liabilities and
obligations of Existing Borrower under, based upon, or arising out of the
Loan Agreement (as amended by that certain Amendment to Loan Agreement being
entered into concurrently herewith between New Borrower, Existing Borrower and
Silicon) and any and all documents, instruments and agreements relating
thereto, including without limitation all of the "Obligations" as defined in
the Loan Agreement. Existing Borrower shall remain as an obligor with respect
to all of the Obligations, and Existing Borrower and New Borrower shall be
jointly and severally liable for all of the Obligations. All references in
the Loan Agreement to "Borrower" shall be deemed to refer, jointly and
severally, to Existing Borrower and New Borrower.
2. GRANT OF SECURITY INTEREST. Without limiting the generality of the
provisions of Section 1 above, as security for all Obligations, New Borrower
hereby grants Silicon a continuing security interest in all of New Borrower's
interest in the types of property described below, whether now owned or
hereafter acquired and wherever located: (a) All accounts, contract rights,
chattel paper, letters of credit, documents, securities, money, and
instruments, and all other obligations now or in the future owing to New
Borrower; (b) All inventory, goods, merchandise, materials, raw materials,
work in process, finished goods, farm products, advertising, packaging and
shipping materials, supplies, and all other tangible personal property which
is held for sale or lease or furnished under contracts of service or consumed
in the New Borrower's business, and all warehouse receipts and other
documents; and (c) All equipment, including without limitation all machinery,
fixtures, trade fixtures, vehicles, furnishings, furniture, materials, tools,
machine tools, office equipment, computers and peripheral devices, appliances,
apparatus, parts, dies, and jigs; (d) All general intangibles including, but
not limited to, deposit accounts, goodwill, names, trade names, trademarks
and the goodwill of the business symbolized thereby, trade secrets, drawings,
blueprints, customer lists, patents, patent applications, copyrights, security
6
<PAGE>
SILICON VALLEY BANK ASSUMPTION AGREEMENT
------------------------------------------------
deposits, loan commitment fees, federal, state and local tax refunds and
claims, all rights in all litigation presently or hereafter pending for any
cause or claim (whether in contract, tort or otherwise), and all judgments
now or hereafter arising therefrom, all claims of New Borrower against
Silicon, all rights to purchase or sell real or personal property, all rights
as a licensor or licensee of any kind, all royalties, licenses, processes,
telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation credit,
liability, property and other insurance), and all other rights, privileges
and franchises of every kind; (e) All books and records, whether stored on
computers or otherwise maintained; and (f) All substitutions, additions and
accessions to any of the foregoing, and all products, proceeds and insurance
proceeds of the foregoing, and all guaranties of and security for the
foregoing; and all books and records relating to any of the foregoing. New
Borrower shall concurrently execute and deliver to Silicon UCC-1 Financing
Statements in such form as Silicon shall specify.
3. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
4. CHOICE OF LAW AND VENUE; JURY TRIAL WAIVER. This Agreement and the
other Loan Documents shall be governed by, and construed in accordance with,
the internal laws of the State of California, without regard to principles of
conflicts of law. Each of Borrower and Silicon hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the County
of San Diego, State of California. BORROWER AND SILICON EACH HEREBY WAIVE
THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED
UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY
CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY RECOGNIZES
AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL INDUCEMENT FOR IT
TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND WARRANTS THAT IT HAS
REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL.
5. GENERAL PROVISIONS. This Agreement, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower,
and the other written documents and agreements between Silicon and the
Borrower set forth in full all of the representations and agreements of the
parties with respect to the subject matter hereof and supersede all prior
discussions, representations, agreements and understandings between the
parties with respect to the subject hereof. Except as herein expressly
amended, all of the terms and provisions of the Loan Agreement, and
7
<PAGE>
SILICON VALLEY BANK ASSUMPTION AGREEMENT
------------------------------------------------
all other documents and agreements between Silicon and the Borrower shall
continue in full force and effect and the same are hereby ratified and
confirmed.
