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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, 1999
[ ] 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: (858) 450-6100
Securities registered pursuant to Section 12(b) of the Exchange Act: NONE
Securities registered pursuant to Section 12(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-8 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, 1999 were approximately
27.5 million.
As of March 27, 2000, 25,139,470 shares of Common Stock of
the Registrant were outstanding (This number excludes shares issuable upon
conversion of 485,064 shares of the Registrant's convertible voting
preferred stock into 6,192,463 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 $89 million.
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 2000 Annual Meeting (the "2000 Proxy
Statement"). If the Registrant does not file the Proxy Statement by April 30,
2000, it will file an amended Form 10-KSB to include such information.
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PART I
ITEM 1. DESCRIPTION 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 the "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. ("VISTAinfo" or the "Company")
provides information for making real-estate decisions to professionals and
consumers throughout the United States and Canada. Effective December 17,
1999, the Company acquired Moore Data Management Services. Subsequently, as
of February 2000, the Company was reorganized into three operating units:
RE/Commercial, RE/Professional and RE/Consumer. RE/Commercial provides
environmental risk information to banks, engineers and consultants, flood
information to banks, and insurance risk information to property and casualty
insurance underwriters. RE/Professional provides software solutions,
disclosure information and data management services to the real estate
industry and home sellers. RE/Consumer provides property listing, risk and
other information to potential home buyers through its network of internet
sites.
The Company, originally known as DataMap, Inc. ("DMI"), was
founded in 1975 to develop geographic-demographic analysis tools and data
for businesses. The Company focused its initial selling efforts for
its database services on the insurance industry through a joint services
arrangement with the Insurance Services Office, Inc. ("ISO"). In 1995, the
Company changed its name from DataMap, Inc. to VISTA Information
Solutions, Inc. after acquiring, through a wholly-owned subsidiary,
VISTA Environmental Information, Inc. ("VISTA Environmental"). Since 1995
VISTAinfo has expanded its information assets and marketing channels through
a series of acquisitions discussed below.
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 its core 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 and January 1999, the Company acquired 80% and
then the remaining 20%, respectively, of E/Risk Information Services
("E/Risk"), a leading provider of property disclosure reports in California.
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. In December 1999, the Company acquired certain assets
of Moore Corporation Limited and its subsidiary, Moore North America, Inc.,
known as Moore Data Management Services ("DMS") which is a provider of
software and management services to the real estate industry in the U.S. and
Canada.
The Company's executive office is located at 5060 Shoreham Place, #300,
San Diego, CA 92122, phone number (858) 450-6100.
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FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
In 1999, the Company operated in a single industry segment:
information services including environmental risk information and
address-based hazard and classification information. In February 2000, the
Company was reorganized into three operating units: RE/Commercial,
RE/Professional and RE/Consumer. These segments are more thoroughly described
below. It is the Company's intention to provide the segment disclosure
provisions of Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 131, "DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE
AND RELATED INFORMATION", (SFAS 131) as of and for the year ending December
31, 2000. The Company will continue its evaluation as to the further
development of other segments. These statements are forward-looking and
subject to risks and uncertainties. Accordingly, no assurances can be
provided that the aforementioned operating segments will meet the
quantitative thresholds or other standards set forth in SFAS 131 or that the
Company's management will remain organized in the structure previously
outlined.
NARRATIVE DESCRIPTION OF THE BUSINESS.
The following description of the Company's business should be read in
conjunction with the information included elsewhere in this Annual Report. This
description contains certain forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ significantly from the
results discussed in the forward-looking statements as a result of certain of
the factors set forth below and elsewhere in this Annual Report.
OVERVIEW.
VISTA Information Solutions, Inc. provides information for making
real-estate decisions to professionals and consumers throughout the United
States and Canada. Through a series of acquisitions and its own research and
development efforts, the Company has developed a variety of geographic
databases and software tools related to real estate decisions. Each of these
databases currently serves existing markets with identified revenue streams.
The Company intends to integrate many of these databases into its spatial
database management system known as DataVision. The purpose of integrating
these databases is to provide a comprehensive set of tools to assist
consumers with real estate decisions and to provide homeowners access to
providers of related home services. To facilitate this integration, VISTAinfo
has been organized into three operating units: RE/Commercial, RE/Professional
and RE/Consumer. RE/Commercial provides environmental risk information to
banks, engineers and consultants; flood information to banks and insurance
risk information to property and casualty insurance underwriters.
RE/Professional provides software solutions, disclosure information and data
management services to the real estate industry and home sellers. RE/Consumer
provides property listing, risk and other information to potential homebuyers
through its network of Internet sites.
1. RE/COMMERCIAL.
RE/Commercial consists of two product lines: Environmental Risk
and Due Diligence Information Services and the Geographic Underwriting System.
ENVIRONMENTAL RISK AND DUE DILIGENCE INFORMATION SERVICES.
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, ASTME-1527 and
ASTME-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
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encouraged participants in the real estate markets (including owners,
operators, lenders and insurers) to demand such information to avoid
potentially catastrophic environmental cleanup liability.
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, 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.
VISTAinfo 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, the Company
regularly processes approximately 60 million environmental records from such
sources, with more than 50,000 facilities or properties added or deleted each
month. VISTAinfo has developed this database using its proprietary geographic
information systems capabilities, and has also created on-line distribution
channels.
PRODUCTS.
REAL ESTATE REPORTS. These reports provide lenders and engineers with
quick, accurate and low cost assessment of known environmental risks on and
around the location in question. Real Estate reports are consistent with the
ASTME-1527 standards and are used as a supplement to the "Phase I" site
assessment process or provide a preliminary screening of properties for
potential environmental risks.
SITE SPECIFIC DETAIL REPORTS. These reports provide detailed
information about registered environmental sites such as leaking underground
storage tanks and toxic spills. Engineers often use these reports to assess
and conduct environmental remediation projects.
GOVERNMENT DETAIL REPORTS. Other information that may restrict land
use by real estate developers, utility companies and others can be ordered
from VISTAinfo. Examples of this information include wetland areas, flood
plains, Native Indian burial grounds and wildlife preserves. NEPAScreen is a
report that provides information needed by land developers to comply with the
National Environmental Policy Act requirement to review seven different
topics to determine if any environmental impact is apparent at a site.
COMPLIANCE REPORTS. Compliance reports 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. Companies
can also compare their environmental records with those of competitors, or
other companies in the same geographic area. These reports 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 a property. These include Sanborn fire insurance maps, historical
topographical maps, county-planning maps, property chain-of-title, city
directories and others.
CUSTOMER BASE. VISTAinfo'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. VISTAinfo's services have an exclusive
endorsement by the American Bankers Association, many state banking
associations and several engineering trade associations.
SALES, MARKETING AND DISTRIBUTION CHANNELS. VISTAinfo markets its
Environmental Risk and Due Diligence Information Services through direct
sales and affiliate relationships. VISTAinfo has approximately 30 direct
sales representatives in 13 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 six
affiliated membership organizations who market VISTAinfo's products by
offering discounts to members and providing direct links from their Websites.
The majority of these products are ordered and distributed through the
Company's primary Website, VISTAcheckv. Customers can also order and receive
environmental reports through traditional fax and
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delivery services and also produce reports themselves using a desktop system,
known as STARVIEW, that incorporates many of VISTAinfo's databases and
reports.
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 VISTAcheckv.
VISTAinfo 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.
GEOGRAPHIC UNDERWRITING SYSTEM
INDUSTRY FOCUS. 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 these services. Additional insurance
information layers can be added to GUS due to the application's modular
design.
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.
The Company's GUS services are the subject of an exclusive
arrangement with ISO, the leading supplier of statistical, actuarial, and
underwriting information for and about the property/casualty insurance
industry. ISO provides advisory services to more than 1,500 participating
insurers and their agents 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 "Products", below).
PRODUCTS. The single product line of GUS can be further classified
into its various database layers, which are used by insurers to assess the
risks of different types of insurance policies:
PUBLIC PROTECTION CLASSIFICATION ("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. 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. 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.
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CRIME. 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.
BRUSHFIRE. The Company also provides an information layer that
identifies California property that is located in brush fire zones.
CUSTOMER BASE AND SALES AND MARKETING. GUS is currently being
marketed to the insurance industry exclusively through the ISO Agreement.
Under the ISO Agreement, a national sales force employed by ISO is
responsible for sales of 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. However, competing services
may be developed and marketed in the future.
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2. RE/PROFESSIONAL
RE/Professional consists of four primary product lines: MLS Systems
and Access Software, Agent Productivity and Office Management Software,
Property Disclosure and Print Media.
MLS SYSTEMS AND ACCESS SOFTWARE
INDUSTRY FOCUS. Multiple Listing Services ("MLS") are repositories
of property-related information with the most important component being
listings of properties available for sale in the geographic region served by
the MLS organization. Listings are formatted descriptions (including photos)
of the listed property with an asking price. The MLS itself is a cooperative
of the member brokerages and agents in a region, who compete for the business
of listing and selling homes, yet cooperate in sharing the information on
availability and sale prices in order to earn commissions. MLS systems are an
essential utility in helping agents conduct their day-to-day business and are
the foundation for advanced transaction management services that have the
potential to increase the efficiency and lower the cost of the real estate
transaction.
VISTAinfo provides MLS organizations with systems integration
solutions which combine computer hardware, internally developed and licensed
software, telecommunications, security, customer support and maintenance to
provide immediate and reliable access to and updating of the property
listings database that represents the "shelf stock" of the real estate
profession. Additionally, VISTAinfo integrates public records, local and
national school databases and other pertinent property-related information
into the MLS system for additional fees. From the MLS listing database,
agents access the data that is necessary to perform their primary function as
intermediary between the buyers and sellers of real estate.
PRODUCTS.
MLS SYSTEMS. RE/Xplorer-TM-, Compass-Registered Trademark- and
Maestro-TM- are products offered by the Company that provide management of
MLS property listing data. These systems provide reliable management of data
using advanced database technology, fast access to pre-defined and customized
information and access to supplemental information such as special tax zones
and school districts. VISTAinfo also provides central hosting of these
systems on its networks to provide additional reliability and security.
ACCESS SOFTWARE. ListingsManager-TM-, ListingsManager Pro-TM-, PC
Access-TM-, PC Access-TM- Flyer, MacView-TM- and MacCom are the Company's
products that provide access to MLS system data. Users can browse and query
listing data using Internet or dial up connections and integrate with their
office email and fax systems. Users can also produce flyers, slide shows and
other promotional material using these products.
SALES AND MARKETING. VISTAinfo employs 15 direct salespeople located
in 8 cities in the U.S. and Canada who sell MLS systems and access software
to MLS's and real estate agents. Generally these sales take the form of
contracts that often include MLS system software, data management, central
hosting, hardware and access software as components of a single contract.
COMPETITION. The Company believes that the principal competitive
factors that influence the choice of providers of systems and access software
by MLS organizations and agents are reliability, ease of use, customer service,
integration with supplemental data and price. VISTAinfo believes that it
competes effectively in all of these areas in its target markets.
The Company is aware of other companies, such as Geac/Interealty,
that compete for MLS business along with several other smaller companies.
AGENT PRODUCTIVITY SOFTWARE. In addition to listing access software,
VISTAinfo provides software tools to real estate agents designed to enhance
sales productivity, customer service and office operations.
PRODUCT. ON-LINE AGENT-TM- provides comprehensive scheduling,
planning and contact management tools for real estate agents. Listing data
can be accessed directly and incorporated into the agent's marketing and
sales activities. On-Line Agent-TM- also features marketing tools to target
direct mail activities and produce flyers, slide shows and other promotional
material.
SALES AND MARKETING. The primary sales force for agent productivity
software is a telesales group located in East Lansing, Michigan, and selected
resellers throughout North America. In addition, there is a small direct
sales group that provides services to larger clients. VISTAinfo also produces
customized versions of private label Agent Productivity Software that have
been tailored to meet the needs of specific real estate brokers. VISTAinfo
markets these customized versions directly to those companies.
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COMPETITION. The Company is aware of one significant competitor that
markets productivity software specifically to the real estate industry. There
are other smaller real estate-specific competitors as well. Several generic
contact management and sales force automation software applications exist
such as Goldmine and ACT, which compete with Online-Agent.
PROPERTY DISCLOSURE
VISTAinfo 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 and January 1999, the Company acquired 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.
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 addition to its direct
selling efforts, VISTAinfo markets it reports by providing free preliminary
reports to home sellers, participation in trade shows and other industry
activities and through banner advertising on related or complementing
Websites. Through its relationships with multiple listing services, the
Company is currently seeking agreements to facilitate the automated order and
delivery of property disclosure reports upon listing of a property.
COMPETITION. Other than VISTAinfo, there are two large competitors
and numerous small competitors providing property disclosure reports and
services 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.
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PRINT MEDIA
INDUSTRY FOCUS. The Company owns printing facilities in Toronto,
Ontario that produce MLS books, generally as part of MLS Systems contracts,
and perform independent third party printing work known as Computer Directed
Services ("CDS"). CDS specializes in converting database information from
non-real estate sources, preparing and printing this data to commercial print
standards. Examples of typical CDS sales include large directories, statistic
books and automobile manuals.
SALES AND MARKETING. The Company sells its CDS services through six
account representatives who specialize in the individual markets VISTAinfo
serves. Selling efforts are directed at an established customer base as well
as potential new customers.
COMPETITION. The Company believes that the principal competitive
factors that influence the choice of printers are quality of work, speed of
production and cost. While VISTAinfo competes on all of these factors,
primary competitive strengths are believed to be speed, due to its advanced
pre-press technology and quality (as an ISO 9000 certified operation).
3. RE/CONSUMER
VISTAinfo has created two real estate information websites to assist
consumers in searching for residential properties and making informed buying
decisions; Cyberhomes-Registered Trademark-.com and NearMyHome-SM-.com.
INDUSTRY FOCUS. The rapid growth of the Internet as a means of
providing public access to a variety of information has changed the way much
of the information industry is able to generate revenue. Consumers are less
willing to pay hundreds of dollars to research firms for information that is
available for little to no cost on the Internet. Many information companies
have redirected their development and marketing resources toward building
websites with free or low-cost information, increasing the number of visitors
and collecting revenue from businesses to advertise on those sites. The
process of searching for, evaluating and transacting a home purchase is
particularly well suited to this business model. Traditionally, potential
homebuyers search classified advertisements and contact the seller's real
estate agent to schedule a visit to the home or enlist the help of a real
estate professional whose access to MLS listings and other data concerning
location and values provides the homebuyer with professional guidance. With
listing information freely available over the Internet, homebuyers can
conduct searches for homes that meet their requirements before they contact
an agent and thereby gain greater personal control over the time and cost of
the process.
PRODUCTS.
CYBERHOMES-Registered Trademark-. Through the acquisition of DMS,
VISTAinfo acquired a property listing website called Cyberhomes. Cyberhomes
features sophisticated search tools that help homebuyers quickly create a
list of homes that meet their requirements for location, price, size and
number of bedrooms. Users can view complete listing information of a property
including lot size, property type, and other special features as well as a
photograph of the home. The name and phone number of the listing agent is
provided so the buyer can contact the agent directly to learn more about the
house and schedule a visit.
In addition to listing data, Cyberhomes also provides access to
supplemental neighborhood and community information such as school ratings,
mortgage rates, and links to third party providers of home-related services.
Users can purchase detailed SchoolMatch-Registered Trademark- Reports from
this site.
NEARMYHOME-SM-. VISTAinfo has made some of the property risk
information it manages available to Internet users on its NearMyHome
website. NearMyHome allows homeowners and homebuyers to view information
about natural hazards, environmental risks and other influences, such as
location of schools and hospitals, and neighborhood demographics, that affect
the value and desirability of any property location in the United States.
Users can also purchase more detailed reports from this site.
SALES AND MARKETING.
The RE/Consumer product set is made up of the websites
Cyberhomes.com and NearMyHome.com and the eCommerce sale of SchoolMatch and
disclosure reports from the core sites and a large number of affiliate sites
which carry either or both of the SchoolMatch and NearMyHome services as
revenue-generating content that is of interest to their audiences.
Cyberhomes is supported by advertisers and sponsors who benefit from
being able to communicate their product and service offerings to consumers
who are engaged in the property transaction process. In January 2000,
VISTAinfo entered into an agreement with Doubleclick that resulted in
Cyberhomes becoming the anchor Real Estate site within the Doubleclick Select
Business Network. As part of this agreement, Doubleclick's worldwide sales
and business development organization becomes the exclusive sales agency for
Cyberhomes' ad inventory.
<PAGE>
At the same time, Cyberhomes is focusing its marketing efforts on
growing the visitorship to the site through a combination of alliances and
co-branding that leverage the distribution of sites with affinity for real
estate content. Similarly, the SchoolMatch and NearMyHome content is being
syndicated to on-line outlets that will both grow brand recognition and the
volume of orders for paid reports.
COMPETITION.
Visitors to real estate related web sites value current, complete
and comprehensive inventories of the properties available for sale in the
market area where they live or want to live. Additionally, as is the case for
most web users, they value direct and fast access to the information that
they seek. Cyberhomes is distinguished by the quality and accuracy of its
content that is updated daily from the professional MLS databases used by
realtors. Additionally, Cyberhomes' unique interactive street-level mapping
capability allows for fast and easy search and display of homes for sale in
their geographic context. As a one-stop shop, Cyberhomes permits visitors to
locate schools and view NearMyHome.com reports for potential hazards or risks
associated with the selected property's location.
Competitors to Cyberhomes include Realtor.com, Homeadvisor.com,
Homes.com, Move.com, Homeseekers.com and a number of smaller, usually local,
services.
EMPLOYEES
As of December 31, 1998, the Company had 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. At December 31, 1999, the Company had increased its operating
size to 585 full time employees including 354 employees in operations, 104
employees in sales and marketing, 61 employees in research and development
and 67 employees in finance and administration.
Certain employees in the Company's Canadian operations are
represented by a labor union. 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 following registered trademarks and service marks are held or
licensed by the Company: DataMap, GUS, Cyberhomes, RE/Xplorer, Real-Trieve,
Ad-Ease, Compass, Learning Point, List/One, MacView, MLS/Xplorer, Office MLS,
PagePoint, PC-Lip Photo-Term, Photo-Trieve, Pinpointready-Trieve, Real-Term,
Super-Trieve and Viewpoint. The Company intends to continue renewing these
registrations to their fullest extent, or until such time as the Company
determines that they are no longer necessary or of value. There are numerous
unregistered or pending trademarks and service marks used by the Company.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES.
The Company's operations are conducted within the United States and
Canada. Approximately three percent of the Company's revenues are generated
in Canada.
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTIES
The Company's principal executive offices and a portion of
Environmental Risk and Due Diligence Information Services operations are
located at 5060 Shoreham Place, San Diego, California. The Company leases
approximately 20,500 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 $35,000 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 also leases approximately 13,000 square feet of space at
5354 Parkdale Drive, St. Louis Park, Minnesota for its GUS operations
pursuant to a lease expiring in February 2007. The lease for this facility
provides for rent of approximately $14,400 per month, subject to increases of
$270 per month each year. The Company also pays a pro rata share of taxes
associated with this space.
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 expiring in
February 2001 and June 2001. The leases for this facility provide for rent of
approximately $10,000 per month, subject to increases of approximately $400
per month each year.
The Company also leases approximately 10,000 square feet of office
space located at 21 West Burnsville Church Road, Burnsville, North Carolina
for its Environmental Risk and Due Diligence Information Services operations
pursuant to a lease expiring in May 2000. The lease for this facility
provides for rent of approximately $3,000 per month.
The Company also leases approximately 51,000 square feet of office
space located at 100 Washington Square, Suite 1000, Minneapolis, Minnesota
for its Real Estate Information Services operations pursuant to a lease
expiring in August 2002. This location serves as an administrative and
support office for Environmental Risk and Due Diligence Information Services.
The lease for this facility provides for rent of approximately $62,500 per
month.
The Company also leases approximately 18,000 square feet of office
space located at 4660 S. Hagadorn, Suite 420, East Lansing, Michigan, for its
system support and sales personnel for the MLS and Broker Agent product
lines. The monthly rent for this facility is approximately $26,000 and the
lease expires on March 2001.
The Company also leases an industrial building with 10,500 square
feet at 4460 97th St., Edmonton, Alberta, Canada, for the printing of its MLS
materials. The monthly rent for this facility is approximately $3,000 and the
lease expires in January 2001.
The Company also leases a total of approximately 15,100 square feet
of office space serving as customer service locations supporting the Real
Estate Information Service operations. These customer service operations are
located in Toledo, Ohio; Boulder, Colorado; Jacksonville, Florida; Concord,
California; Worcester, Massachusetts; and Scottsdale, Arizona. The leases for
these facilities provide for rent in the aggregate of approximately $24,000
per month. Additionally the Company leases approximately 1,300 square feet
each in three facilities located in Pleasant Hills, California; Greensboro,
North Carolina; and Tucker, Georgia for its sales offices. The leases for
these locations provide for rent in the aggregate of approximately $3,000 per
month.
The Company leases a total of approximately 17,325 square feet of
office space in various locations for its Environmental Risk and Due
Diligence Information Services. These offices are located in Glenville, New
York; Englewood, Colorado; Simsbury, Connecticut, Essex, Connecticut;
Herndon, Virginia; and Indianapolis, Indiana and are occupied by operations
and sales support. The leases for these locations provide for rent in the
aggregate of approximately $20,500 per month.
The Company owns approximately 2.4 acres located at 801 Milner
Avenue, Toronto, Ontario. This property includes a freestanding
single-occupant industrial building having a gross floor area of about 46,800
square feet. This location serves as the principal location for the Company's
printing operations and for its Real Estate Information Service operations in
Canada. The Company believes that, in general, its facilities are adequately
maintained, in good operating condition and is adequate for the Company's
present needs. The Company regularly upgrades and modernizes its facility and
equipment and expands its facilities to meet requirements.
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. On March 31, 2000, the Company and
POI resolved their dispute on terms that were not material to the Company's
financial results.
In June 1999, GeoSure, LP (GeoSure), a subsidiary of the Company,
filed a demand for arbitration against The Sanborn Company, LLC (Sanborn)
with the American Arbitration Association. GeoSure is a party to a license
agreement with Sanborn to distribute historical fire insurance maps subject
to certain restrictions and a royalty based on the prevailing prices charged
by Sanborn for these maps. GeoSure alleges, among other things, that it has
been charged excess royalties and seeks recovery of the excess payments.
Sanborn has responded with allegations that GeoSure has underpaid these
royalties and likewise seeks recovery. The Company believes that Sanborn's
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.
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company had its Annual Meeting of Stockholders on November 23,
1999. At the meeting the Company submitted the following matters to a vote of
stockholders: 1.)to elect seven persons to serve as directors of the Company
until the next Annual Meeting of Stockholders (or for staggered terms if
proposal 3 is adopted); 2.)to adopt the Company's 1999 Stock Option Plan; and
3.)to amend the Certificate of Incorporation to create a classified board of
directors with three classes each to serve for a term of three years.
The number of votes cast for, against and abstaining in these
matters were as follows:
<TABLE>
<CAPTION>
For Against Abstain/Withheld
<S> <C> <C> <C>
1. Election of Directors by holders of Series A
Preferred, Series F Preferred and Common Stock
Robert Boscamp (15,699,204) (17,571) (491,988)
Richard J. Freeman (15,699,204) (17,571) (491,988)
Earl Gallegos (15,699,204) (17,571) (491,988)
Thomas R. Gay (15,699,204) (17,571) (491,988)
Martin F. Kahn (15,699,204) (17,571) (491,988)
Patrick A. Rivelli (15,699,204) (17,571) (491,988)
Jay D. Seid (15,699,204) (17,571) (491,988)
2. Adoption of the 1999 Stock Option Plan (10,159,457) (1,866,195) (50,505)
3. Amendment to Certificate of Incorporation to
establish a classified Board of Directors (10,633,099) (1,374,808) (68,250)
</TABLE>
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. These 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
FISCAL 1998 ---- ---
<S> <C> <C>
Quarter Ended March 1998 $9.626 $7.375
Quarter Ended June 1998 10.750 6.625
Quarter Ended September 1998 8.938 4.375
Quarter Ended December 1998 8.125 2.781
FISCAL 1999
Quarter Ended March 1999 10.500 7.125
Quarter Ended June 1999 14.750 7.875
Quarter Ended September 1999 11.625 2.781
Quarter Ended December 1999 5.125 2.625
</TABLE>
Share prices reported in the above table have been retroactively
restated from their actual prices to reflect the reverse split that took
place in March 1998.
As of March 10, 2000, the Company's transfer agent reported
approximately 557 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.
The Company issued 950,000 shares of its Common Stock to Moore North
America, Inc. in connection with the acquisition of DMS. In December 1999,
the Company issued 4,000,000 shares of its Common Stock for gross proceeds of
$10 million in a private placement.
In December 1999, the Company issued an aggregate of 680,000 shares
of its Series A-1 and Series A-2 Preferred Stock for $2,500 per share in a
private placement from outside investors. These shares are generally
convertible into 10 shares of Common Stock per preferred share. These shares
were issued pursuant to the exemption from registration provided by Section
4(2) of the Securities Act, in reliance in part on the investment
representations of the parties acquiring the shares.
<PAGE>
ITEM 6. MANAGEMENT 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.
VISTAinfo provides information for making real-estate decisions to
professionals and consumers throughout the United States and Canada. Through
a series of acquisitions and its own research and development efforts, the
Company has developed a variety of geographic databases and software tools
related to real estate decisions. The Company intends to integrate many of
these databases into its spatial database management system known as
DataVision. The purpose of integrating these databases is to provide a
comprehensive set of tools to assist consumers with real estate decisions and
to provide homeowners access to providers of related home services. To
facilitate this integration, VISTAinfo has been organized into three
operating units: RE/Commercial, RE/Professional and RE/Consumer.
RE/Commercial provides environmental risk information to banks, engineers and
consultants, flood information to banks, and insurance risk information to
property and casualty insurance underwriters. RE/Professional provides
software solutions, disclosure information and data management services to
the real estate industry and home sellers. RE/Consumer provides property
listing, risk and other information to potential homebuyers through its
network of Internet sites.
In January 1999, the Company merged with GeoSure, LP ("GeoSure"),
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 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 GeoSure and EcoSearch mergers were accounted for on a
pooling-of-interests basis and prior period financial statements have been
adjusted to reflect the combination of these entities.
In December 1999, the Company acquired certain assets of the Data
Management Services ("DMS") division of Moore Corporation Limited and its
subsidiary, Moore North America, Inc. in exchange for cash, Common Stock of
the Company, a secured short term working capital note and convertible debt.
DMS is a provider of data management services to the multiple listing service
("MLS") industry, real estate professional software, printing services and an
Internet property listing service known as Cyberhomes.
<PAGE>
RESULTS OF OPERATIONS
PROFORMA RESULTS OF ACQUIRED BUSINESS. The results of
operations presented in the financial statements of the Form 10-KSB and
discussed in this section include approximately 14 days of revenue and
expenses from the acquired DMS business. Although these revenues and expenses
are not a substantial portion of the Company's total results for 1999, they
do, on a proforma basis, represent the greater part of revenues and expenses
for 1999. To provide a better understanding of the Company's 1999 and 1998
results and to assist in making comparisons for future periods, the following
table depicts unaudited proforma operating results as if the acquisition had
occurred on January 1, 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
-------------------------------- --------------------------------
(in thousands)(1) Vista DMS Total Vista DMS Total
-----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue 25,119 63,265 88,384 25,117 69,280 94,397
Gross margin 19,555 18,452 38,007 19,030 16,826 35,856
Operating expenses (2) 32,476 18,418 50,894 21,534 25,458 46,992
-----------------------------------------------------------------------
Operating loss (12,921) (34) (12,887) (2,504) (8,632) (11,136)
=======================================================================
</TABLE>
(1) Results are unaudited.
(2) Operating expenses for DMS in 1998 and 1999 include adjustments for
amortization of intangible assets.
COMPARISON OF THE YEAR ENDED DECEMBER 31, 1999 TO THE YEAR ENDED
DECEMBER 31, 1998.
The following selected financial data relates to the actual results
of the Company for the years ended December 31, 1999 and 1998 as per its
consolidated financial statements, included herein on pages F-1 to F-33.
PRODUCT LINE REVENUE AND GROSS MARGIN. Although the Company reported
its entire operating results in one segment, management has made a
distinction in the following discussion between three principal product
lines: Environmental Risk and Due Diligence Information Services
("Environmental"), the Geographic Underwriting System ("GUS") and Property
Disclosure Information Services ("Disclosure") as well as results from the
acquired DMS business line.
REVENUE. Total revenues increased 9 percent from $25.1 million in
1998, to $27.5 million in 1999. This increase is due primarily to the
inclusion of $2.4 million of revenue from DMS in 1999. Environmental revenues
decreased 5 percent from $16.8 million in 1998 to $15.9 million in 1999. The
primary reason for this reduction was that GeoSure's annualized revenue for
1999 was $1.2 million lower than its 1998 reported results. Management
believes that this decline has stabilized, though no assurances can be made
that the aforementioned decline will not continue. GUS revenues decreased 9
percent from $4.5 million in 1998 to $4.1 million in 1999. In the second
quarter of 1999, the Company settled an arbitration with ISO over certain
disputed GUS revenues. As a result, the Company discontinued recording
revenue that was the subject of this arbitration, resulting in lower revenues
for 1999. Revenue from Disclosure increased 135 percent from $1.6 million in
1998 to $3.7 million in 1999. This increase is due to the inclusion of a full
year of E/Risk results in 1999 compared to five months in 1998 combined with
increased selling efforts in 1999.
GROSS MARGIN. Gross margins increased 7 percent from $19 million in
1998 to $20.3 million in 1999. Gross margins as a percent of revenue
decreased from 76 percent of revenue in 1998 to 74 percent of revenue in
1999. Environmental gross margin rates increased from 71 percent in 1998 to
74 percent in 1999. This increase was due to operating efficiencies achieved
in the integration of GeoSure and VISTAinfo. Disclosure gross margin rates
increased from 66 percent in 1998 to 73 percent in 1999. This increase was
due to increased automation in the production of reports. These increases in
gross margin rates were offset by the addition in 1999 of DMS, which had a
gross margin of 35 percent of revenue in 1999.
OPERATING EXPENSES.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling,
general and administrative expenses increased 32 percent from $16.2 million
in 1998, to $21.4 million in 1999. The increase is primarily due to an
increase in bad debt expense of $1.1 million related to the write-off of
approximately $830 thousand of accounts receivable from ISO and an increase
in the accounts receivable reserve for the Property Disclosure Information
Services division. The increase in selling, general and administrative
expenses is also due to an increase in legal and consulting fees of $1.6
million related to the ISO arbitration, Sanborn arbitration and acquisition
activities. In addition, the Company incurred costs during 1999 related to
the integration of the operations of GeoSure and EcoSearch of $1.3 million.
There were also increases in salaries and wages of $248 thousand, increases
in Internet service expenses of $175 thousand and increases in rent and
utilities of $212 thousand, which were related to increased levels of
activity within the Company.
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expenses
decreased 16 percent from $1.2 million in 1998 to $1 million in 1999. This
was substantially the result of the completion of the VISTACHECK eCommerce
system and the Property Disclosure reporting system.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization
increased 27 percent from $2.8 million for 1998 to $3.6 million for 1999. This
increase is primarily due to purchases of computer equipment in 1999.
IMPAIRMENT OF INTANGIBLE ASSETS. The Company evaluates the
recoverability of long-lived assets held for use by measuring the carrying
amount of the assets against the estimated undiscounted future cash flows
associated with them whenever circumstances indicate such valuation is
warranted. At the time such evaluations indicate that future undiscounted
cash flows are not sufficient to recover the carrying values of such assets,
the assets are adjusted to their fair values.
In August 1999, the Company engaged an outside consulting
firm to conduct an analysis of the value of certain intangible assets. The
fair values of acquired technology and goodwill related to the acquisitions
of E/Risk, Environmental Information Services ("EIS") and National Research
Center ("NRC") were determined to be less than their respective carrying
values. Accordingly, the Company recorded a one-time, pre-tax charge of
approximately $7 million to adjust these assets to their appropriate fair
values.
INTEREST EXPENSE. Interest expense increased 313 percent from $617
thousand in 1998, to $2.5 million in 1999. This increase was primarily due to
amortization of the note discount of $1.6 million related to IBJ Whitehall
notes payable, as discussed below. The increase was also due to interest on a
note payable to State Street Bank that had been assumed in the GeoSure
merger, and interest and fees related to a factoring agreement with Silicon
Valley Bank.
INFLATION. The Company's management believes that inflation
has not had a material effect on the Company's results of operations or
financial condition.
<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
2000. Factors impacting this forward-looking statement are the levels of the
Company's overall revenues and overhead expenses, changes in the Company's
accounts receivable turnover, and the result of ongoing discussions with a
bank to provide a credit facility. If cash flows from operations are not
sufficient to meet cash needs during 2000, 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. Any
such financing could dilute existing investors. 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, 1999 was $433 thousand compared to $359 thousand for the
twelve months ended December 31, 1998. Cash was provided primarily by net
decreases in accounts receivable after the effect of non-cash additions to
accounts receivable related to acquisitions.
Net cash used in investing activities for the twelve months ended
December 31, 1999 was $21.3 million compared to $2.7 million for the twelve
months ended December 31, 1998. Factors that account for this increase
include cash payments of approximately $20.8 million related to acquisition
activity. The Company has also continued its investment 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 $25.5 million during
the twelve months ended December 31, 1999, compared to $2.3 million during
the twelve months ended December 31, 1998. In December 1999 the Company
received $27 million related to a private placement of 4 million shares of
the Company's Common Stock and 680 thousand shares of the Company's Preferred
Series A-1 and A-2 Stock as discussed below. In September 1999 the Company also
received $5 million from an existing investor related to issuance of the
Company's Preferred Series A Stock. These increases were offset by a net
decrease in long-term debt of approximately $5.5 million.
During 1999, the Company entered into an agreement for a commercial
credit facility of $1.5 million with Silicon Valley Bank. Borrowings under
this facility bore 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. The Company repaid
all borrowings under this facility as of June 30, 1999, and this facility is
no longer available for use.
In June 1999, the Company entered into an agreement with IBJ
Whitehall Bank & Trust Company ("IBJW") for a term loan, a revolving credit
facility and an acquisition facility. The term loan, in the amount of $3.5
million, was to be payable in full on December 31, 2004, with quarterly
principal installments beginning September 30, 2000. Proceeds from the term
loan were used to retire an existing loan obligation of GeoSure to State
Street Bank and to repay a portion of the principal and accrued interest
under the Silicon Valley Bank credit facility. The revolving credit facility,
not to exceed $3.5 million, was to be payable in full on December 31, 2004,
with quarterly principal installments beginning September 30, 2000. Proceeds
from the revolving credit facility were used to repay the remainder of the
principal and accrued interest under the Silicon Valley Bank credit facility
and to provide working capital. The acquisition facility, not to exceed $3
million, was to mature on June 30, 2005, and was intended to provide purchase
capital for permitted acquisitions. Interest charges on these facilities were
3.25 percent above the Eurodollar loan rate and were subject to adjustments
based on the financial condition of the Company. Warrants for the purchase of
the Company's common stock were issued to IBJW in connection with this credit
facility and were recorded as a note discount. In December 1999, the Company
used funds from a private equity funding to retire this loan. This facility
is no longer available for use, and accordingly, the unamortized portion of
the note discount was expensed in 1999.
In September 1999, the Company sold 102,564 shares of Series A
Convertible Preferred Stock to an existing investor at an aggregate
price of $5 million. These shares are convertible into 2 million shares of
the Company's Common Stock. Proceeds from the sale were used to repay a
portion of the principal balance of the IBJW loan and to provide working
capital for the Company.
In December 1999, the Company sold 380,000 shares of Series A-1
Convertible Preferred Stock to several investors at an aggregate price of
$9.5 million. These shares are convertible into 3.8 million shares of the
Company's Common Stock.
In December 1999, the Company sold 300,000 shares of non-voting
Series A-2 Preferred Stock to an existing investor at an aggregate price of
$7.5 million. If the shares of Series A-2 Preferred Stock do not have
both conversion rights and voting rights by March 31, 2002, the holder of
Series A-2 Preferred Stock may, at its option, redeem any portion after
September 30, 2002. The Company has called a stockholders' meeting to obtain
stockholder consent for provision of conversion and voting rights to the
holders of Series A-2 Preferred Stock; approval would eliminate redemption
rights for those shares.
In December 1999, the Company sold 4 million shares of its Common
Stock to a group of investors at an aggregate price of $10 million.
As consideration in the acquisition of DMS, the Company issued an
$18.7 Senior Convertible Note to the seller, Moore North America, Inc. The
note bears interest at an annual rate of 6.8 percent, payable quarterly, and
is due in full on December 17, 2001. $17.1 million of this Note is
convertible into 3,143,382 shares of the Company's Common Stock at the
holder's option. The Secured Convertible Note contains covenants which
require that the Company, among other things, maintain certain ratios and
financial requirements on a quarterly basis, comply with certain reporting
requirements, and to obtain approval on events such as incurring senior debt,
paying cash dividends, or repurchasing stock. In addition, the Secured
Convertible Note contains a default provision that if all or any part of the
principal or interest on the Secured Convertible Note or the Working Capital
Note, as discussed below, is not paid when it becomes due, then the Secured
Convertible Note becomes due and payable.
The Company also issued a $7.5 million Secured Working Capital Term
Note to Moore North America, Inc. as consideration in the acquisition of DMS.
This note bears interest at a rate equal to the Prime Rate plus one percent
and is payable in full on April 26, 2000, as amended. The Company has been
and is currently in discussions with prospective lenders to put a commercial
lending facility in place to repay this note and to provide additional
working capital. On April 13, 2000 the Company received a letter of
commitment from a replacement lender and management anticipates the funding
from the new credit facility and the repayment of the Working Capital Note to
take place before the amended due date. No assurances can be provided that
the Company will be successful in securing the capital required to repay the
note.
<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.
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.
THE COMPANY HAS SUSTAINED LOSSES IN THE PAST AND THE COMPANY MAY SUSTAIN
LOSSES IN THE FUTURE.
The Company has experienced operating losses during the years ended
December 31, 1999 and 1998. The Company's cumulative losses as of December
31, 1999 were approximately $55 million. The Company may not be able to
achieve or maintain profitable operations and generate positive cash flows.
THE COMPANY'S OPERATING RESULTS MAY VARY SIGNIFICANTLY FROM QUARTER TO
QUARTER.
The Company's future operating results may fluctuate from quarter to
quarter or year to year. The Company's revenues, on a quarterly basis, can be
affected by the timing and extent of the Company's own sales and marketing
activities, competitive conditions and economic factors that affect the level
of transactions in which the Company's products and services are used. In
addition, expenses associated with acquiring data, maintaining and improving
existing products and developing new products, sales campaigns and other
unforeseen costs will also affect operating results.
THE COMPANY MAY NOT BE ABLE TO SUCCESSFULLY COMPETE IN THE HIGHLY COMPETITIVE
ENVIRONMENTAL AND GEOGRAPHIC INFORMATION SYSTEMS MARKET.
Technological advances in computer software and hardware have
reduced the barriers to entry into the environmental and the geographical
information systems industries in which the Company competes. In particular,
the rapid expansion of the Internet creates a substantial new channel for
distributing geographic information to the market, and a new avenue for
future entrants to the environmental information industry. The Company may
not be successful using this new channel. The Company's markets are highly
competitive and many of the Company's potential competitors have substantially
greater capital resources, research and development capabilities, and
marketing resources and experience than the Company, particularly with
respect to geographic information systems. The Company's products and
services may not be as accepted in the commercial marketplace. Competitive
factors may reduce revenues or margins, which could have a material adverse
effect on the Company and the Company's operating results and financial
condition.