BORROWER: SILICON:
VISTA INFORMATION SOLUTIONS, INC. SILICON VALLEY BANK
By [SIGNATURE ILLEGIBLE] By [SIGNATURE ILLEGIBLE]
------------------------------- -------------------------------
President or Vice President Title
----------------------------
By [SIGNATURE ILLEGIBLE]
-------------------------------
Secretary or Ass't Secretary
NEW BORROWER:
E/RISK INFORMATION SERVICES
By [SIGNATURE ILLEGIBLE]
--------------------------------
President or Vice President
By [SIGNATURE ILLEGIBLE]
---------------------------------
Secretary or Ass't Secretary
8
<PAGE>
SILICON VALLEY BANK
AMENDMENT TO LOAN AGREEMENT
BORROWER: VISTA INFORMATION SOLUTIONS, INC.
E/RISK INFORMATION SERVICES
DATED: JULY 31, 1998
THIS AMENDMENT TO LOAN AGREEMENT is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above (the "Borrower").
The Parties agree to amend, effective as of the date hereof, the Loan and
Security Agreement between them dated April 7, 1998, as amended from time to
time (the "Loan Agreement", terms defined in the Loan Agreement are used
herein as therein defined).
1. ASSUMPTION AGREEMENT. Borrower is concurrently executing that
certain Assumption Agreement between Borrower and Silicon, pursuant to
which E/Risk Information Services is added as a "New Borrower" (as defined in
the Assumption Agreement).
2. NEW DEFINITIONS. Section 1.1 of the Loan Agreement is hereby amended
to add the following new definitions of "Debt Service Ratio". "Term Loan" and
"Term Loan Payment":
"Debt Service Ratio" means, on a consolidated basis, the ratio of
(a) net income of Borrower before interest, taxes, depreciation and
other non-cash amortization expenses and other non-cash expenses of
Borrower, relating to the immediately preceding four fiscal
quarters, determined in accordance with generally accepted
accounting principles, consistently applied, to (b) the amount of
Borrower's obligations relating to payment of interest on an
annualized basis and current maturities of principal on such
Borrowers' outstanding long term indebtedness, determined in
accordance with generally accepted accounting principles,
consistently applied.
"Term Loan" means a credit extension of $1,500,000.
"Term Loan Payment" has the meaning set forth in Section 2.1.5.
3. NEW SECTION 2.1.5. A new Section 2.1.5 of the Loan Agreement is
hereby added which reads as follows:
2.1.5 TERM LOAN.
(a) Subject to and upon the terms and conditions of this Agreement
(including, without limitation, Bank's review and approval of E/Risk
Information Services' financial statements, for such period(s) as
requested by Bank, reviewed by an independent certified public
accounting firm reasonably acceptable to Bank), Bank shall make a
Term Loan available to Borrower.
9
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
-----------------------------------------------------------------------
(b) Borrower shall pay 60 equal installments of principal plus
Interest in the amount of $25,000 (the "Term Loan Payment"). Each
Term Loan Payment shall be due and payable on the first calendar day
of each month (commencing September 1, 1998) during the term hereof.
Borrower's final Term Loan Payment, due on AUGUST 1, 2003, shall
include all outstanding Term Loan principal plus all accrued
interest not yet paid.
(c) The Term Loan shall bear interest at a rate equal to one-half of
one (0.50%) percentage points above the Prime Rate.
4. REVISED BORROWING BASE. The definition of "Borrowing Base" as set
forth in Section 1.1 of the Loan Agreement is hereby amended in its entirety
to read as follows:
"Borrowing Base" means an amount equal to 80% of Eligible Accounts
of Vista Information Solutions, Inc. and 50% of Eligible Accounts of
E/Risk Information Services, as determined by Bank with reference to
the most recent Borrowing Base Certificates delivered by each
Borrower; PROVIDED, HOWEVER, that the percentage with respect to
Eligible Accounts of E/Risk Information Services shall increase from
50% to 75% after an audit of E/Risk Information Services' Accounts
is completed with results satisfactory of Bank, in its sole
discretion, which audit shall be completed as provided in Section
6.3 hereof. Advances will be made to each Borrower based on the
Eligible Accounts of each borrower, subject to the Committed
Revolving Line set forth herein for all Advances to all Borrowers
combined.