IN ORDER TO COMPETE EFFECTIVELY IN THE ENVIRONMENTAL AND GEOGRAPHIC
INFORMATION SYSTEMS MARKET THE COMPANY NEEDS TO DEVELOP NEW TECHNOLOGIES AND
PRODUCTS THAT ARE ACCEPTABLE TO THE COMPANY'S CUSTOMERS.
The market for the Company's products is characterized by rapidly
changing technology, evolving industry standards and frequent new product
introductions. The Company's success will depend to a substantial degree upon
the Company's ability to develop and introduce in a timely fashion
enhancements to its existing products and new products that meet changing
customer requirements and emerging industry standards. The development of
new, technologically advanced products is a complex and uncertain process
requiring high levels of innovation, as well as the accurate anticipation of
technological and market trends. The Company may not be able to identify,
develop, produce, market or support new products successfully, such new
products may not gain market acceptance and the Company may not be able to
respond effectively to technological changes, emerging industry standards or
product announcements by competitors. The Company may not be able to
introduce product enhancements or new products on a timely basis.
Furthermore, from time to time, the Company may announce new products,
capabilities or technologies that have the potential to replace or shorten
the life cycle of existing product offerings. Announcements of product
enhancements or new product offerings could cause customers to defer
purchasing the Company's existing products. Failure to introduce new products
or product enhancements effectively and on a timely basis, customer delays in
purchasing products in anticipation of new product introductions and any
inability to respond
<PAGE>
effectively to technological changes, emerging industry standards or product
announcements by competitors could have a material adverse effect on the
Company's business, operating results and financial condition.
THE COMPANY'S PRODUCTS MAY HAVE DEFECTS THAT THE COMPANY CAN NEITHER DETECT
NOR, ONCE DETECTED, CORRECT.
Complex software systems may contain undetected errors when first
introduced or as new versions are released. Errors may be found in new or
enhanced products after delivery of reports. Moreover, any software errors
may not be corrected or correctable in a timely manner, if at all. The
occurrence of software errors, as well as any delay in correcting them, could
result in the delay or loss of market acceptance of the Company's products,
additional warranty expense, diversion of technical and other resources from
the Company's product development efforts or the loss of credibility with
ISO, VARs and other resellers. Any of these factors could have a material
adverse effect on the Company's business, operating results and financial
condition.
THE COMPANY'S PRODUCTS COULD CREATE A SIGNIFICANT LIABILITY FOR THE COMPANY.
The Company provides information to the insurance, financial and
engineering industries. These customers generally rely upon this information
to assess the risk or scope of work involved in a transaction or contract. An
error or omission in the information the Company provides could have an
adverse financial impact on customers. The Company may be held liable for
damages if such an error or omission occurs and it may have an adverse effect
on the operating results and financial condition of the Company. While the
Company maintains insurance coverage against errors and omissions, that
coverage may be inadequate to insure against all potential claims and the
coverage may not remain available on economically reasonable terms.
ACCESS TO FREE INFORMATION ON THE INTERNET COULD AFFECT THE MARKETABILITY OF
THE COMPANY'S SERVICES AND ITS CUSTOMERS' SERVICES.
The Company's MLS Systems customers provide real estate listing
information to real estate brokers and agents who use this information to
market and search for real estate properties for their clients. A number of
Internet services (including Cyberhomes) provide free listing information
directly to consumers at little or not cost. These services generally
contract with MLS's for this property data or accept listed property
information directly from the home seller. If this new information medium
develops in a way that causes sellers and purchasers to tend to require fewer
services from brokers and agents, fee revenue from real estate professionals
to MLS's could be adversely impacted. This could adversely affect the value
of the Company's contracts with MLS's and the Company's revenues and gross
margins.
The emergence of the Internet as a source for public information
presents a challenge to information providers to find new sources of revenue.
Failure to take the correct action in response to these changes could result
in the loss of existing revenue sources and future opportunities for new
revenues.
DEMAND FOR THE COMPANY'S PRODUCTS MAY DECREASE IF REGULATIONS CHANGE.
The demand for the Company's environmental compliance products
arises primarily as a result of cleanup liability and other governmental
regulations in the environmental area. Demand for the Company's Property
Disclosure Information Services depends on existing California law regarding
disclosures by home sellers. The current laws or regulations may change and
subsequently the need for the Company's products may decrease. Any changes in
the regulatory environment, which affect enforcement procedures or the need
for reporting, could have a material adverse effect on the Company's revenues.
<PAGE>
MAINTAINING THE COMPANY'S DATABASES AND UPGRADING THE COMPANY'S SOFTWARE IS
VERY COSTLY.
The Company has proprietary software and databases that may require
extensive maintenance and updating to remain current and to provide new and
additional layers of information to users of the Company's products and
services. The addition of a new layer of information to the Company's
databases and the maintenance and updating of existing layers of information
may be costly or difficult and delay the Company's ability to achieve and
maintain profitable operations in the future. The Company may be required to
make significant ongoing investments for its products and services to achieve
commercial acceptance in the marketplace and to remain competitive.
THE COMPANY'S INTELLECTUAL PROPERTY MAY BE INADEQUATELY PROTECTED.
The Company's future success depends, in large part, upon the
Company's proprietary technology. Although the Company believes that the
database design and data encoding methodologies may have potential for
software patent protection, to date it does not hold any patents, has made no
patent applications, and currently relies on a combination of contractual
rights, both registered and unregistered trade and service marks and other
copyright laws to establish and protect its proprietary rights. The steps the
Company has taken to protect intellectual property may be inadequate to
prevent misappropriation of its technology. Also, the Company's competitors
may independently develop technologies that re substantially equivalent or
superior to the existing technology. In the event that protective measures
are not successful, the Company's business, operating results and financial
condition could be materially and adversely affected. The Company is also
subject to the risk of adverse claims and litigation alleging infringement of
intellectual property rights of others. Third parties may assert infringement
claims in the future with respect to the Company's current or future products
and any such claims may result in litigation, regardless of the merits of
such claims. Any necessary licenses may not be available and, if available,
such licenses may not be obtained on commercially reasonable terms. Any
litigation with respect to intellectual property claims could be extremely
expensive and time consuming and could have a material adverse effect on the
Company's business, operating results and financial condition, regardless of
the outcome of such litigation.
THE HOLDERS OF THE COMPANY'S PREFERRED STOCK HAVE SUPERIOR RIGHTS AND
PREFERENCES.
The Company has outstanding 102,564 shares of the Company's Series A
Preferred, 380,000 shares of Series A-1 Preferred, 300,000 shares of Series
A-2 Preferred and 2,500 shares of Series F Preferred, all of which provide
the holders of such shares with rights and preferences superior to those of
holders of the Company's common stock. The holders of these series of
preferred stock are, or may be entitled to, dividends and distributions
payable with respect to the number of shares of common stock into which the
preferred stock is convertible, and would be entitled to receive such
dividends or distributions prior to payment of any such dividends or
distributions to the holders of common stock. The holders of preferred stock
are also entitled to preferential payment in the event the the Company is
liquidated. The Company must obtain the consent of the preferred shareholders
as one or separate classes prior to certain events. These superior rights and
preferences could adversely affect the holders of shares of the Company's
common stock.
THE COMPANY MAY NOT BE ABLE TO RETAIN KEY TECHNICAL AND MANAGEMENT PERSONNEL.
The Company's future success is highly dependent on the continued
performance of the Company's key management and technical personnel. There
is a high demand for skilled personnel, specifically in the software
development and information technology professions. The loss of services of
any of the Company's key employees could have an adverse effect. The
<PAGE>
Company does not maintain key-man life insurance policies with respect to the
Company's key management or personnel. Furthermore, changes in existing
technology or customer demand for alternate technologies could create the
need for additional technical personnel. The Company's future success will
also depend in part upon the Company's ability to attract and retain
additional highly qualified management, technical and marketing personnel.
THE LOSS OF SIGNIFICANT CUSTOMERS WILL ADVERSELY IMPACT THE COMPANY'S
OPERATIONS.
The majority of revenue from the GUS product comes indirectly from a
significant contract by ISO with State Farm through the Company's joint
services relationship with ISO. An unexpected termination of this contract
with ISO would adversely impact the Company's operating results and financial
condition. Additionally, a significant portion of revenue from the Company's
MLS Systems line is derived from relatively few large contracts. The
termination or non-renewal of some of these contracts would adversely impact
the Company's operating results and financial condition.
THE COMPANY MAY NOT BE ABLE TO FULLY UTILIZE TAX ADVANTAGES.
As of December 31, 1999, the Company had federal and state net
operating loss carryforwards of approximately $35.5 million and $6.6 million,
respectively. The carryforwards are significantly limited under Internal
Revenue Code Section 382. The Company has recorded a valuation allowance
against its entire net deferred tax asset as it believes it is more likely
than not that its net deferred tax asset will not be realized.
THE SALE OF A LARGE BLOCK OF SHARES OF THE COMPANY'S COMMON STOCK MAY
ADVERSELY AFFECT THE COMPANY'S STOCK PRICE.
Sales of a substantial number of shares of the Company's common
stock in the public market would adversely affect the market price for the
Company's common stock. As of March 27, 2000, the Company had approximately
25 million shares of common stock outstanding. A substantial majority of
these shares are freely tradable. In addition to the shares currently
outstanding, approximately 13 million shares of common stock may be issued
upon exercise of outstanding options and warrants or upon exchange or
conversion of debt and other securities originally issued in private
transactions. Such additional shares, if issued, would generally be eligible
for resale in the public market without restriction or pursuant to the
restrictions of Rule 144. The Company currently has both "piggy-back" and
demand registration rights outstanding with respect to shares of outstanding
common stock as well as shares of common stock issuable upon the exercise of
certain warrants and the subsequent conversion thereof into common stock, and
shares of common stock issuable pursuant to the conversion of the Company's
Preferred Stock, subordinated debt and subordinated convertible debentures.
The registration and public sale of such shares could adversely affect the
market price of the Company's common stock.
THE COMPANY'S STOCK PRICE FLUCTUATES SIGNIFICANTLY.
The market price for the Company's common stock has been, and may
continue to be highly volatile depending on various factors including, among
others, the Company's consolidated operating results, expectations of
analysts and other investment groups, general conditions in the computer and
other electronic equipment industries, announcements of technological
innovations or new products, the Company's competitors or the Company's
customers, and the market for similar securities, which market is subject to
various pressures. In addition, the stock market is subject to price and
volume fluctuations unrelated to the Company's operating performance.
<PAGE>
YEAR 2000 COMPLIANCE.
There were no Year 2000 interruptions to the Company's automated
systems and applications, suppliers or customers. The Company incurred no
significant expenses for its Year 2000 readiness effort and expects to incur
no additional costs.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The Company's Consolidated Financial Statements and Notes thereto, and
the Independent Auditors' Report thereon, are included in this Annual
Report on Form 10-KSB on pages F-1 to F-33.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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
2000 Proxy Statement is incorporated herein by reference.
<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, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Current Position with Company
---- --- -----------------------------
<S> <C> <C>
Thomas R. Gay 54 President, Chief Executive Officer and Director
Neil Johnson 60 Vice President, Chief Financial Officer and Secretary
Jeffrey F. Woodward 51 Vice President, RE/Commercial
Howard L. Latham 43 Vice President, RE/Professional
John W. Mosey 50 Vice President, RE/Consumer
Michael K. Levine 43 Vice President, Research and Development
Scott Clyde 51 Vice President, Internet Marketing
Mark F. Catone 42 Vice President, Business Development
</TABLE>
<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.
NEIL A. JOHNSON has been Vice President, Chief Financial Officer and
Secretary of the Company since July 1999. Prior to joining VISTAinfo, Mr.
Johnson was Vice President and Chief Financial Officer of MoneyStar, a
provider of Web-based investment products. Previously, Mr. Johnson was Senior
Vice President and Chief Financial Officer of MaxServ, a NASDAQ information
services company.
JEFFERY F. WOODWARD has been Vice President of the Company's
RE/Commercial 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.
HOWARD L.LATHAM has been Vice President of the Company's
RE/Commercial division since January 2000. From June 1995 to December 1999,
Mr. Latham served as Vice President of Marketing and General Manager of the
Real Estate Information Systems of DMS. Prior to joining DMS, Mr. Latham
spent 18 years with IBM in a variety of technical, marketing and sales
leadership positions. Most recently he directed the worldwide curriculum
development and U.S. business for networking, enterprise, database education
services.
JOHN W. MOSEY has been Vice President of the Company's RE/Consumer
division since February 2000. From November 1993 to December 1999 Mr. Mosey
was the General Manager of Cyberhomes and a Vice President of DMS. Prior to
November 1993 Mr. Mosey served as General Manager of Moore Data - Canada,
which he joined in May 1975.
MICHAEL K. LEVINE has been Vice President of Research and
Development since February 2000. From February 1997 to December 1999 Mr.
Levine was responsible for product technology architecture, development,
technical support, installation management, and networking for DMS. Prior to
joining DMS, Mr. Levine served as Project Manager at Norwest Technical
Services for seven years.
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.
MARK F. CATONE has been Vice President of Business Development
since January 2000. Prior to his current position, Mr. Catone had served as
Vice President of Product Development and Marketing 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.
<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 2000 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 2000 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 2000 Proxy Statement is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Related Transactions" contained in
the 2000 Proxy Statement is incorporated herein by reference.
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) FINANCIAL STATEMENTS 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>
Independent Auditors' Report................................ F-1
Consolidated Balance Sheet.................................. F-2 to F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Changes in Stockholders' Equity.. F-5
Consolidated Statements of Cash Flows ...................... F-6 to F-7
Notes to Consolidated Financial Statements.................. F-8 to F-33
</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-2 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 stockholder of the
Company as of December 31, 1999, 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, 1999.
(c) EXHIBITS.
The response to this portion of Item 13 is included as a separate
section of this Annual Report on Form 10-KSB.
<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 (the "Company") as of December 31,
1999, and the related consolidated statements of operations, changes in
stockholders' equity, and cash flows for each of the two years in the period
ended December 31, 1999. The financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company as of December 31,
1999 and the results of its operations and its cash flows for each of the two
years in the period then ended, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
San Diego, California
April 13, 2000
F-1
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999
<S> <C>
ASSETS
Current assets:
Cash $ 5,105
Accounts receivable, net 10,230
Inventories 799
Other current assets 5,328
---------------------
Total current assets 21,462
Property, equipment and software, net 10,610
Other acquired assets, net 16,750
Goodwill, net 22,236
Other assets, net 6,594
---------------------
Total assets $ 77,652
=====================
</TABLE>
F-2
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED BALANCE SHEET - CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1999
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of capital lease obligations $ 827
Working capital note 7,404
Accounts payable 6,061
Deferred revenue 4,407
Other current liabilities 6,013
--------------
Total current liabilities 24,712
Deferred revenue, long-term portion 1,370
Capital lease obligations, less current maturities 735
Secured convertible note 16,762
--------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, Series A, A-1 and A-2 convertible, par value $.001; liquidation
value $19,707; 807,564 shares authorized; 782,564 shares issued and outstanding 1
Preferred stock, Series F convertible, par value $.001; liquidation value $2,500;
2,500 shares authorized, issued and outstanding -
Preferred stock, undesignated series, 102,436 shares authorized; none issued -
Common stock, par value $.001; 43,000,000 shares authorized; 25,056,328
shares issued and outstanding 25
Additional paid-in capital 88,974
Accumulated deficit (54,927)
----------------
Total stockholders' equity 34,073
----------------
Total liabilities and stockholders' equity $ 77,652
================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-3
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1999 1998
<S> <C> <C>
Net revenues $ 27,496 $ 25,117
Cost of revenues 7,217 6,087
----------------------------------------
Gross margin 20,279 19,030
Operating expenses:
Selling, general and administrative 21,435 16,160
Research and development 1,014 1,204
Depreciation and amortization 1,790 1,414
Amortization of goodwill and acquired intangible assets 1,775 1,395
Impairment of long-lived assets 7,029 -
Restructuring and other charges - 1,361
-----------------------------------------
Total operating expenses 33,043 21,534
-----------------------------------------
Operating loss (12,764) (2,504)
Interest expense (2,670) (617)
Other expense - (140)
-----------------------------------------
Net loss before minority interest (15,434) (3,261)
Minority interest in loss of subsidiary - 69
-----------------------------------------
Net loss (15,434) (3,192)
Preferred stock dividends declared (363) (600)
Accretion of convertible preferred
stock dividends (595) (500)
------------------------------------------
Net loss attributable to common stockholders $ (16,392) $ (4,292)
==========================================
Basic and diluted loss per common share $ (0.87) $ (0.32)
Weighted average common shares outstanding 18,849,978 13,381,022
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-4
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Preferred Common Additional
Stock Stock Paid-in Accumulated
Amount Amount Capital Deficit Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance January 1, 1998, as restated $ 1 $ 12 $ 38,127 $ (33,930) $ 4,210
Conversion of Series C preferred stock (1) 1 -
Exercise of incentive stock options 502 502
Exercises of warrants 18 18
Issuance of common stock to lessor 95 95
Issuances of common stock, net 1 4,984 4,985
Dividends declared and paid on Series E and F
preferred stock (600) (600)
Shares issued to effect acquisitions 1 6,363 6,364
Accretion of beneficial conversion feature on
preferred stock 500 (500) -
Distributions to partners (219) (219)
Net loss (3,192) (3,192)
----------------------------------------------------------------------
Balance December 31, 1998 $ - $ 15 $ 50,589 $ (38,441) $ 12,163
Conversion of Series B, C, D & E preferred stock 5 (4) 1
Exercise of incentive stock options 741 741
Issuances of common stock 4 10,561 10,565
Issuance of Series A preferred stock, net 1 20,647 20,648
Issuance of warrant to purchase preferred stock 595 (595) -
Issuance of warrants to purchase common stock 1,039 1,039
Dividends declared and paid on Series E and F
preferred stock (363) (363)
Shares issued to effect acquisitions 1 4,805 4,806
Distributions to partners (94) (94)
Cumulative translation adjustment 1 1
Net loss (15,434) (15,434)
----------------------------------------------------------------------
Balance December 31, 1999 $ 1 $ 25 $ 88,974 $ (54,927) $ 34,073
======================================================================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-5
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities
Net loss $ (15,434) $ (3,192)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depreciation 1,816 1,415
Amortization of goodwill and acquired intangible assets 1,775 1,395
Impairment of long-lived assets 7,029 -
Loss on disposal of equipment and software 14 55
Amortization of discount on debt 1,653 -
Minority interest in loss of subsidiary - (69)
Changes in assets and liabilities, net of effects of
business acquisitions:
Trade accounts receivable 2,626 (599)
Inventories 65
Prepaid expenses 134 (252)
Accounts payable 1,213 684
Deferred revenues (1,578) 80
Other current liabilities 1,120 842
--------------------------------------
Net cash provided by operating activities 433 359
Cash Flows from Investing Activities
Decrease in note receivable 2,500 -
Decrease in lease receivables 102 -
Purchases of equipment, furniture and software (2,287) (1,515)
Net change in deposits and other assets (658) 83
Increase in intangible assets (96) (236)
Cash paid for business acquisitions, net of cash received (20,836) (1,070)
-------------------------------------
Net cash used in investing activities (21,275) (2,738)
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-6
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1999 1998
<S> <C> <C>
Cash Flows from Financing Activities
Proceeds from long-term obligations 5,491 1,825
Repayment of obligation to bank (1,133) 1,133
Principal payments on long-term obligations (9,819) (2,885)
Proceeds from exercise of stock options 741 -
Proceeds from issuance of preferred stock, net 20,648 -
Proceeds from issuance of common stock 10,000 3,006
Distributions to partners (94) (220)
Dividends on Series E and Series F Preferred Stock (363) (600)
---------------------------------------------
Net cash provided by financing activities 25,471 2,259
---------------------------------------------
Net increase (decrease) in cash 4,629 (120)
Cash, beginning of year 476 596
---------------------------------------------
Cash, end of year $ 5,105 $ 476
=============================================
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 1,553 $ 631
Supplemental Schedule of Non-Cash Investing
and Financing Activities
Note receivable for issuance of common stock - 2,500
Common stock issued to lessors - 95
Capital lease obligations incurred for use of equipment 1,076 883
Issuance of common stock for employee benefit plan 565 -
Conversion of Series B, C and D preferred stock 5 -
Value recognized for issuances of warrants 1,039 -
Issuance of common stock to effect business
acquisitions 4,806 6,364
Accretion of convertible preferred stock dividends 595 -
Accretion of beneficial conversion feature on
preferred stock - 500
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-7
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
VISTA Information Solutions, Inc. ("VISTA" or the "Company") provides
information for making real-estate decisions to professionals and consumers
throughout the United States and Canada. The Company is organized into three
operating units: RE/Commercial, RE/Professional and RE/Consumer.