5. REVISED COMMITTED REVOLVING LINE. The definition of "Borrowing
Base" as set forth in Section 1.1 of the Loan Agreement is hereby amended in
its entirety to read as follows:
"Committed Revolving Line" means a credit extension of up to
$2,500,000.
6. REVISED REPORTING REQUIREMENTS. Section 6.3 of the Loan Agreement is
hereby amended as follows:
The following new clause (g) shall be added at the end of the first paragraph
of Section 6.3:
and (g) as soon as available, but in any event within ninety (90)
days after the first Advance to E/Risk Information Services, audited
consolidated financial statements of Borrower prepared in accordance
with GAAP, consistently applied, together with an unqualified
opinion on such financial statements of an independent certified
public accounting firm reasonably acceptable to Bank.
The following sentence shall be added at the end of the last paragraph of
Section 6.3:
Bank shall have the right to audit the Accounts of E/Risk
Information Services, at Borrower's expense, within 90 days after
the execution of this Agreement by E/Risk Information Services.
10
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
-----------------------------------------------------------------------
7. REVISED QUICK RATIO. The Quick Ratio financial covenant set forth
in Section 6.8 of the Loan Agreement is amended in its entirely to read as
follows:
6.8 QUICK RATIO Borrower shall maintain, as of the last day of
each calendar month, a ratio of Quick Assets to Current Liabilities
of at least 1.50 to 1.0. For purposes of the foregoing, however,
Current Liabilities shall not include deferred revenues.
8. REPLACEMENT OF DEBT-NET WORTH RATIO. With Debt Service Ratio. The
Debt-Net Worth Ratio financial covenant set forth in Section 6.9 of the Loan
Agreement which currently reads as follows:
6.9 DEBT-NET WORTH RATIO. Borrower shall maintain, as of the last
day of each calendar month, a ratio of Total Liabilities less
Subordinated Debt to Tangible Net Worth plus Subordinated Debt of
not more than 1.50 to 1.0. For purposes of the foregoing, however,
deferred revenues shall not be taken into account in computing Total
Liabilities of Tangible Net Worth.
is hereby deleted and replaced with a Debt Service Ratio which shall read as
follows:
6.9 DEBT SERVICE RATIO. Borrower, on a consolidated basis, shall
maintain, as of the last day each fiscal quarter, a Debt Service
Ratio of as least 2.0 to 1.0.
9. REPLACEMENT OF TANGIBLE NET WORTH WITH CASH FLOW RECAPTURE. The
Tangible Net Worth financial covenant set forth in Section 6.10 of the Loan
Agreement which currently reads as follows:
6.10 TANGIBLE NET WORTH. Borrower shall maintain, as of the last
day of each calendar month, a Tangible Net Worth of not less than
$1,750.000.
is hereby deleted and replaced with a Cash Flow Recapture financial covenant
which shall read as follows:
6.10 CASH FLOW RECAPTURE. Within 30 days after the end of each
fiscal quarter, Borrower shall pay to Bank 20% of Borrower's
earnings before interest, taxes, depreciation and amortization in
excess of $750,000 for such quarter ("Recapture Contribution");
provided, however, in no event shall any Recapture Contribution
exceed 25% of Borrower's then outstanding Obligations. The Recapture
Contributions shall be maintained in a separate account maintained
at Bank, shall bear interest at the Bank's then prevailing rates for
other such similar interest bearing accounts and shall constitute
part of Bank's Collateral.
10. Fee. Borrower shall concurrently pay to Silicon a facility fee in
the amount of $5,250, which shall be in addition to all interest and all
other fees payable to Silicon and shall be non-refundable.
11
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
-----------------------------------------------------------------------
11. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
12. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and the Borrower,
and other written documents and agreements between Silicon and the Borrower
set forth in full all of the representations and agreements of the parties
with respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with
respect to the subject hereof. Except as herein expressly amended all of the
terms and provisions of the Loan Agreement, and all other documents and
agreements between Silicon and the Borrower shall continue in full force and
effect and the same are hereby ratified and confirmed. This Amendment shall
be controlling in the event of any conflicts between any prior written
agreements and amendments between Silicon and the Borrower, on the one hand,
and this Amendment.
Borrower: Silicon:
VISTA INFORMATION SOLUTIONS, INC. SILICON VALLEY BANK
By [ILLEGIBLE] By
--------------------------- ----------------------------
President or Vice President Title
-------------------------
By [ILLEGIBLE]
----------------------------
Secretary or Ass't Secretary
Borrower:
E/RISK INFORMATION SERVICES
By [ILLEGIBLE]
---------------------------
President or Vice President
By [ILLEGIBLE]
----------------------------
Secretary or Ass't Secretary
12
<PAGE>
Silicon Valley Bank Amendment to Loan Agreement
-----------------------------------------------------------------------
CONSENT
The undersigned acknowledge that their consent to the foregoing
Agreement is not required, but the undersigned nevertheless do hereby consent
to the foregoing Agreement and to the documents and agreements referred to
therein and to all future modifications and amendments thereto, and any
termination thereof, and to any and all other present and future documents
and agreements between or among the foregoing parties. Nothing herein shall n
any way limit any of the terms or provisions of the Continuing Guarantee of
the undersigned, all of which are hereby ratified and affirmed.
Borrower: Silicon:
VISTA INFORMATION SOLUTIONS, INC. E/RISK INFORMATION SERVICES
By [ILLEGIBLE] By [ILLEGIBLE]
--------------------------- ---------------------------
President or Vice President President or Vice President
By [ILLEGIBLE] By [ILLEGIBLE]
---------------------------- ----------------------------
Secretary or Ass't Secretary Secretary or Ass't Secretary
13
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-09415 and 333-41279 on Form S-3 and Registration Statement No. 333-09417
on Form S-8 of Vista Information Solutions, Inc. of our report dated March
19, 1999 relating to the consolidated financial statements of Vista
Information Solutions, Inc. as of and for the year ended December 31, 1998,
appearing in this Annual Report on Form 10-KSB of Vista Information
Solutions, Inc. for the year ended December 31, 1998.
Deloitte & Touche LLP
San Diego, CA
April 9, 1999
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-09415 and 333-41279 on Form S-3 and Registration Statement No. 333-09417
on Form S-8 of Vista Information Solutions, Inc. of our report dated March
24, 1998 relating to the consolidated financial statements of Vista
Information Solutions, Inc. as of and for the year ended December 31, 1997,
appearing in this Annual Report on Form 10-KSB of Vista Information
Solutions, Inc. for the year ended December 31, 1998.
MCGLADREY & PULLEN, LLP
San Diego, CA
April 7, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 386,718
<SECURITIES> 0
<RECEIVABLES> 4,848,330
<ALLOWANCES> 868,986
<INVENTORY> 0
<CURRENT-ASSETS> 7,394,689
<PP&E> 5,596,921
<DEPRECIATION> 2,819,916
<TOTAL-ASSETS> 17,584,871
<CURRENT-LIABILITIES> 4,842,182
<BONDS> 0
0
764
<COMMON> 11,952
<OTHER-SE> 12,148,451
<TOTAL-LIABILITY-AND-EQUITY> 17,584,871
<SALES> 15,067,734
<TOTAL-REVENUES> 15,067,734
<CGS> 3,341,969
<TOTAL-COSTS> 14,046,469
<OTHER-EXPENSES> 298,769
<LOSS-PROVISION> 158,721
<INTEREST-EXPENSE> 276,960
<INCOME-PRETAX> (2,619,473)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,619,473)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,619,473)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
</TABLE>