RE/Commercial provides environmental risk information to banks, engineers and
consultants, flood information to banks and insurance risk information to
property and casualty insurance underwriters. RE/Professional provides
software solutions, disclosure information and data management services to
the real estate industry and home sellers. RE/Consumer provides property
listing, risk and other information to potential homebuyers through its
network of internet sites.
MANAGEMENT'S PLANS AND CORPORATE LIQUIDITY
For the year ended December 31, 1999, the Company had a loss from operations
of $12,764, which includes $10,620 of depreciation and amortization
(including an impairment charge of $7,029 on goodwill and acquired technology
as discussed in Note 2) as compared to a loss from operations of $2,504 for
the year ended December 31, 1998 (as restated for the effects of the mergers
discussed below). At December 31, 1999, the Company had an accumulated
deficit of $54,927 and negative working capital of $3,250.
In 1999, the Company generated cash flows from operations of $433 as compared
to $359 for 1998. In addition, the Company's revenues increased in 1999 over
1998. These increased revenues as well as the sale of $10,000 of the
Company's common stock and $20,648 of preferred stock during 1999, were
significant factors in the Company's ability to meet its debt obligations in
1999.
The Company has a Working Capital Note payable due on April 26, 2000, as
amended. The Company has received a letter of commitment from a replacement
lender and management anticipates the funding from a new credit facility and
the repayment of the Working Capital Note to take place before the amended
due date. However, no assurances can be provided that the aforementioned
credit facility will be in place by the amended due date and that the
existing debtholder will not exercise default rights.
Management of the Company believes that cash flows from operations,
continued monitoring of costs and expenses and the Company's anticipated new
credit facility will be sufficient to support its operations and that no
additional debt or equity funds will be required. However, there can be no
assurance that the Company will not find it necessary to obtain additional
financing for capital expenditures or acquisitions or will be able to achieve
profitable operations or maintain positive cash flows.
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:
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and
all majority-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
MERGER WITH GEOSURE, L.P.
On January 14, 1999, the Company exchanged 2,590,000 shares of the Company's
Common Stock, par value $0.001 per share, for all of the outstanding
partnership interests of GeoSure, L.P. (GeoSure) in a merger accounted for as
a pooling-of-interests. GeoSure 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. GeoSure also owns all of
the shares of National Research Center, LLC (NRC), a provider of flood
determination information, and a majority interest in National Research
Center Insurance Services, Inc. (NIS), a provider of flood insurance
services. As discussed below, the Company recorded an impairment charge of
acquired technology and goodwill in 1999 of which $1,257 related to NRC.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-8
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MERGER WITH ECOSEARCH ENVIRONMENTAL RESOURCES, INC.
On March 1, 1999, the Company exchanged 396,351 shares of the Company's
common stock, par value $0.001 per share, for all of the outstanding common
stock of EcoSearch Environmental Resources, Inc. (EcoSearch). EcoSearch is
a national provider of environmental information services.
The transactions with GeoSure and EcoSearch have each been accounted for as
pooling-of-interests and, accordingly, the consolidated financial statements
for the periods presented have been restated to include the results of
operations and cash flows of GeoSure and EcoSearch.
Net revenues, operating income or loss and net income or loss of the separate
companies for the period preceding the mergers were as follows:
<TABLE>
<CAPTION>
Net Operating income Net income or
Revenues or loss loss
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended December 31, 1998:
VISTA, as previously reported $ 15,068 $ (2,321) $ (2,551)
GeoSure 8,600 (446) (904)
EcoSearch 1,449 263 263
- ----------------------------------------------------------------------------------------------------------------
Combined $ 25,117 $ (2,504) $ (3,192)
======================================================================
</TABLE>
There were no material adjustments required to conform the accounting
policies of the three companies. Certain amounts of GeoSure and EcoSearch
have been reclassified to conform to the reporting practices of VISTA.
Prior to the mergers, GeoSure and its wholly owned subsidiary NRC, and
EcoSearch were not tax-paying entities for income tax purposes. Income from
GeoSure's, NRC's and EcoSearch's operations were included in the
determination of taxable income of the respective partners or members. The
pro forma income tax provision for Geosure, NRC and EcoSearch that would have
been reported by the Company as an additional provision to its historical tax
expense, had GeoSure, NRC and EcoSearch been tax-paying entities was not
material to the consolidated financial statements for 1999 or 1998.
In connection with the mergers discussed above, the Company incurred
integration charges of $1,309. These costs included severance payments made
to employees, prepayment penalties to lenders, travel, legal and accounting
costs. As of December 31, 1999, all of these costs had been paid.
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.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-9
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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 and Canada. Accounts at each bank in the United
States are insured by the Federal Deposit Insurance Corporation (FDIC) up to
$100 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.
INVENTORIES
Inventories are stated at the lower of cost or market, with cost generally
determined on a first-in first-out basis.
PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software are stated at cost. Depreciation is computed
using accelerated and straight-line methods over the estimated useful lives
of the respective assets, or over the term of the lease, whichever is
shorter; ten to forty years for buildings, 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. All costs for routine repairs and maintenance are expensed as
incurred.
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
capitalized a cumulative total $2,157 of internal costs during 1999 and 1998,
which generally consist of direct payroll and other related direct costs, in
connection with the acquisition and development of computer software to be
used by the Company solely for internal purposes.
SOFTWARE DEVELOPMENT COSTS
Costs incurred internally in creating computer software to be leased or sold
are charged to expense when incurred as research and development until
technological feasibility has been established. Technological feasibility is
established upon completion of a detail program design or, in its absence,
completion of a working model. Thereafter, all software production costs are
capitalized and subsequently reported at the lower of unamortized cost or net
realizable value. Capitalized costs are amortized based on current and future
revenue for each product with an annual minimum equal to the straight-line
amortization over the remaining estimated economic life of the product.
Estimated economic life is generally three years.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-10
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
GOODWILL AND OTHER ACQUIRED ASSETS
Acquired technology, environmental databases and goodwill represents the
excess of the purchase price over net assets acquired from acquisitions in
1999, and in prior years and is being amortized over their estimated useful
lives of three to fifteen years (see Note 2).
The Company reviews its intangibles and other long-lived assets when
warranted 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 record an
impairment loss. The 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.
During 1999, due to changes in business conditions, management determined
that there was an impairment of acquired technology and goodwill related to
certain of the Company's acquisitions. The Company engaged an outside
valuation firm to determine the fair value of the acquired technology and
goodwill and, accordingly, an impairment charge of $7,029 was charged to
operations. (See Note 2.)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of cash and accounts receivable approximates their fair
value due to the short-term nature of these assets. The methods and
assumptions used to estimate the fair values 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 capital lease and
long term obligations approximated their fair value at December 31, 1999. See
Notes 2 and 7 for information on discounts recorded against two notes payable
in connection with the DMS acquisition during 1999.
REVENUE RECOGNITION AND DEFERRED REVENUE
The Company recognizes revenue from environmental reports in the month in
which the product is shipped or in which information is transmitted to the
customer. The Company provides various leasing arrangements for
approximately half of its Multiple Listing Service (MLS) customers. Revenue
on leased hardware of MLS system sales is recognized at delivery in
accordance with Statement of Financial Accounting Standards No. 13,
"ACCOUNTING FOR LEASES" (SFAS No. 13). The leases are classified as
sales-type leases in accordance with SFAS No. 13. The Company also provides
various financing arrangements for the sale of MLS systems.
Software and purchased hardware is recognized ratably over the term of the
agreement beginning at cutover, which is generally when no significant
obligations remain and when collection is probable in accordance with
Statement of Position No. 97-2 "SOFTWARE REVENUE RECOGNITION" (SOP 97-2). SOP
97-2 provides guidance on software revenue recognition and applies to all
entities that earn revenue from licensing, selling and otherwise marketing
computer software. In 1999, SOP 97-2 was modified by SOP 98-9, "MODIFICATION
OF SOP 97-2, SOFTWARE REVENUE RECOGNITION WITH RESPECT TO CERTAIN
TRANSACTIONS" (SOP 98-9). The adoption of 98-9 had no material impact on the
Company. Net sales are recognized following establishment of persuasive
evidence of an arrangement, provided that the license fee is fixed and
determinable, delivery of product has occurred via physical shipment or
electronically, a determination has been made by management that collection
is probable and the Company has no remaining obligations. The Company
recognizes maintenance revenue from the sale of post-contract support
services ratably over the life of the contract. Revenue from Post Contract
Customer Support (PCS) is recognized ratably over the term of the PCS
arrangement. Other services, such as facilities management and public records
services, are recognized ratably over the term of the agreement.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-11
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CAPITALIZED CONTRACT COSTS AND DEFERRED REVENUE
Capitalized contract costs consist of hardware, software and labor costs that
have been incurred prior to contract cutover for MLS systems. Upon cutover,
these costs are recognized ratably over the contract term.
Deferred revenue consists of cash received for MLS systems prior to the
recognition of revenue, as well as cash received in advance for services to
be performed, including program license fees. Deferred revenue is shown net
of the related capitalized contract costs on a by-contract basis.
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 11. All non-employee stock-based
compensation is recorded at the fair value of the services received or the
equity instrument issued, whichever is more reliably measurable. During 1999,
there were no options issued to non-employees.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-12
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER COMMON SHARE
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 1999 and 1998. For 1999 and 1998, the
number of additional shares that would have been added to the weighted
average shares outstanding for diluted loss per share was approximately
16,379,000 and 5,695,000, respectively.
RESTRUCTURING AND OTHER CHARGES
During 1998, the Company recorded pretax restructuring and other charges of
approximately $1,361 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 charges:
<TABLE>
<CAPTION>
Workforce Business Terminated Canceled
Reductions Consolidations Alliance Acquisitions Total
<S> <C> <C> <C> <C> <C>
Labor costs $109 $523 $ 632
Legal fees $300 $55 355
Consulting costs 74 112 186
Equipment disposals 25 27 52
Office rent 7 49 56
Other 50 30 80
-----------------------------------------------------------------------------
Total $190 $647 $357 $167 $ 1,361
=============================================================================
</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 incurred $110 of legal and accounting fees in 1998
and had expected to incur $190 as a result of this dispute and, accordingly,
recorded these costs in 1998. During 1999 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. As of
December 31, 1999, there was no remaining accrual for these restructuring
charges.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-13
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" was issued and
was later amended by Statement of Financial Accounting Standards No. 137.
This statement will be effective for the Company on January 1, 2001. The
Company is evaluating its position and has not yet determined the effect
these statements will have on its consolidated financial statements.
RECLASSIFICATIONS
Certain reclassifications have been made to the consolidated financial
statements for the year ended December 31, 1998 in order to conform to the
presentation used for the year ended December 31, 1999. These
reclassifications had no effect on net loss or stockholders' equity as
previously reported.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-14
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2. ACQUISITIONS
See Note 1 for information relating to two mergers completed in January 1999
and March 1999 which were accounted for as pooling-of-interests.
In addition, the Company has completed the business combinations discussed
below, all of which were accounted for using 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.
DATA MANAGEMENT DIVISION OF MOORE CORPORATION LIMITED
On December 17, 1999, the Company acquired certain of the assets and rights
of the Data Management Services Division (DMS) of Moore Corporation Ltd. and
its subsidiary, Moore North America, Inc. (collectively "Moore") pursuant to
the terms of an Agreement for Purchase and Sale of Assets (the "Agreement").
DMS provides technological solutions to the real estate industry including
MLS Boards, brokers, agents, individual consumers and market suppliers.
In addition to the assumption of certain liabilities, the Company paid to
Moore an aggregate of (i) 950,000 shares of the Company's common stock, par
value $0.001 per share, (ii) a note payable in the principal amount of $18.7
million (the "Secured Convertible Note"), (iii) $20 million in cash and (iv)
a secured short-term working capital note payable (discussed below). Moore
retained rights to certain trade accounts receivables and lease receivables
from U.S. obligors of the DMS business (the "Retained Receivables").
The Company and Moore entered into a Working Capital Note (the "Working
Capital Note"), pursuant to which Moore agreed to loan the Company the
proceeds from the collection of the Retained Receivables, up to a maximum of
$7.5 million. The Working Capital Note bears interest at the prime rate plus
1% (9.5% at December 31, 1999) with interest payable monthly in arrears
beginning February 1, 2000. The Company has agreed to use its best efforts to
obtain new working capital financing to replace the Working Capital Note and,
in any event, all amounts outstanding on this Working Capital Note will be
due on April 26, 2000, as amended. If all of the Retained Receivables have
been fully collected by Moore by April 26, 2000, the Company will pay Moore
any deficiency if the collections, less costs of collection, are less than
$7.5 million and Moore will pay the Company any excess if collections, less
costs of collection, are more than $7.5 million. Due to the repurchase
obligation by the Company of any remaining Retained Receivables on April 26,
2000, the Company recorded the aggregate value of the Retained Receivables of
$7.5 million and the corresponding Working Capital Note of $7.5 million as of
the acquisition date. As of March 31, 2000, $4,624 of receivables had been
collected against the Working Capital Note.
As of April 13, 2000, the Company has received a letter of commitment from a
replacement lender and management anticipates the funding from a new credit
facility and the repayment of the Working Capital Note to take place before
the amended due date.
Total assets acquired from DMS amounted to $24,359 with liabilities assumed
of $13,830. The Company engaged an outside valuation firm to determine the
fair value of the consideration for the DMS transaction including the fair
value of the Company's common stock issued and the fair values of the secured
convertible note and the working capital note. The independent valuation
determined the fair value of the 950,000 shares of the Company's common stock
to be $3,335 or approximately $3.51 per share, which represented a 10%
discount from the closing market price of the Company's common stock on the
acquisition date. In addition, the fair values of the secured convertible
note and the working capital note were determined to be $16,721 and $7,390,
respectively. The discount on the secured convertible note was determined
based on the Company's fair market rate of interest. For the working capital
note, the discount was determined based on the projected amount of
collections of retained receivables and interest expense. The total
consideration of $48,290, including acquisition costs of $847, exceeded the
fair value of assets acquired less liabilities assumed by $37,761, and this
amount was allocated as follows:
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-15
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2. ACQUISITIONS (CONTINUED)
<TABLE>
<CAPTION>
VALUE ASSIGNED LIFE IN MONTHS
--------------------------------------
<S> <C> <C>
Acquired software $ 3,614 36
Database 1,465 36
Customer contracts 9,045 72
Assembled work force 1,577 72
Goodwill 22,060 180
------------------
Total $ 37,761
==================
</TABLE>
The following unaudited table presents the pro forma results of operations
for the years ended December 31, 1999 and 1998, assuming the acquisition of
DMS had occurred on January 1, 1998. These results include certain
adjustments, primarily for amortization and interest and are not necessarily
indicative of what the results would have been had the transaction actually
occurred on January 1, 1998.
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Revenues $88,384 $94,397
Net loss attributable to common stockholders (18,846) (12,972)
Basic and diluted loss per common share (0.95) (0.91)
- -------------------------------------------------------------------------------------------------
</TABLE>
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 based on the approximate fair market
value of the common stock at the date of acquisition. At December 31, 1999,
there was no remaining unamortized acquired technology related to the EIS
acquisition. As discussed in Note 1, the Company recorded an impairment
charge related to goodwill and acquired technology in 1999, of which $227
related to EIS.
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, Inc. (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 in cash and the remaining shareholders
collectively received 842,858 shares of common stock. Total assets acquired
amounted to approximately $716 with liabilities assumed of approximately
$537. The Company engaged an outside valuation firm to determine the
fair value of the unregistered securities issued which was determined to be
approximately $5,400 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 or
approximately $6.41 per share, as discussed above, and recorded the amount as
acquired technology at the date of purchase.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-16
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 2. ACQUISITIONS (CONTINUED)
In January 1999, the Company purchased the remaining 20% of the E/Risk
outstanding stock and issued 255,000 shares of the Company's common stock to
the sellers valued at approximately $1,469 based on the fair value of the
common stock on the effective date of the purchase. At December 31, 1999,
there was $984 of unamortized acquired technology related to E/Risk which is
being amortized over five years. As discussed in Note 1, the Company recorded
an impairment charge related to goodwill and acquired technology in 1999, of
which $5,545 related to E/Risk.
ENSITE CORPORATION OF DENVER
In April 1998, the Company acquired in a merger 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 $142 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 based on the approximate fair market
value of the common stock at the date of acquisition. At December 31, 1999,
there was $234 of remaining unamortized goodwill related to Entrac which is
being amortized over five years.
In 1998 the aggregate value of assets acquired in the aforementioned
acquisitions was $8,493, and liabilities assumed, including $467 in debt,
totaled $589. Total assets acquired during 1998 included intangible assets of
$7,517.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-17
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 3. SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1999
-------------------------
<S> <C>
Accounts receivable:
Accounts receivable $ 12,733
Less allowances (2,503)
--------------------------
$ 10,230
==========================
Inventories:
Finished goods $ 285
Work in process 197
Raw materials and supplies 317
---------------------------
$ 799
===========================
Other current assets:
Capitalized contract costs $ 2,211
Current portion of lease receivables 1,430
Current portion of notes receivable 155
Prepaid maintenance contracts 551
Other 981
----------------------------
$ 5,328
============================
Property, equipment and software: $
Land 624
Buildings and leasehold improvements 3,050
Equipment and furniture 23,329
Software 2,568
-----------------------------
29,571
Less accumulated depreciation and amortization (18,961)
-----------------------------
$ 10,610
=============================
Other acquired assets:
Acquired software $ 3,614
Acquired database 1,465
Customer contracts 9,045
Assembled work force 1,577
Acquired technology and environmental databases 3,279
------------------------------
18,980
Less accumulated amortization (2,230)
------------------------------
$ 16,750
==============================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-18
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 3. SUPPLEMENTAL BALANCE SHEET INFORMATION (CONTINUED)
<TABLE>
<CAPTION>
1999
---------------------------
<S> <C>
Goodwill:
Goodwill 22,907
Less accumulated amortization (671)
---------------------------
$ 22,236
===========================
Other assets:
Capitalized contract costs, less current portion 2,802
Lease receivables, less current portion 1,417
Deposit on technology license agreement (Note 14) 728
Other 482
----------------------------
5,429
Software development costs 1,545
Less accumulated amortization (380)
----------------------------
$ 6,594
============================
Other current liabilities:
Accrued compensation and employee benefits 2,086
Site provisions 1,651
Accrued building expenses 576
Accrued stock offering costs 303
Deferred rent 116
Accrued dividends on preferred stock 25
Other 1,256
----------------------------
$ 6,013
============================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-19
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 4. LEASE RECEIVABLES
Future lease receivables for each of the next five years are as follows:
<TABLE>
<CAPTION>
1999
-------------------------
<S> <C>
2000 $ 1,668
2001 1,059
2002 393
2003 47
2004 26
-------------------------
3,193
Less: Amounts representing interest (346)
--------------------------
Present value of net lease receivable $ 2,847
==========================
Current $ 1,430
Long-term 1,417
--------------------------
Total $ 2,847
==========================
</TABLE>
NOTE 5. DEFERRED REVENUE
Deferred revenue consists of the following:
<TABLE>
<S> <C>
Deferred revenue $ 7,440
Capitalized contract costs (4,347)
-------------------------
3,093
Cash advances 2,684
-------------------------
Net deferred revenue $ 5,777
=========================
Current $ 4,407
Long-term 1,370
-------------------------
Total $ 5,777
=========================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-20
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 6. 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 were
collateralized by substantially all of the Company's assets and the
arrangement allows the Company to borrow up to $2,000 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
were additional administrative fees of .50% per month based on purchased
receivables. During 1999, all outstanding balances under the accounts
receivable purchase agreement were repaid in full with the proceeds from the
term loan and revolving credit facility discussed in Note 7.
NOTE 7. LONG-TERM OBLIGATIONS
SECURED CONVERTIBLE NOTE
As discussed in Note 2, in December 1999, the Company entered into a Secured
Convertible Note with Moore. The Secured Convertible Note bears interest at
the annual rate of 6.8%, with interest payable quarterly beginning March 1,
2000. The Company is required to make mandatory principal payments on the
Secured Convertible Note in the event of any excess cash flow, as defined in
the Secured Convertible Note, and, subject to limited exceptions, upon the
issuance of equity or debt securities. The Secured Convertible Note contains
covenants which require that the Company, among other things, maintain
certain ratios and financial requirements on a quarterly basis, comply with
certain reporting requirements, and to obtain approval on events such as
incurring senior debt, paying cash dividends, or repurchasing stock. In
addition, the Secured Convertible Note contains a default provision that if
all or any part of the principal or interest on the Secured Convertible Note
or the Working Capital Note, as discussed below, is not paid when it becomes
due, then the Secured Convertible Note becomes due and payable.
All unpaid principal and interest on the Secured Convertible Note is due on
December 17, 2001, subject to extension by Moore for one additional year. Up
to $17.1 million of principal of the Secured Convertible Note may be
converted to the Company's common stock at the rate of $5.44 per share, which
exceeded the market price of the Company's common stock on the date of
issuance, subject to adjustment in the event of future securities issuances.
In connection with the recording of the acquisition of Moore, an independent
valuation firm determined that the fair value of the Secured Convertible Note
was $16,721 at the date of the acquisition. The Company therefore recorded
the Secured Convertible Note, net of a discount of $1,979 (see Note 2). The
discount is being amortized into interest expense using the straight-line
method, which approximates the effective interest method, over the initial
two-year term of the loan. As of December 31, 1999, the unamortized discount
was $1,938.
WORKING CAPITAL NOTE
The Company also entered into a Working Capital Term Note with Moore (the
"Working Capital Note"), pursuant to which Moore agreed to loan the Company
the proceeds from the collection of DMS lease and accounts receivable
retained by Moore, up to a maximum of $7.5 million. The Working Capital Note
bears interest at the Prime Rate plus 1% (9.5% at December 31, 1999) with
interest payable monthly in arrears beginning February 1, 2000. The Company
has agreed to use its best efforts to obtain new working capital financing to
replace the Working Capital Note and, in any event, all amounts outstanding
on this Working Capital Note will be due on April 26, 2000, as amended.
Payment of the Working Capital Note and the Secured Convertible Note is
secured by liens on all of the assets of the Company and its subsidiaries. As
of April 13, 2000, the Company had received a letter of commitment from a
replacement lender and management anticipates the funding from the new credit
facility and the repayment of the Working Capital Note to take place before
the amended due date.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-21
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7. LONG-TERM OBLIGATIONS (CONTINUED)
In connection with the recording of the acquisition of Moore, an independent
valuation firm determined that the fair value of the Working Capital Note was
$7,390 at the date of the acquisition. The Company therefore recorded the
Working Capital Note, net of a discount of $110 (see Note 2). The discount is
being amortized using the straight-line method, which approximates the
effective interest method, over the four-month term of the loan. As of
December 31, 1999, the unamortized discount was $96.
AGREEMENTS WITH IBJ WHITEHALL BANK & TRUST COMPANY
In June 1999, the Company entered into an agreement with IBJ Whitehall Bank &
Trust Company (IBJW) for a term loan, a revolving credit facility and an
acquisition facility. The term loan, in the amount of $3,500, was to be
payable in full on December 31, 2004, with quarterly principal installments
beginning September 30, 2000. Proceeds from the term loan were used to retire
an existing loan obligation of GeoSure to State Street Bank and to repay a
portion of the principal and accrued interest under the Silicon Valley Bank
credit facility. The revolving credit facility, not to exceed $3,500, was to
be payable in full on December 31, 2004, with quarterly principal
installments beginning September 30, 2000. Proceeds from the revolving credit
facility were used to repay the remainder of the principal and accrued
interest under the Silicon Valley Bank credit facility and to provide working
capital. The acquisition facility, not to exceed $3,000, was to mature on
June 30, 2005, and was intended to provide purchase capital for permitted
acquisitions. Interest charges on these facilities were 3.25% above the
Eurodollar loan rate and are subject to adjustments based on the financial
condition of the Company. Warrants for the purchase of the Company's common
stock were issued to IBJW in connection with this credit facility and the
fair value of the warrant was recorded as a note discount. The fair value of
the warrant was estimated on the date of grant by an outside valuation firm
using the Black-Scholes option-pricing model with the following assumptions:
no dividend yield; expected volatility of 38%; risk free rate of 5.75%; and
expected life of three years. The fair value was discounted by 10% due to the
lack of marketability of the Company's common stock. In December 1999, the
Company used funds from a private equity funding to retire all outstanding
borrowings under these debt facilities. The credit facility is no longer
available for use, and accordingly, the unamortized portion of the note
discount was expensed in 1999.
LINE OF CREDIT
Prior to the accounts receivable purchase agreement discussed in Note 6, 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 based on eligible receivables. In November
1998, the Company failed to comply with certain financial covenants. The line
of credit was repaid from the proceeds of the accounts receivable purchase
agreement and the line of credit agreement expired in 1999.
GEOSURE BORROWINGS
On May 12, 1997, GeoSure entered into an Agreement with a bank under which
the bank would provide a term loan (the "Loan") in the amount of $3,000 and a
revolving credit facility (the "Revolver") in the amount of $500.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-22
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 7. LONG-TERM OBLIGATIONS (CONTINUED)
The Loan provided for quarterly payments with the remaining outstanding
principal plus accrued interest due on June 20, 2002. On March 11, 1998, an
amendment was executed whereby payment of the second and third installments
due December 31, 1997 and March 31, 1998 were deferred and combined with the
installments due December 31, 1999 and December 31, 2000. On July 7, 1998,
GeoSure and the bank executed the Second Amendment to the Loan, whereby the
fourth installment due June 30, 1998 was deferred and combined with the
installment payment at June 30, 2002. The Revolver was due on December 31,
1998.
The Loan and the Revolver were repaid in full in June 1999 with the proceeds
from the IBJW loan facilities discussed above.
NOTE 8. 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 was approximately $4,100 and $4,500 for the
years ended December 31, 1999 and 1998, respectively.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-23
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 8. INSURANCE SERVICES OFFICE, INC. (ISO) AGREEMENT (CONTINUED)
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 certain GUS transactions. In
August 1999, a decision was rendered in the matter awarding $110 to the
Company and dismissing all other claims. As a result, the Company recorded a
charge to operations of $830 for the uncollected receivable from ISO.
NOTE 9. 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 $190. 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 1999
- ----------------------------------------------------------------------------
<S> <C>
Equipment and furniture $ 3,865
Less accumulated amortization (2,251)
-------------------
Net leased assets $ 1,614
===================
</TABLE>
Future annual minimum lease payments due under capital leases and noncancelable
operating leases consist of the following at December 31, 1999:
<TABLE>
<CAPTION>
Capital Operating
Years Ending December 31, Leases Leases
- --------------------------------------------------------------------------------------------
<S> <C> <C>
2000 $ 957 $ 2,276
2001 620 2,076
2002 170 1,441
2003 2 1,487
2004 - 189
Thereafter - 224
-----------------------------------
Total minimum lease payments 1,749 $ 7,693
Less amounts representing interest (8.0% to 15.0%) (187) ================
--------------
Present value of net minimum lease payments 1,562
Less current maturities (827)
--------------
Long-term obligations $ 735
==============
</TABLE>
Total rent expense under operating leases for the years ended December 31, 1999
and 1998 totaled approximately $1,250 and $979, respectively.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-24
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 10. STOCKHOLDERS' EQUITY
COMMON STOCK
In December 1999, the Company sold 4 million shares of its common stock to a
group of investors at an aggregate price of $10 million.
In December 1998, the Company sold 837,521 shares of its common stock to an
institutional investor through a private placement for a total of $4,993, net
of offering costs. The Company received cash of $2,493, of which $1,400 was
used to repay a note payable to a bank (see Note 7), and a note receivable for
$2,500. The note receivable was collected in January 1999, with a portion of
the funds used to repay the accounts receivable purchase agreement (see Note 6).
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 million. The following descriptions are of those designations
existing as of December 31, 1999.
SERIES A, A-1 and A-2 PREFERRED STOCK
In September 1999, the Company sold 102,564 shares of Series A Convertible
Preferred Stock to Century Capital Partners, LP (Century) at an aggregate
price of $5 million, less offering costs. These shares are convertible into
two million shares of the Company's common stock at a price which
approximated the market value of the Company's common stock on the date of
issuance.
In December 1999, the Company sold 380,000 shares of Series A-1 Convertible
Preferred Stock to several investors, including Century at an aggregate price
of $9.5 million, less offering costs. These shares are convertible into 3.8
million shares of the Company's common stock at a price which approximated
the market value of the Company's common stock on the date of issuance.
In December 1999, the Company sold 300,000 shares of non-voting Series A-2
Preferred Stock to Century at an aggregate price of $7.5 million, less
offering costs. At issuance, the Series A-2 Preferred Stock was subject to
redemption rights after September 30, 2002, if the Series A-2 Preferred Stock
had not been provided conversion and voting rights. The redemption rights
were subsequently eliminated by a sufficient number of votes of the Company's
common and preferred stockholders to provide the Series A Preferred Stcok
with conversion and voting rights.
In connection with the issuance of the Series A-2 Preferred Stock, the
Company issued a warrant to Century to purchase 25,000 shares of Series A-2
Preferred Stock which was valued at the estimated fair value of $595. The
fair value of the warrant was estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions: no
dividend yield; expected volatility of 103%; risk-free rate of 5.44%; and
expected life of three years. The fair value was discounted by 10% due to the
lack of marketability of the Company's common stock. The entire value of the
warrant was recorded as an accretion of convertible preferred stock dividends
during 1999.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-25
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 10. STOCKHOLDERS' EQUITY (CONTINUED)
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 $2.5
million. 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, 1999,
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 the
right to vote on an as-if converted basis with the holders of common stock in
the election of directors of the Company as well as other rights and
preferences set forth in the Series F preferred stock agreement.
CONVERSION OF SERIES B, C, D AND E PREFERRED STOCK
During 1999, the following shares of Series B, C, D and E preferred stock were
converted into shares of the Company's common stock as follows:
<TABLE>
<CAPTION>
Number of Number of Common
Preferred Shares Shares Issued Upon
Converted Conversion
---------------- ------------------
<S> <C> <C>
Series B preferred 200,000 937,767
Series C preferred 370,607 1,962,922
Series D preferred 187,124 1,112,635
Series E preferred 2,500 625,000
----------
4,638,324
=========
</TABLE>
DIVIDENDS DECLARED
The Board of Directors of the Company approves 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
1999 and 1998, $363 and $600, respectively, of dividends were declared of
which $25 are payable at December 31, 1999.
BENEFICIAL CONVERSION FEATURE
The 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 the date the preferred stock was first
convertible. The aggregate value of this conversion feature for Series E and
F preferred stock was $1,061, all of which had been accreted as of December
31, 1998.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-26
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 11. STOCK OPTIONS AND INCENTIVE PLANS
At December 31, 1999, the Company has stock-based incentive plans which are
described below. In addition, the Company has, from time to time, granted
options and warrants outside of the plans to officers, directors 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 1999 and 1998 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>
1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net loss attributable to common stockholders:
As reported $ (16,392) $ (4,292)
Proforma (17,936) (4,808)
Basic and diluted loss per common share:
As reported $ (0.87) $ (0.41)
Proforma (0.96) (0.46)
</TABLE>
The proforma effects of applying SFAS 123 are not indicative of future
amounts since, among other reasons, the proforma requirements have been
applied only to options granted after December 31, 1994.
The Company had 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. In 1999, the Company adopted and the shareholders approved the 1999
Stock Option Plan (the 1999 Plan). With the approval of the 1999 Plan, the
1995 Plan was terminated and, accordingly, there were no further grants under
the 1995 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 1999 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 and warrant 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 1999 and 1998: no dividend
yield for 1999 or 1998; expected volatility of 57 to 105% and 33 to 120%;
risk-free rate of 5.8% and 5.83 to 6.0%; and expected lives of two to five
years for both 1999 and 1998.
The 1999 Plan provides for an annual automatic grant of 5,000 non-qualified
options to non-employee members of the Board of Directors.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-27
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 11. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
A summary of the stock option activity under all of the aforementioned plans is
as follows:
<TABLE>
<CAPTION>
1999 1998
-------------------------------------------------------------------------
WEIGHTED Weighted
AVERAGE Average
EXERCISE Exercise
Fixed Options OPTIONS PRICE Options Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 1,562,041 $ 4.36 1,469,715 $ 3.05
Granted 1,127,800 5.24 361,000 7.62
Exercised (169,463) 3.54 (263,674) 1.35
Expired/surrendered (22,500) 11.28 (5,000) 8.50
-------------------------------------------------------------------------
Outstanding at end of year 2,497,878 $ 4.75 1,562,041 $ 4.37
=========================================================================
Exercisable at end of year 1,085,160 $ 3.80 881,622 $ 3.05
=========================================================================
Weighted-average fair value per
option of options granted
during the year $ 3.24 $ 7.01
=========================================================================
</TABLE>
At December 31, 1999, the options available for grant under the 1999 Plan
were approximately 2,140,700.
A further summary about fixed options outstanding under these plans at
December 31, 1999 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 2.00 481,871 5.17 $ 0.81 464,869 $ 0.78
2.01 to 4.00 894,600 9.13 3.83 147,267 2.99
4.01 to 6.00 272,548 7.94 5.51 139,415 5.78
6.01 to 8.00 564,934 8.37 7.04 226,934 6.82
8.01 to 10.00 278,925 8.31 9.00 101,675 8.90
10.01 to 12.00 5,000 4.00 11.38 5,000 11.38
---------------------------------------------------------------------------------
2,497,878 7.96 $ 4.75 1,085,160 $ 3.80
=================================================================================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-28
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 11. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
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 7 and 10 but excluding
the effect of any conversion rights):
<TABLE>
<CAPTION>
1999 1998
-----------------------------------------------------------------------
WEIGHTED Weighted
AVERAGE Average
EXERCISE Exercise
SHARES PRICE Shares Price
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year 560,389 $ 1.71 1,172,293 $ 2.54
Granted 327,500 10.35 - -
Exercised (36,000) 4.00 (416,125) 1.54
Expired/surrendered - - (195,779) 7.04
-----------------------------------------------------------------------
Outstanding at
end of year 851,889 $ 4.93 560,389 $ 1.71
=======================================================================
Exercisable at end of year 851,889 $ 4.93 560,389 $ 1.71
=======================================================================
Weighted-average fair value per
option/warrant of options and
warrants granted during the year $ 2.64 $ -
=======================================================================
</TABLE>
All of the 327,500 options and warrants granted in 1999 were granted at
exercise prices which were equal to the market price at the date of grant.
There were no options issued outside of the plans during 1999.
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, 1999 is as follows:
<TABLE>
<CAPTION>
Options and Warrants
Outstanding Options and Warrants 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 2.00 509,389 7.12 $ 1.48 509,389 $ 1.48
2.01 to 4.00 15,000 2.94 4.00 15,000 4.00
10.01 to 12.01 327,500 9.49 10.35 327,500 10.35
---------------------------------------------------------------------------------
851,889 7.96 $ 4.93 851,889 $ 4.93
=================================================================================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-29
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 11. STOCK OPTIONS AND INCENTIVE PLANS (CONTINUED)
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 12. SEGMENT AND RELATED INFORMATION
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 during 1998 and 1999, the Company
operated in only one segment.
Effective December 17, 1999, the Company acquired DMS. Subsequently, as of
February 2000, the Company was reorganized into three operating units:
RE/Commercial, RE/Professional and RE/Consumer. It is the Company's intention
to provide the segment disclosure provisions of SFAS 131 as of and for the
year ending December 31, 2000. The Company will continue its evaluation as to
the further development of other segments.
Revenues for significant product lines for 1999 and 1998 were as follows:
<TABLE>
<CAPTION>
1999 1998
------------------ -----------------
<S> <C> <C>
Environmental Risk and Due Diligence Information Services $ 17,281 $ 19,064
Geographic Underwriting Services 4,128 4,472
Property Disclosure Information Services 3,710 1,581
Acquired DMS business 2,377 -
</TABLE>
NOTE 13. 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 was not significant. Royalty payments for 1999 and 1998 were not
significant.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-30
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 14. TECHNOLOGY LICENSE AGREEMENT
In October 1998, the Company entered into a technology license agreement with
Homeseekers.Com, Inc. (Homeseekers) to provide certain marketing data and
rights and to enter into revenue sharing arrangements. The initial term of
the agreement was for a period of five years with a renewal option, at the
Company's discretion, for an additional five year period. The Company was to
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 was to pay a non-refundable, recoupable fee against
future royalties of $2,000 of which $250 was paid in 1998. The remainder of
the prepaid fee was due and payable in 1999. In the event that after two
years the royalties incurred by the Company were less than the level
sufficient to fully exhaust the prepaid fee, the Company would reduce royalty
payment rates to a level of 25% of the otherwise agreed rate until such time
as the remaining unpaid credit was fully recovered.
In 1999, the Company had not received the aforementioned marketing data from
Homeseekers due to a dispute between Homeseekers and its data providers.
Accordingly, the Company discontinued payments to Homeseekers in 1999. As of
December 31, 1999, the Company had a long-term prepaid deposit of $728
related to this agreement which is being amortized over the term of the
agreement.
NOTE 15. INCOME TAXES
A reconciliation of the effective tax rates with the federal statutory rate
is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
--------------------------
<S> <C> <C>
Income tax benefit at statutory rate $(5,248) $ (867)
Change in valuation allowance 5,044 1,305
State taxes - (301)
Other 204 (137)
--------------------------
$ - $ -
==========================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-31
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 15. INCOME TAXES (CONTINUED)
The tax effect of temporary differences consisted of the following as of
December 31, 1999:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards $ 12,501
Accrued expenses 669
Allowance for doubtful accounts 453
Tax credit carryforwards 94
Equipment and purchased software 48
Acquired technology 3,128
--------
Gross deferred tax assets 16,893
Less valuation allowance (16,893)
--------
$ --
========
</TABLE>
As of December 31, 1999, the Company had federal and state net operating loss
carryforwards of approximately $36,000 and $6,700, respectively. The
carryforwards are significantly limited under Internal Revenue Code
Section 382. The Company has recorded a valuation allowance against its
entire net deferred tax asset as it believes it is more likely than not that
its net deferred tax asset will not be realized.
NOTE 16. 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 (the Amended Plan), 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, also in
the form of the Company's common stock.
During 1999, the Company contributed approximately $446 to the Plan, of
which $138 was payable at December 31, 1999.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-32
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 17. 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. On March 31, 2000, the Company and POI
resolved their dispute on terms that were not material to the Company's
financial results.
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 certain GUS transactions. In
August 1999, a decision was rendered in the matter awarding $110 to the
Company and dismissing all other claims.
In June 1999, GeoSure filed a demand for arbitration against The Sanborn
Company, LLC (Sanborn) with the American Arbitration Association. GeoSure is
a party to a license agreement with Sanborn to distribute historical fire
insurance maps subject to certain restrictions and a royalty based on the
prevailing prices charged by Sanborn for these maps. GeoSure alleges, among
other things, that it has been charged excess royalties and seeks recovery of
the excess payments. Sanborn has responded with allegations that GeoSure has
underpaid these royalties and likewise seeks recovery. The Company believes
that Sanborn's claims have no merit and that any outcome of this arbitration
would not have a material impact on the Company's financial position or
results of operations.
The Company is subject to legal proceedings and claims in the ordinary course
of business. In the opinion of management, the outcome of these matters will
not have a material adverse effect on the financial position, results of
operations or cash flows of the Company.
The accompanying notes to the consolidated financial statements
are an integral part of these statements.
F-33
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
(registrant)
Dated: April 14, 2000 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 April 14, 2000 by the following persons on behalf of
the Company and in the capacities indicated.
<TABLE>
<CAPTION>
Signature and Title
-------------------
<S> <C>
/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/ Neil Johnson
----------------------------------------------------
Neil Johnson
(Principle Financial Officer)
/s/ Brian Conn
---------------------------------------------------
Brian Conn
(Principle Accounting Officer)
</TABLE>
<PAGE>
VISTA INFORMATION SOLUTIONS, INC.
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-KSB
FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
ITEM NO. DESCRIPTION METHOD OF FILING
- -------- ----------- ----------------
<S> <C> <C>
3.1 Certificate of Incorporation of the Company, as
amended to date................................ Incorporated by reference to the exhibits to the
Company's Definitive Proxy Statement for the Special
Meeting of Shareholders held March 17, 1998
(File No. 0-20312).
3.1(a) Amendment to Certificate of Incorporation...... Filed herewith.
3.2 Restated By-Laws of the Company, as amended to
date........................................... Incorporated by reference to the exhibits to the
Company's Definitive Proxy Statement for the Special
Meeting of Shareholders held March 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 Certificate of Designation
of Series A Preferred Stock.................... Filed herewith.
4.3 Certificate of Designation
of Series A-1 and Series A-2
Preferred Stock. .............................. Filed herewith.
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).
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
10.11 1995 Stock Incentive Plan...................... Incorporated by reference to the Company's
Registration Statement on Form S-8 (File No.
333-09417).
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).
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).
10.42 1999 VISTA Stock Option Plan................... Filed herewith.
10.43 Agreement for Purchase and Sale of
Assets with Moore North America, Inc.
as of July 28, 1999, as amended................ Incorporated by reference to the Company's Current
Report on Form 8-K filed January 3, 2000.
10.44 Secured Convertible Note
dated December 17, 1999 issued to
Moore North America, Inc. ..................... Filed herewith.
10.45 Secured Working Capital Term Note
dated December 17, 1999
issued to Moore North America, Inc. ........... Filed herewith.
23.1 Consent of Deloitte & Touche, LLP.............. Filed herewith.
27.1 Financial Data Schedule........................ Filed herewith.
27.2 Financial Data Schedule Restated for 1998...... Filed herewith.
</TABLE>
<PAGE>
Exhibit 3.1(A)
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
VISTA INFORMATION SOLUTIONS, INC.
VISTA Information Solutions, Inc. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, does hereby certify:
1. The Amendment to the Corporation's Certificate of Incorporation set
forth below was duly adopted in accordance with the provisions of Section 242
and has been consented to by the stockholders in accordance with Section 222 of
the General Corporation Law of the State of Delaware;
2. Article EIGHTH of the Corporation's Certificate of Incorporation is
amended to read in its entirety as follows:
"Subject to the rights of any holders of Preferred Stock, the number of
directors shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). The directors
(other than those elected only by the holders of one or more series of
Preferred Stock) shall be divided into three classes with the term of
office of the first class to expire at the first annual meeting of the
stockholders following adoption of this provision, and the term of
office of the second class to expire at the second annual meeting of
stockholders held following the adoption of this provision, and the
term of office of the third class to expire at the third annual meeting
of stockholders following the adoption of this provision. After the
directors are divided into the three classes as set forth in the
preceding sentence, all subsequent elections (other than elections only
by the holders of one or more series of Preferred Stock) shall be for
term to expire at each third succeeding annual meeting of stockholders
after such election. All directors shall hold office until the
expiration of the term for which elected, and until their respective
successors are elected, except in the case of death, resignation, or
removal of any director. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any
incumbent director. Subject to the rights of the holders of any series
of Preferred Stock then outstanding, the newly created directorships
resulting from any increase in the authorized number of directors or
any vacancies on the Board of Directors resulting from death,
resignation or other reason (other than removal from office for cause
by a vote of the stockholders) may be filled by a majority vote of the
Directors then in office, though less than a quorum. Subject to the
rights of the holders of any series of Preferred Stock then
outstanding, any
<PAGE>
vacancies created as a result of removal by the stockholders of one or
more directors for cause shall be filled by a vote of the
stockholders."
IN WITNESS WHEREOF, VISTA Information Solutions, Inc. has caused this
Certificate to be executed by Thomas R. Gay, its authorized officer, on this ___
day of January, 2000.
---------------------------------
Thomas R. Gay, President
Attest:
By:
-------------------------------------
E. Stevens Hamilton, Secretary
- 2 -
<PAGE>
Exhibit 4.2
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
SERIES A PREFERRED STOCK
OF
VISTA INFORMATION SOLUTIONS, INC.
Pursuant to Section 151 of the General Corporation Law of
the State of Delaware
---------------------
The undersigned, officer of Vista Information Solutions, Inc.
(hereinafter called the "Company"), a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 9 thereof, does hereby certify as
follows:
Pursuant to the authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation of the Company filed with the
Secretary of State of the State of Delaware on March 2, 1998, the Board of
Directors of the Company on July 19, 1999, adopted the following resolution
creating a series of Preferred Stock designated as Series A Convertible
Preferred Stock on the terms set forth in EXHIBIT A attached hereto:
RESOLVED: That a series of Preferred Stock of the Company be and it
hereby is created, and that the designation, powers,
preferences and rights of the shares of such series, and the
qualification, limitations or restrictions thereof are as set
forth in the Certificate of Designation, Preferences and
Rights attached as EXHIBIT A hereto.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be signed on its behalf, this 1st day of September, 1999.
VISTA INFORMATION SOLUTIONS, INC.
By:
------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
DESCRIPTION AND DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION; NUMBER. One Hundred Ten Thousand (110,000) shares of
the authorized and undesignated Preferred Stock of the Company, $0.001 par
value, are hereby designated as the "Series A Convertible Preferred Stock" (the
"Series A Preferred Stock") with the powers, preferences and rights, and the
qualifications, limitations and restrictions set forth below.
2. DIVIDENDS.
(a) GENERAL. If a dividend or distribution is declared or otherwise
is to be made (whether in liquidation or otherwise) on or in respect of the
Common Stock of the Company, the holders of shares of the Series A Preferred
Stock shall be paid dividends or distributions in an amount equal to the amount
that would have been paid on or in respect of the number of whole shares of
Common Stock into which such shares of the Series A Preferred Stock are then
convertible as if all such Common Stock had been issued upon conversion. The
holders of the shares of Series A Preferred Stock shall be entitled to be paid
in full the dividends and distributions provided in this Section 2(a) prior to
the payment of any dividends or distributions on or in respect of Common Stock
of the Company.
(b) OTHER DIVIDENDS. In addition to dividends and distributions
referred to in Section 2(a) hereof, the holders of the shares of Series A
Preferred Stock shall be paid such other dividends or distributions on the
shares of Series A Preferred Stock when and as declared by the Board of
Directors of the Company, acting in its sole discretion, out of assets of the
Company legally available therefor, provided that any dividends payable pursuant
hereto shall be paid on a pro rata basis to each holder of Series A Preferred
Stock based on the number of shares of Series A Preferred Stock held.
(c) EFFECT OF ISSUANCE OF SUBSEQUENT EQUITY. In the event that the
Company issues any Common Stock Equivalents (as defined in Section 5(c)(iii))
having rights, preferences or privileges senior to or more favorable to the
holders thereof than the Series A Preferred Stock on or before December 31, 1999
(the "Subsequent Equity"), then, to the extent that the dividend rights of the
Subsequent Equity are superior (whether as to priority, amount or otherwise) to
those granted herein, the dividend rights of the Series A Preferred Stock shall
thereupon, without the need for any further action on the part of the Company or
the holders of the Series A Preferred Stock, automatically be amended to be
equal to those of the Subsequent Equity.
3. LIQUIDATION RIGHTS.
(a) SERIES A PREFERRED STOCK PREFERENCE. In the event of any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary (a "Liquidation"), the holders of the shares of Series A Preferred
Stock shall thereupon be entitled to receive out of legally available assets of
the Company, before the payment, distribution or setting apart for
1
<PAGE>
payment or distribution of any amount in respect of the Common Stock or in
respect of any shares of Preferred Stock not issued and outstanding on the date
of this Certificate of Designation, Preferences and Rights and pari passu (pro
rata according to the number of shares held) with any shares of Series C, D and
F Preferred Stock, a preferential amount (the "Liquidation Amount") per share of
Series A Preferred Stock, payable in cash equal to the GREATER of:
(i) the Original Purchase Price (as defined in Section 9
hereof) plus (x) all declared but unpaid dividends or distributions (if any),
and (y) an amount equal to 9% per annum of the Original Purchase Price
compounded from the date of each respective holder's original purchase of the
Series A Preferred Stock; or
(ii) such amount per share of Series A Preferred Stock as
would have been payable upon such Liquidation had each such share of Series A
Preferred Stock been converted into Common Stock immediately prior to such
Liquidation, plus all declared but unpaid dividends or distributions (if any).
After payment of the full Liquidation Amount to the holders of the
Series A Preferred Stock and the liquidation preferences of any other series of
Preferred Stock, all remaining assets of the Company shall be distributed to the
holders of Common Stock. If the assets of Company available for distribution to
holders of shares of Series A Preferred Stock are insufficient to pay the full
preferential amount payable to such holders, then all assets legally available
for distribution shall be distributed among the holders of the Series A
Preferred Stock pro rata in proportion to the respective liquidation preference
amounts which would otherwise be payable upon liquidation if all amounts payable
on or with respect to such shares were paid in full.
(b) TREATMENT OF MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. Unless
the holders of a majority of the outstanding shares of Series A Preferred Stock
elect to have the provisions of Section 5(c)(ix) apply, for purposes of Section
3(a) above, a sale of all or substantially all of the assets of the Company or a
merger or consolidation of the Company with or into another corporation,
following which the holders of the Company's outstanding capital stock
immediately prior to such merger, consolidation or sale of assets do not own a
majority of the outstanding voting securities of the surviving entity (a "Sale
Event"), shall be treated as a Liquidation, entitling the holders of the Series
A Preferred Stock to receive their Liquidation Amount upon consummation of such
Sale Event; PROVIDED HOWEVER, that a Sale Event shall not be treated as a
Liquidation if either:
(i) (A) payment of the Liquidation Amounts would prevent the
Sale Event from being accounted for as a "pooling of interests" transaction, (B)
such treatment is a necessary condition to accomplishing the Sale Event, and (C)
the holders of the Series A Preferred Stock receive securities or other property
upon consummation of the Sale Event valued at an amount per share equal to the
Original Purchase Price plus a return of 20% of the Original Purchase Price per
annum compounded from the date of each respective holder's original purchase of
the Series A Preferred Stock, or
2
<PAGE>
(ii) under Section 5(c)(ix), the holders of Series A Preferred
Stock would receive freely tradable securities upon consummation of such Sale
Event valued at the time of receipt at no less than the Liquidation Amount.
(c) EFFECT OF ISSUANCE OF SUBSEQUENT EQUITY. In the event that the
Company issues the Subsequent Equity, then, to the extent that the liquidation
preferences of the Subsequent Equity are superior (whether as to priority,
amount or otherwise) to those granted herein, the liquidation preferences of the
Series A Preferred Stock shall thereupon, without the need for any further
action on the part of the Company or the holders of the Series A Preferred
Stock, automatically be amended to be equal to those of the Subsequent Equity.
4. VOTING RIGHTS.
(a) GENERAL. Except as expressly required by law or as otherwise
provided herein, including without limitation Sections 4(b) and 4(c) hereof, the
holders of shares of Series A Preferred Stock shall vote together with the
holders of shares of Common Stock as a single class on all matters as to which
the holders of shares of the Company may be entitled to vote. The holders of
shares of Series A Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which their respective shares
of Series A Preferred Stock are convertible on the record date for such vote.
The voting rights conferred upon the holders of shares of Series A Preferred
Stock herein shall be in addition to those provided by law, and neither any
provision in the Certificate of Incorporation of the Company or Bylaws nor any
action taken by the Company shall decrease or otherwise affect said voting
rights provided by law.
(b) PROTECTIVE PROVISIONS. Except as expressly required by law or as
otherwise provided herein,
(i) so long as any shares of Series A Preferred Stock are
outstanding, the Company shall not, without first obtaining the written consent
or the affirmative vote of the holders of a majority of the then outstanding
shares of Series A Preferred Stock, voting separately as a class, take or permit
any of the following actions:
(A) any amendment to the Certificate of Incorporation
or the Bylaws of the Company that would increase the authorized number of shares
of Series A Preferred Stock or;
(B) any authorization or issuance of any shares of
capital stock of the Company, or any securities or other instruments convertible
into, exchangeable or exercisable for shares of capital stock of the Company,
having rights to dividends or amounts payable upon liquidation or redemption
ranking senior to or pari passu with the Series A Preferred Stock;
(C) any amendment of the terms of any existing shares
of capital stock of the Company, or any securities or other instruments
convertible into, exchangeable or exercisable for shares of capital stock of the
Company, to provide for rights to dividends or upon liquidation or redemption
ranking senior to or pari passu with the Series A Preferred Stock;
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(ii) so long as a majority of the aggregate number of shares
of Series A Preferred Stock and, if applicable, any Subsequent Equity originally
issued are outstanding, the Company shall not, without first obtaining the
written consent or the affirmative vote of the holders of seventy-five percent
(75%) of the then outstanding shares of Series A Preferred Stock and any such
Subsequent Equity, voting together as a single class, take or permit any of the
following actions:
(A) any amendment to the Certificate of Incorporation
or the Bylaws of the Company or any other action that would adversely affect any
of the rights, powers, preferences or privileges of the shares of Series A
Preferred Stock (in common with those of the Subsequent Equity, if issued);
(B) any recapitalization of a type described in
Section 5(c)(viii);
(C) any declaration or payment of a dividend on any
shares of capital stock of the Company other than the Series F Preferred Stock;
or
(D) any direct or indirect redemption, repurchase or
other acquisition by the Company of any of its capital stock other than the
Series F Preferred Shares;
(ii) so long as a majority of the aggregate number of shares
of Series A Preferred Stock and, if applicable, any Subsequent Equity originally
issued are outstanding, the Company shall not, without first obtaining the
written consent or the affirmative vote of the holders of sixty-five percent
(65%) of the then outstanding shares of Series A Preferred Stock and any such
Subsequent Equity, voting together as a single class, take or permit any of the
following actions:
(A) any authorization or issuance of any shares of
capital stock of the Company, or any securities or other instruments convertible
into, exchangeable or exercisable for shares of capital stock of the Company,
having rights to dividends or amounts payable upon liquidation or redemption
ranking senior to or pari passu with the common rights of the Series A Preferred
Stock and any such Subsequent Equity;
(B) any amendment of the terms of any existing shares
of capital stock of the Company, or any securities or other instruments
convertible into, exchangeable or exercisable for shares of capital stock of the
Company, to provide for rights to dividends or upon liquidation or redemption
ranking senior to or pari passu with the common rights of the Series A Preferred
Stock and any such Subsequent Equity;
(C) any direct or indirect redemption, repurchase or
other acquisition by the Company of any series of Preferred Stock other than the
Series F Preferred Stock, the Series A Preferred Stock or the Subsequent Equity
before the seventh anniversary of the issuance of the Series A Preferred Stock;
or
(D) any Fundamental Change (as defined in Section
5(c)(ix)).
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(c) RIGHT TO ELECT DIRECTORS.
(i) INITIAL DIRECTOR. Each time the shareholders of the
Company are entitled to vote on the election of directors, whether at a meeting
or by written consent, the holders of the Series A Preferred Stock and of any
Subsequent Equity, voting together as a single class, shall have the right to
elect one (1) member of the Board of Directors. Such director initially shall be
Richard J. Freeman, who shall serve until the next annual meeting of the
Company's shareholders after the date of the original issuance of the Series A
Preferred Stock and until his successor is duly elected and has qualified, or
until his earlier death, resignation or removal.
(ii) DEFINITION OF EVENT OF DEFAULT. An Event of Default will
be deemed to have occurred if the Company fails to comply with or breaches any
material provision hereof, of the Investor Rights Agreement or any Stock
Purchase Agreement, and such breach or failure is not cured by the Company
within 30 days after written notice thereof is furnished to the Company.
(iii) CONSEQUENCES OF EVENTS OF DEFAULT.
(A) If any Event of Default occurs, the holders of the
Series A Preferred Stock and of any Subsequent Equity, voting together as a
single class, shall thereupon be entitled to elect two members to the Company's
Board of Directors. Such right to elect two members the Board of Directors will
continue until such time as the condition constituting the Event of Default
ceases to exist, at which time such right will terminate subject to revesting
upon the reoccurrence and continuation of any Event of Default. Any director
elected by the holders of the Series A Preferred Stock upon an Event of Default
will continue to serve as a director until three months following the date on
which there is no longer any Event of Default.
(B) If any Event of Default occurs, each holder of
Preferred Stock will also have any other rights which such holder may have been
afforded under any contract or agreement at any time and any other rights which
such holder may have pursuant to applicable law.
(iv) REMOVAL; REPLACEMENT. Any director elected by the holders
of the Series A Preferred Stock and any Subsequent Equity pursuant to this
Section 4(c) may be removed and replaced, with or without cause by the vote of
the holders of a majority of the shares of Series A Preferred Stock and any
Subsequent Equity. If any vacancy shall exist for any reason in any directorship
that the holders of such shares are entitled to appoint or elect, such vacancy
may be filled only by such holders, by delivery to the Company of a written
instruction by the affirmative vote of the holders of the Series A Preferred
Stock and any Subsequent Equity or in any other manner that is in accordance
with the Certificate of Incorporation and the Bylaws of the Corporation or
otherwise authorized by law.
(d) EFFECT OF ISSUANCE OF SUBSEQUENT EQUITY. In the event that the
Company issues the Subsequent Equity, then, to the extent that the voting rights
of the Subsequent Equity are superior to those granted herein, the voting rights
of the Series A Preferred Stock shall thereupon, without the need for any
further action on the part of the Company or the holders of
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the Series A Preferred Stock, automatically be amended to be equal to those of
the Subsequent Equity; provided, however, that the instruments governing the
voting rights of the Subsequent Equity shall provide that the holders of the
Series A Preferred Stock shall vote together as a single class with the
Subsequent Equity except with respect to matters (such as those described in
subsection 4(b)(i)) affecting solely the rights of the Series A Preferred Stock
or the Subsequent Equity, as the case may be.
5. CONVERSION.
(a) OPTIONAL CONVERSION. Each share of Series A Preferred Stock
shall be convertible at any time at the option of the holder thereof into such
number of fully paid and non-assessable shares of Common Stock as is determined
by dividing the Original Purchase Price by the Conversion Price then in effect
(the "Conversion Ratio"). The Conversion Price shall initially equal 10% of the
Original Purchase Price, and may thereafter be adjusted from time to time in
accordance with Section 5(c) hereof.
(b) AUTOMATIC CONVERSION.
(i) MANDATORY CONVERSION OF SERIES A PREFERRED STOCK. Subject
to the provisions of Section 5(d), each share of Series A Preferred Stock then
outstanding shall be automatically converted into shares of Common Stock at the
then effective Conversion Ratio:
(A) upon the closing of an underwritten public
offering on a firm commitment basis pursuant to an effective registration
statement under the Securities Act of 1933, as amended, covering the offer and
sale of Common Stock for the account of the Company in which the aggregate gross
proceeds to the Company are at least $50,000,000 and in which the price per
share of Common Stock equals or exceeds 150% of the Original Purchase Price;
(B) upon written notice from the Company to the
holders thereof at any time within 10 days after the end of any period of 20
consecutive Trading Days in which the Market Price of the Common Stock has
exceeded twenty percent (20%) of the Liquidation Amount (determined as of the
close of business on the last Trading Day before the beginning of such 20-day
period); PROVIDED THAT the shares of Common Stock issued upon conversion of the
Series A Preferred Stock are then freely tradable in the public markets without
any restriction on the holder thereof (other than a restriction resulting from
participation on the Board of Directors of the Company by any holder of the
Series A Preferred Stock); or
(C) at such time as less than 20% of the shares of
Series A Preferred Stock issued pursuant to the Stock Purchase Agreement remain
outstanding.
(c) ADJUSTMENT TO APPLICABLE CONVERSION PRICE. In order to prevent
dilution of the conversion rights granted under this Section 5, the Conversion
Price shall be subject to adjustment from time to time as provided in this
Section 5(c).
(i) UPON SALE OF SUBSEQUENT EQUITY. If, at the time of
issuance of the Subsequent Equity, the Net Consideration Per Share (as defined
in Section 5(c)(iii)) of the Subsequent Equity is less than the Conversion Price
then in effect, then the Conversion Price
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shall automatically be lowered so as to be equal to the lowest Net Consideration
Per Share received for such Common Stock Equivalents.
(ii) UPON OTHER SALES OF COMMON STOCK. If at any time while
any shares of the Series A Preferred Stock are outstanding, the Company issues
or sells, or in accordance with Section 5(c)(iii) is deemed to have issued or
sold, any shares of Common Stock or Common Stock Equivalents (as defined below)
without consideration or at a price per share less than the Conversion Price of
the Series A Preferred Stock in effect immediately prior to such time, then
immediately upon such issue or sale, the Conversion Price shall be adjusted to
equal the product obtained by multiplying the Conversion Price in effect
immediately prior to such adjustment by a fraction:
(A) the numerator of which shall be (i) the number of
shares of Common Stock Deemed Outstanding (as defined in Section 9 hereof)
immediately prior to such issue or sale plus (ii) the number of shares of Common
Stock or Common Stock Equivalents which the aggregate purchase price of the
total number of additional shares so issued or sold would purchase at the then
effective Conversion Price, and
(B) the denominator of which shall be (i) the number
of shares of Common Stock Deemed Outstanding on the date immediately prior to
such issue or sale plus (ii) the number of additional shares of Common Stock or
Common Stock Equivalents so issued or sold.
Notwithstanding the foregoing, this Section 5(c)(ii) shall not apply with
respect to the issuance of: (i) Common Stock upon the conversion of any shares
of Series A Preferred Stock; (ii) the securities issuable upon the exercise or
conversion of any right, warrant, option or other convertible security
outstanding at the time of the issuance of the Series A Preferred Stock; (iii)
the Subsequent Equity; and (iv) up to 500,000 shares of Common Stock or options
to purchase such shares of Common Stock issued or issuable at prices lower than
the then current Conversion Price pursuant to any employee benefit plans
approved by the Board of Directors of the Company or the Compensation Committee
thereof.
(iii) UPON ISSUANCES OF WARRANTS, OPTIONS AND RIGHTS TO
PURCHASE COMMON STOCK OR OTHER CONVERTIBLE Securities.
(A) COMMON STOCK EQUIVALENTS. If the Company in any
manner issues or sells any options, warrants or rights to subscribe for or to
purchase Common Stock or any stock or other securities convertible into or
exercisable or exchangeable for Common Stock (collectively, "Common Stock
Equivalents") and the price per share for which Common Stock is issuable upon
the exercise, conversion or exchange of such Common Stock Equivalents is LESS
THAN the Conversion Price of the Series A Preferred Stock in effect immediately
prior to the time of such issuance or sale, then, for purposes of this Section
5(c), the total maximum number of shares of Common Stock issuable upon the
exercise, conversion or exchange of such Common Stock Equivalents shall be
deemed to be outstanding and to have been issued and sold by the Company for the
"Net Consideration Per Share". For purposes of this paragraph, the "Net
Consideration Per Share" is determined by dividing (A) the total amount, if any,
received or receivable by the Company as consideration for the issuance or sale
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of such Common Stock Equivalents, plus the minimum aggregate amount of
additional consideration payable to the Company upon the exercise, conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon exercise, conversion or exchange of all such Common Stock
Equivalents. No adjustment of the Conversion Price for the Series A Preferred
Stock shall be made under Section 5(c)(ii) upon the issuance of any shares of
Common Stock pursuant to the exercise, conversion or exchange of any Common
Stock Equivalents if any such adjustment shall previously have been made upon
the original issuance of any such Common Stock Equivalents as provided above.
(B) DECREASES IN NET CONSIDERATION PER SHARE. Should
the Net Consideration Per Share of any such Common Stock Equivalents be
decreased from time to time, then, upon the effectiveness of each such change,
the Conversion Price of the Series A Preferred Stock will be adjusted to that
which would have been obtained had (1) the adjustments made upon the issuance of
such Common Stock Equivalents been made upon the basis of the decreased Net
Consideration Per Share of such securities, and (2) all other adjustments made
to the Conversion Price of the Series A Preferred Stock since the date of
issuance of such Common Stock Equivalents been made to such Conversion Price as
adjusted pursuant to (1) above. Any adjustment of the Conversion Price pursuant
to this paragraph which relates to Common Stock Equivalents shall be
disregarded, in whole or in part, as applicable, if, as, and when all, or such
portion, of such Common Stock Equivalents expire or are cancelled without being
exercised, so that the Conversion Price of the Series A Preferred Stock
effective immediately upon such cancellation or expiration shall be equal to the
Conversion Price of the Series A Preferred Stock in effect at the time of the
issuance of the expired or cancelled Common Stock Equivalents, with such
additional adjustments as would have been made to the Conversion Price had the
expired or cancelled Common Stock Equivalents not been issued.
(iv) CONSIDERATION OTHER THAN CASH. If any Common Stock or
Common Stock Equivalents are issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor shall be deemed to be the
gross amount received by the Company. If any Common Stock or Common Stock
Equivalents are issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Company shall be (A) the
Market Price, in the case of securities or (B) the fair value thereof, in the
case of any other consideration. The fair value of any consideration other than
cash or securities shall be determined jointly by the Company and the holders of
a majority of the Series A Preferred Stock. If such parties are unable to reach
agreement within thirty (30) days, such fair value shall be determined by an
Appraisal.
(v) INTEGRATED TRANSACTIONS. In case any Common Stock
Equivalents are issued in connection with the issue or sale of other securities
of the Company, together comprising one integrated transaction in which no
specific consideration is allocated to such Common Stock Equivalents by the
parties thereto, the Common Stock Equivalents shall be deemed to have been
issued without consideration.
(vi) REACQUIRED SHARES. The disposition of any shares owned or
held by or for the account of the Company or any subsidiary of the Company shall
be considered an issue or sale of Common Stock.
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(vii) RECORD DATE. If the Company determines a record date of
the holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or Common Stock
Equivalents or (B) to subscribe for or purchase Common Stock or Common Stock
Equivalents, then, for purposes of this Section 5(c), such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(viii) STOCK SPLITS, STOCK DIVIDENDS AND RECAPITALIZATIONS. If
the Company, at any time while any shares of Series A Preferred Stock are
outstanding, shall (A) pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock payable in shares of its capital
stock (whether Common Stock or capital stock of any class), (B) subdivide its
outstanding shares of Common Stock into a larger number of shares, (C) combine
its outstanding shares of Common Stock into a smaller number of shares, or (D)
issue by reclassification of shares of Common Stock any shares of capital stock
of the Company, the Conversion Price designated in Section 5(a) shall be
multiplied by a fraction of which the numerator shall be the number of shares of
Common Stock of the Company outstanding immediately before such event and of
which the denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to this Section
5(c)(viii) shall become effective immediately after the record date in the case
of a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(ix) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. Any
recapitalization, reorganization, or reclassification (other than as described
in Section 5(c)(viii)), or any consolidation, merger, sale of all or
substantially all of the assets of the Company to another person or entity or
other transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Fundamental Change." Subject to the provisions of Section 3(b),
prior to the consummation of any Fundamental Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of a
majority of the Series A Preferred Stock) to ensure that all holders of shares
of Series A Preferred Stock shall thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore issuable upon conversion thereof, such shares of
stock, securities or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock issuable upon conversion
thereof immediately before Fundamental Change. In any such case, the Company
shall make appropriate provision (in form and substance satisfactory to the
holders of a majority of the Series A Preferred Stock) with respect to the
rights and interests of all holders of shares of Series A Preferred Stock to
ensure that the provisions of this Section 5 shall thereafter be applicable to
the Series A Preferred Stock including, in the case of any such consolidation,
merger or sale in which the successor entity or purchasing entity is other than
the Company, an immediate adjustment of the Conversion Ratio taking into account
the value of the Common Stock reflected by the terms of such consolidation,
merger or sale, if the value per share so reflected is less than the Market
Price of the Common Stock in effect immediately prior to such consolidation,
merger or sale. The Company shall not effect any such consolidation, merger or
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sale unless prior to the consummation thereof, the successor entity (if other
than the Company) resulting from such consolidation or merger or the entity
purchasing such assets assumes by written instrument (in form and substance
satisfactory to the holders of a majority of the Series A Preferred Stock), the
obligation to deliver to holders of shares of Series A Preferred Stock such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to acquire.
(x) OTHER DILUTIVE ISSUANCES. If any event occurs of the type
contemplated by the provisions of this Section 5(c) but not expressly provided
for by such provisions, including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features,
then the Board of Directors shall make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of shares of Series
A Preferred Stock, respectively.
(d) SURRENDER OF CERTIFICATES; PARTIAL CONVERSION. Upon a conversion
pursuant to Section 5(a) hereof, the holder of any shares of Series A Preferred
Stock to be converted shall surrender the certificates representing the shares
of Series A Preferred Stock, duly endorsed, at the office of the Company or of
its transfer agent and give written notice to the Company that such holder
elects to convert such shares of Series A Preferred Stock or specified portion
thereof into shares of Common Stock as set forth in such notice (the "Conversion
Notice"). Each Conversion Notice shall be given by facsimile or by mail, postage
prepaid, addressed to the attention of the Chief Financial Officer of the
Company at the facsimile, telephone number or address of the principal place of
business of the Company. Any conversion of shares of Series A Preferred Stock
into Common Stock shall be effective as of the date of the Company's receipt of
such notice (the "Conversion Date"). Upon an automatic conversion pursuant to
Section 5(b), the outstanding shares of Series A Preferred Stock shall thereupon
be converted automatically without any further action by the Company or the
holders of such shares. At such time as the certificate or certificates
representing shares of Series A Preferred Stock which have been converted are
surrendered to the Company, a certificate or certificates representing the
number of shares of Common Stock issuable upon conversion thereof shall be
issued and delivered. In case of conversion of only part of the shares of Series
A Preferred Stock represented by a certificate or certificates surrendered to
the Company, the Company also shall forthwith issue and deliver a new
certificate for the number of shares of Series A Preferred Stock, which had not
been converted. Until such time as the certificate or certificates representing
shares of Series A Preferred Stock which are being converted are surrendered to
the Company and a certificate or certificates representing the shares of Common
Stock into which such shares of Series A Preferred Stock have been converted
have been issued and delivered, the certificate or certificates representing the
shares of Series A Preferred Stock which had been converted shall represent the
shares of Common Stock into which such shares of Series A Preferred Stock have
been converted.
(e) RESERVATION OF COMMON STOCK. The Company shall at all times
reserve from its authorized Common Stock a sufficient number of shares to
provide for conversion of all shares of Series A Preferred Stock from time to
time outstanding. As a condition precedent to the taking of any action which
would cause an adjustment increasing the number of shares into which the
outstanding shares of Series A Preferred Stock may be converted, the Company
shall take such corporate action as maybe necessary in order that it may validly
and legally issue to the
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holders of shares of Series A Preferred Stock upon conversion fully paid and
non-assessable shares of Common Stock as may be required by this Section 5. If
the Common Stock issuable upon conversion of the shares of Series A Preferred
Stock is listed on any national securities exchange, the Company shall cause all
shares reserved for such conversion to be listed on such exchange, subject to
official notice of issuance upon such conversion.
(f) FRACTIONAL SHARES. In lieu of any fractional shares to which the
holder of the Series A Preferred Stock otherwise would be entitled, the Company
shall pay cash equal to such fraction multiplied by the Market Price of the
Company's Common Stock on the applicable Conversion Date.
(g) NO REISSUANCE OF SERIES A PREFERRED STOCK. No shares of Series A
Preferred Stock acquired by the Company by reason of conversion or otherwise
shall be reissued, and all such shares shall be canceled, retired and eliminated
from the shares that the Company is authorized to issue.
6. REDEMPTION. The shares of Series A Preferred Stock do not have
redemption rights. However, in the event that the Company issues the Subsequent
Equity, then, to the extent that the Subsequent Equity has any redemption
rights, upon the issuance of the Subsequent Equity, the redemption rights of the
shares of Series A Preferred Stock shall thereupon, without the need for any
further action on the part of the Company or the holders of the Series A
Preferred Stock, automatically be amended to be equal to those of the Subsequent
Equity.
7. LIMITATION OF LIABILITY.
(a) To the maximum extent permitted by law, the Company does hereby
exonerate the holders of shares of Series A Preferred Stock and their designees
serving on the Board of Directors from time to time, or any person or entity
being represented by or acting on behalf of any of the foregoing, directly and
indirectly, and their respective successors and assigns (collectively,
"Indemnitees") and waives and releases any suit, claim, demand or cause of
action of any kind arising from any action taken or failure to take any action
by an Indemnitee, unless such action or failure to take action constitutes
self-dealing or willful misconduct, and to the maximum extent permitted by law,
no Indemnitee shall be personally liable for monetary damages as such for any
action or failure to take action.
(b) The Company shall indemnify and hold harmless each Indemnitee
made or threatened to be made a party to, or having to appear as a witness in
connection with, a Proceeding (as hereinafter defined), to the fullest extent
permitted by law and against all expense, liability and loss, including without
limitation judgments, penalties, fines (including without limitation excise
taxes with respect to employee benefit plans, settlements and reasonable
expenses), and attorneys' fees and disbursements incurred or suffered by the
Indemnitee in connection with any Proceeding (as hereinafter defined), except to
the extent that the act or failure to act giving rise to the claim for
indemnification is determined by a court of competent jurisdiction without right
of appeal to have constituted bad faith or, in the case of a criminal
proceeding, unlawful conduct that the Indemnitee had reasonable cause to believe
was unlawful. The right to indemnification provided in this Section 7 shall
include the right, upon written request to the Company, to have the expenses
incurred by the Indemnitee in connection
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with any Proceeding (including without limitation attorney's fees and
disbursements) paid or reimbursed by the Company in advance of the final
disposition of the Proceeding to the fullest extent permitted by law; provided
that, if law so requires, the payment of such expenses incurred by the
Indemnitee in advance of the final disposition of a Proceeding shall be made
upon delivery to the Company of a written affirmation by the Indemnitee of a
good faith belief that the criteria for indemnification have been satisfied and
a written undertaking, by or on behalf of the Indemnitee, to repay all amounts
so advanced without interest if it shall ultimately be determined that the
Indemnitee was not entitled to be indemnified under this Section 7 or otherwise.
The written undertaking required by the preceding sentence is an unlimited
general obligation of the Indemnitee, but need not be secured and shall be
accepted without reference to financial ability to make repayment.
Indemnification pursuant to this Section 7 shall continue as to an Indemnitee
who has ceased to be a holder of shares of Series A Preferred Stock, a Director
or an officer or ceased to have any relationship with the Company and shall
inure to the benefit of the Indemnitee's heirs, executors and administrators.
For purpose of this Section 7, "Proceeding" shall mean any threatened, pending
or completed action, suit or proceeding (including without limitation any
action, suit or proceeding by or in the right of the Company), whether civil,
criminal, administrative or investigative, against any one or more Indemnitees
arising from or in connection with any action or failure to take action pursuant
hereto or any right, power or privilege granted hereunder or in connection with
any duty of such Indemnitee to the Company. The rights to indemnification and to
the advancement of expenses provided in this Section 7 shall not be exclusive of
any other rights that any person or entity may have or hereafter acquire under
any statute, provision of the Company's Certificate of In Company or Bylaws,
agreement, vote of Shareholders or Directors, or otherwise.
(c) The provisions of this Section 7 relating to the limitation of
Indemnitees' liability, to indemnification and to the advancement of expenses
shall constitute a contract between the Company and each of the Indemnitees
which may be modified as to any Indemnitee only with that person's or entity's
consent or as specifically provided in this Section 7. Notwithstanding any
provision in the Certificate of Incorporation of the Company relating to
amendment of the Certificate of Incorporation of the Company generally, no
repeal or amendment of this Section 7 can be effective without the prior written
consent of the holders of a majority of the Series A Preferred Stock, and any
such amendment or repeal which is adverse to any Indemnitee shall apply to such
Indemnitee only on a prospective basis and shall not reduce any limitation on
the personal liability of an Indemnitee or limit the rights of an Indemnitee to
indemnification or to the advancement of expenses with respect to any action or
failure to act occurring prior to the time of such repeal or amendment.
(d) In the case of any change in law which expands the liability of
an Indemnitee or limits the indemnification rights or the rights to advancement
of expenses which the Company may provide, the right to limited liability, to
indemnification and to the advancement of expenses provided in this Section 7
shall continue as theretofore to the extent permitted by law. Conversely, if any
change in law permits the Company to limit further the liability of an
Indemnitee or to provide broader indemnification rights or rights to the
advancement of expenses than the Company was permitted to provide prior to such
change, then liability thereupon shall be so limited and the rights to
indemnification and the advancement of expenses shall be so broadened to the
extent permitted by law.
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8. NOTICES OF RECORD DATE. In the event of
(a) any taking by the Company of a record of the holders of any
class of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other corporation, or any other entity or person,
or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then and in each such event the Company shall mail or cause to be mailed to each
holder of Series A Preferred Stock a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution or
right and a description of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least thirty (30) days prior to the
date specified in such notice on which such action is to be taken.
9. DEFINED TERMS.
For purposes hereof:
(a) "APPRAISAL" means the determination of fair value by an
appraiser selected by the Company and by the holders of a majority of the Series
A Preferred Stock. In the event that the Company and the holders of a majority
of the Series A Preferred Stock are unable to agree upon an appraiser within
five days, then the Company and the holders of a majority of the Series A
Preferred Stock shall each choose an appraiser within five days thereafter who
shall each complete their appraisals and provide a written report of the results
thereof to the Company and the holders of the Series A Preferred Stock within
thirty (30) days thereafter. If the appraisals made by such appraisers do not
differ by more than ten (10%) percent of the amount of the higher appraiser, the
two appraisals shall be averaged to determine the fair value. It the appraisals
differ by more than ten (10%) percent of the amount of the higher appraiser,
then a third appraiser shall be chosen by the first two appraisers within five
days after the report of the two appraisers has been submitted. If such
appraisers are unable to agree upon the third appraiser within such time, such
third appraiser shall be designated by the American Arbitration Association in
San Diego, California ("AAA") upon application of the Company or the holders of
a majority of the Series A Preferred Stock and such third appraiser shall
complete its appraisal and provide a written report of the results to the
Company and the holders of the Series A
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Preferred Stock within thirty (30) days after such third appraiser is selected.
If the appraisal of such third appraiser falls between the two prior appraisals,
then the third appraisal shall determine the fair value. If the third appraisal
is higher or lower than both of the prior appraisals, then the third appraisal
and the prior appraisal which is most similar in amount to the third appraisal
shall be averaged to determine the fair value: The determination of such
appraisers shall be final and binding on the Company and all holders of shares
of Series A Preferred Stock, and the fees and expenses of such appraisers shall
be paid by the Company.
(b) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the
number of shares of Common Stock actually outstanding at such time (excluding
any shares held by or for the account of the Company or any subsidiary of the
Company), plus the number of shares of Common Stock deemed to be outstanding
upon the conversion of the Series A Preferred Stock and upon the exercise,
exchange or conversion of all Common Stock Equivalents outstanding immediately
prior to an issuance or sale of Common Stock pursuant to Section 5(c) hereof.
(c) "ORIGINAL PURCHASE PRICE" of the Series A Preferred Stock means
the price per share at which the shares of Series A Preferred Stock were sold by
the Company (as adjusted for stock dividends, stock splits, combinations,
reclassifications or other similar events involving the Series A Preferred
Stock).
(d) "INVESTOR RIGHTS AGREEMENT" means that certain Investor Rights
Agreement entered into by and among the Company and the original purchasers of
the Series A Preferred Stock on or about the date(s) of the issuance of the
Series A Preferred Stock, as amended from time to time.
(e) "MARKET PRICE" with respect to the Company's Common Stock means
on any particular date (i) the last sale price per share of the Common Stock on
such date on the NASDAQ National Market System or other stock exchange on which
the Common Stock has been listed or if there is no such price on such date, then
the last price on such exchange on the last Trading Date preceding such date, or
(ii) if the Common Stock is not listed on the NASDAQ National Market or any
stock exchange, the average of the bid and asked price for a share of Common
Stock in the over-the-counter market, as reported by the NASDAQ SmallCap Market
at the close of business on such date, or (iii) if the Common Stock is not
quoted on the NASDAQ SmallCap Market, the average of the bid and asked price for
a share of Common stock in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices) or (iv) if the Common Stock is
not listed on any domestic securities exchange or quoted in the NASDAQ system or
the domestic over-the-counter market, the "Market Price" shall be the fair value
thereof determined jointly by the Company and the holders of a majority of the
Series A Preferred Stock; provided that if such parties are unable to reach
agreement within thirty (30) days, such fair value shall be determined by an
Appraisal.
(f) "STOCK PURCHASE AGREEMENT" means each agreement for the purchase
and sale of Series A Preferred Stock entered into by and among the Company and
the original purchasers of the Series A Preferred Stock, as amended from time to
time.
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(g) "TRADING DAY" means (i) a day on which the Common Stock is
traded on the NASDAQ National Market system or principal stock exchange on which
the Common Stock has been listed, or (ii) if the Common Stock is not listed on
the NASDAQ National Market or any stock exchange, a day on which the Common
Stock is traded in the over-the-counter market, as reported by the NASDAQ
SmallCap Market, or (c) if the Common Stock is not quoted on the NASDAQ SmallCap
Market, a day on which the Common Stock is quoted in the over-the-counter market
as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices).
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Exhibit 4.3
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
SERIES A-1 PREFERRED STOCK
AND
SERIES A-2 PREFERRED STOCK
OF
VISTA INFORMATION SOLUTIONS, INC.
Pursuant to Section 151 of the General Corporation Law of
the State of Delaware
---------------------
The undersigned officer of VISTA Information Solutions, Inc.
(hereinafter called the "Company"), a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, in
accordance with the provisions of Section 9 thereof, does hereby certify as
follows:
Pursuant to the authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation of the Company filed with the
Secretary of State of the State of Delaware on March 2, 1998, the Board of
Directors of the Company on December 9, 1999, adopted the following resolution
creating two series of Preferred Stock designated as Series A-1 Convertible
Preferred Stock and Series A-2 Convertible Preferred Stock on the terms set
forth in EXHIBIT A attached hereto:
RESOLVED: That two series of Preferred Stock of the Company be and are
hereby created, and that the designation, powers, preferences
and rights of the shares of such series, and the
qualification, limitations or restrictions thereof are as set
forth in the Certificate of Designation, Preferences and
Rights attached as EXHIBIT A hereto.
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IN WITNESS WHEREOF, the Company has caused this Certificate of
Designation to be signed on its behalf, this 9 day of December, 1999.
VISTA INFORMATION SOLUTIONS, INC.
By:
---------------------------------------
Name: E. Stevens Hamilton
Title: Vice President, Mergers and
Acquisitions and Secretary
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EXHIBIT A
DESCRIPTION AND DESIGNATION OF
SERIES A-1 CONVERTIBLE PREFERRED STOCK
AND
SERIES A-2 CONVERTIBLE PREFERRED STOCK
1. DESIGNATION; NUMBER.
(a) SERIES A-1 CONVERTIBLE PREFERRED STOCK. Four Hundred Ten Thousand
(410,000) shares of the authorized and undesignated Preferred Stock of the
Company, $0.001 par value, are hereby designated as the "Series A-1 Convertible
Preferred Stock" (the "Series A-1 Preferred Stock"), such series to have the
powers, preferences and rights, and the qualifications, limitations and
restrictions set forth below; and
(b) SERIES A-2 CONVERTIBLE PREFERRED STOCK. Three Hundred Twenty-Five
Thousand (325,000) of the authorized and undesignated Preferred Stock of the
Company, $0.001 par value, are hereby designated as the "Series A-2 Convertible
Preferred Stock" (the "Series A-2 Preferred Stock"), such series to have the
powers, preferences and rights, and the qualifications, limitations and
restrictions set forth below.
2. DIVIDENDS.
(a) GENERAL. If a dividend or distribution is declared or otherwise is
to be made (whether in liquidation or otherwise) on or in respect of the Common
Stock of the Company, the holders of shares of Series A-1 Preferred Stock and
Series A-2 Preferred Stock, respectively, shall be paid dividends or
distributions in an amount equal to the amount that would have been paid on or
in respect of the number of whole shares of Common Stock into which such shares
of Series A-1 Preferred Stock and Series A-2 Preferred Stock, respectively, are
then convertible, but without regard to Section 5(a)(ii) hereof with respect to
the Series A-2 Preferred Stock, as if all such Common Stock had been issued upon
conversion. The holders of shares of Series A-1 Preferred Stock and Series A-2
Preferred Stock, respectively, shall be entitled to be paid in full the
dividends and distributions provided in this Section 2(a) prior to the payment
of any dividends or distributions on or in respect of Common Stock of the
Company.
(b) OTHER DIVIDENDS. In addition to dividends and distributions
referred to in Section 2(a) hereof, the holders of the shares of Series A-1
Preferred Stock and Series A-2 Preferred Stock, respectively, shall be paid such
other dividends or distributions on the shares of Series A-1 Preferred Stock and
Series A-2 Preferred Stock, respectively, when and as declared by the Board of
Directors of the Company, acting in its sole discretion, out of assets of the
Company legally available therefor, provided that any dividends payable pursuant
hereto shall be paid on a pro rata basis to each such series based on the number
of shares of Series A-1 Preferred Stock or Series A-2 Preferred Stock held.
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3. LIQUIDATION RIGHTS.
(a) SENIOR PREFERRED STOCK PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary (a
"Liquidation") that is consummated before the shares of Series A-2 Preferred
Stock have become convertible into Common Stock pursuant to Section 5(a)(ii) and
have voting rights pursuant to Section 4(a)(ii) hereof, the holders of shares of
Series A-2 Preferred Stock shall thereupon be entitled to receive out of legally
available assets of the Company, before the payment, distribution or setting
apart for payment or distribution of any amount in respect of the Common Stock,
the Series A Preferred Stock or the Series A-1 Preferred Stock or any shares of
Preferred Stock not issued and outstanding on the date of issuance of the Series
A-2 Preferred Stock, a preferential amount (the "Senior Liquidation Amount") per
share of Series A-2 Preferred Stock, payable in cash equal to the GREATER of:
(i) the Original Purchase Price (as defined in Section 9 hereof)
plus (x) all declared but unpaid dividends or distributions (if any), and (y) an
amount equal to 25% per annum of the Original Purchase Price compounded from the
date of the issuance of such share of Series A-2 Preferred Stock; or
(ii) such amount per share of Series A-2 Preferred Stock as would
have been payable upon such Liquidation had each such share of Series A-2
Preferred Stock been converted into Common Stock immediately prior to such
Liquidation (without regard to Section 5(a)(ii) hereof), plus all declared but
unpaid dividends or distributions (if any).
(b) PREFERRED STOCK PREFERENCE. In the event of a Liquidation, the
holders of the shares of Series A-1 Preferred Stock (and, when Section 3(a) does
not apply, the shares of Series A-2 Preferred stock) shall thereupon be entitled
to receive out of legally available assets of the Company, after any payment
pursuant to Section 3(a) but before the payment, distribution or setting apart
for payment or distribution of any amount in respect of the Common Stock or any
shares of Preferred Stock not issued and outstanding on the date of issuance of
the Series A-1 and Series A-2 Preferred Stock and pari passu with any shares of
Series A Preferred Stock, a preferential amount (the "Liquidation Amount") per
share of Series A-1 Preferred Stock or Series A-2 Preferred Stock, as the case
may be, payable in cash equal to the GREATER of:
(i) the Original Purchase Price (as defined in Section 9 hereof)
plus (x) all declared but unpaid dividends or distributions (if any), and (y) an
amount equal to 9% per annum of the Original Purchase Price compounded from the
date of each respective holder's original purchase of the Series A-1 or Series
A-2 Preferred Stock, as the case may be; or
(ii) such amount per share of Series A-1 or Series A-2 Preferred
Stock, as the case may, as would have been payable upon such Liquidation had
each such share of Series A-1 or Series A-2 Preferred Stock, as the case may be,
been converted into Common Stock immediately prior to such Liquidation, plus all
declared but unpaid dividends or distributions (if any).
(c) PRORATION. If the assets of Company available for distribution to
holders of shares of Series A Preferred Stock and Series A-1 Preferred Stock
and, if Section 3(a) does not
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<PAGE>
apply, Series A-2 Preferred Stock are insufficient to pay the full preferential
amount payable to such holders, then all assets legally available for
distribution shall be distributed among the holders of Series A Preferred Stock
and Series A-1 Preferred Stock and, if Section 3(a) does not apply, Series A-2
Preferred Stock pro rata in proportion to the respective liquidation preference
amounts which would otherwise be payable upon liquidation if all amounts payable
on or with respect to such shares were paid in full.
(d) TREATMENT OF MERGERS, CONSOLIDATIONS OR SALES OF ASSETS. Unless the
holders of a majority of the outstanding shares of Series A Preferred Stock,
Series A-1 Preferred Stock and Series A-2 Preferred Stock, voting together as a
single class, elect to have the provisions of Section 5(c)(viii) apply, for
purposes of Section 3(a) and (b) above, a sale of all or substantially all of
the assets of the Company or a merger or consolidation of the Company with or
into another corporation, following which the holders of the Company's
outstanding capital stock immediately prior to such merger, consolidation or
sale of assets do not own a majority of the outstanding voting securities of the
surviving entity (a "Sale Event"), shall be treated as a Liquidation, entitling
the holders of Series A-1 Preferred Stock and Series A-2 Preferred Stock to
receive their respective Liquidation Amounts upon consummation of such Sale
Event; PROVIDED HOWEVER, that a Sale Event shall not be treated as a Liquidation
if either:
(i) (A) payment of the Liquidation Amounts would prevent the Sale
Event from being accounted for as a "pooling of interests" transaction, (B) such
treatment is a necessary condition to accomplishing the Sale Event, and (C) the
holders of the Series A-1 Preferred Stock and Series A-2 Preferred Stock receive
securities or other property upon consummation of the Sale Event valued at an
amount per share equal to the Original Purchase Price plus a return of 20% of
the Original Purchase Price per annum compounded from the date of each
respective holder's original purchase of the Series A-1 Preferred Stock or the
Series A-2 Preferred Stock, or
(ii) under Section 5(c)(viii) (without regard to Section 5(a)(ii)),
the holders of Series A-1 Preferred Stock and Series A-2 Preferred Stock would
receive freely tradable securities upon consummation of such Sale Event valued
at the time of receipt at no less than their respective Liquidation Amounts.
(e) PAYMENT TO COMMON STOCKHOLDERS. After payment of the full Senior
Liquidation Amount, if applicable, and the full Liquidation Amount to the
holders of Series A Preferred Stock, Series A-1 Preferred Stock and Series A-2
Preferred Stock, as the case may be, and of the liquidation preferences of any
other series of Preferred Stock, all remaining assets of the Company shall be
distributed to the holders of Common Stock.
4. VOTING RIGHTS.
(a) GENERAL.
(i) Unless voting rights for shares of Series A-2 Preferred Stock
are provided by law or are otherwise provided herein, including without
limitation Section 4(b) hereof, the holders of the shares of Series A-2
Preferred Stock shall not have any voting rights until the holders of a majority
of the voting power of those classes and series of capital stock
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<PAGE>
outstanding prior to the date of issuance of the series A-2 Preferred Stock,
present in person or by proxy at a meeting at which a quorum is present, approve
the grant of voting rights to shares of Series A-2 Preferred Stock.
(ii) After such stockholders approve the grant of voting rights to
the holders of Series A-2 Preferred Stock, then, except as expressly required by
law or as otherwise provided herein, including without limitation Sections 4(b)
and 4(c) hereof, the holders of shares of Series A-1 Preferred Stock and Series
A-2 Preferred Stock shall vote together with the holders of shares of Common
Stock as a single class on all matters as to which the holders of shares of the
Company may be entitled to vote. The holders of shares of Series A-1 Preferred
Stock and Series A-2 Preferred Stock shall be entitled to the number of votes
equal to the number of shares of Common Stock into which their respective shares
of Series A-1 Preferred Stock and Series A-2 Preferred Stock are convertible on
the record date for such vote. The voting rights conferred upon the holders of
shares of Series A-1 Preferred Stock and Series A-2 Preferred Stock herein shall
be in addition to those provided by law, and neither any provision in the
Certificate of Incorporation of the Company or Bylaws nor any action taken by
the Company shall decrease or otherwise affect said voting rights provided by
law.
(b) PROTECTIVE PROVISIONS. Except as expressly required by law or as
otherwise provided herein,
(i) so long as any shares of Series A-1 Preferred Stock or Series
A-2 Preferred Stock are outstanding, the Company shall not, without first
obtaining the written consent or the affirmative vote of the holders of a
majority of the then outstanding shares of Series A-1 Preferred Stock or Series
A-2 Preferred Stock, as the case may be, voting separately as a class, take or
permit any of the following actions:
(A) any amendment to the Certificate of Incorporation of the
Company that would increase the authorized number of shares of Series A-1
Preferred Stock or Series A-2 Preferred Stock, as the case may be; or
(B) any amendment to the Certificate of Incorporation or the
Bylaws of the Company or any other action that would adversely affect any of the
rights, powers, preferences or privileges of the shares of Series A-1 Preferred
Stock or Series A-2 Preferred Stock, as the case may be;
(ii) unless and until the shares of Series A-2 Preferred Stock
become convertible into Common Stock pursuant to Section 5(a)(ii) hereof, the
Company shall not, without first obtaining the written consent or the
affirmative vote of the holders of a majority of the then outstanding shares of
Series A-2 Preferred Stock, voting separately as a class, take or permit any of
the following actions:
(A) any authorization or issuance of any shares of capital
stock of the Company, or any securities or other instruments convertible into,
exchangeable or exercisable for shares of capital stock of the Company, having
rights to dividends or amounts payable upon liquidation or redemption ranking
senior to or pari passu with the common rights of the Series A-2 Preferred
Stock;
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<PAGE>
(B) any amendment of the terms of any existing shares of
capital stock of the Company, or any securities or other instruments convertible
into, exchangeable or exercisable for shares of capital stock of the Company, to
provide for rights to dividends or upon liquidation or redemption ranking senior
to or pari passu with the common rights of the Series A-2 Preferred Stock;
(C) any declaration or payment of a dividend on any shares of
capital stock of the Company other than the Series F Preferred Stock; or
(D) any direct or indirect redemption, repurchase or other
acquisition by the Company of any of its capital stock other than the Series F
Preferred Stock;
(iii) so long as a majority of the aggregate number of shares of
Series A Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred
Stock originally issued are outstanding, the Company shall not, without first
obtaining the written consent or the affirmative vote of the holders of
seventy-five percent (75%) of the then outstanding shares of Series A Preferred
Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock, voting
together as a single class, take or permit any of the following actions:
(A) any recapitalization of a type described in Section
5(c)(vii);
(B) any declaration or payment of a dividend on any shares of
capital stock of the Company other than the Series F Preferred Stock; or
(C) except for a redemption of Series A-2 Preferred Stock
pursuant to Section 6 hereof, which shall require no stockholder or director
approval, any direct or indirect redemption, repurchase or other acquisition by
the Company of any of its capital stock other than the Series F Preferred Stock;
(iv) so long as a majority of the aggregate number of shares of
Series A Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred
Stock originally issued are outstanding, the Company shall not, without first
obtaining the written consent or the affirmative vote of the holders of
sixty-five percent (65%) of the then outstanding shares of Series A Preferred
Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock, voting
together as a single class, take or permit any of the following actions:
(A) any authorization or issuance of any shares of capital
stock of the Company, or any securities or other instruments convertible into,
exchangeable or exercisable for shares of capital stock of the Company, having
rights to dividends or amounts payable upon liquidation or redemption ranking
senior to or pari passu with the common rights of the Series A Preferred Stock,
Series A-1 Preferred Stock and Series A-2 Preferred Stock;
(B) any amendment of the terms of any existing shares of
capital stock of the Company, or any securities or other instruments convertible
into, exchangeable or exercisable for shares of capital stock of the Company, to
provide for rights to dividends or upon liquidation or redemption ranking senior
to or pari passu with the common rights of the Series A Preferred Stock, Series
A-1 Preferred Stock and Series A-2 Preferred Stock;
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<PAGE>
(C) except for a redemption of Series A-2 Preferred Stock
pursuant to Section 6 hereof, which shall require no stockholder or director
approval, any direct or indirect redemption, repurchase or other acquisition by
the Company of any series of Preferred Stock (other than the Series F Preferred
Stock, the Series A Preferred Stock, Series A-1 Preferred Stock and Series A-2
Preferred Stock) before September 7, 2006; or
(D) any Fundamental Change (as defined in Section 5(c)(viii)).
(c) RIGHT TO ELECT DIRECTORS.
(i) DEFINITION OF EVENT OF DEFAULT. An Event of Default will be
deemed to have occurred if the Company fails to comply with or breaches any
material provision hereof, of the Investor Rights Agreement or any Stock
Purchase Agreement, and such breach or failure is not cured by the Company
within 30 days after written notice thereof is furnished to the Company.
(ii) CONSEQUENCES OF EVENTS OF DEFAULT.
(A) If any Event of Default occurs, the holders of the Series
A Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock,
voting together as a single class, shall thereupon be entitled to elect two
members to the Company's Board of Directors. Such right to elect two members to
the Board of Directors will continue until such time as the condition
constituting the Event of Default ceases to exist, at which time such right will
terminate subject to revesting upon the reoccurrence and continuation of any
Event of Default. Any director elected pursuant to this Section 4(c)(ii)(A) will
continue to serve as a director until three months following the date on which
there is no longer any Event of Default.
(B) If any Event of Default occurs, each holder of Series A
Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock will
also have any other rights which such holder may have been afforded under any
contract or agreement at any time and any other rights which such holder may
have pursuant to applicable law.
(iii) REMOVAL; REPLACEMENT. Any director elected pursuant to
Section 4(c)(ii)(A) may be removed and replaced, with or without cause by the
vote of the holders of a majority of the shares of the Series A Preferred Stock,
Series A-1 Preferred Stock and Series A-2 Preferred Stock, voting together as a
single class. If any vacancy shall exist for any reason in any directorship that
the holders of such shares are entitled to appoint or elect, such vacancy may be
filled only by such holders, by delivery to the Company of a written instruction
by the affirmative vote of the holders of the Series A Preferred Stock, Series
A-1 Preferred Stock and Series A-2 Preferred Stock, voting together as a single
class, or in any other manner that is in accordance with the Certificate of
Incorporation and the Bylaws of the Company or otherwise authorized by law.
(iv) SERIES A-2 PREFERRED STOCK. The rights of holders of shares of
Series A-2 Preferred Stock under this Section 4(c) shall be effective only
following the approval of the grant of voting rights to shares of Series A-2
Preferred Stock pursuant to Section 4(a)(i) hereof.
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5. CONVERSION.
(a) OPTIONAL CONVERSION.
(i) Subject to subsection (ii), each share of Series A-1 Preferred
Stock and Series A-2 Preferred Stock shall be convertible at any time at the
option of the holder thereof into such number of fully paid and non-assessable
shares of Common Stock as is determined by dividing the Original Purchase Price
of such Series by the Conversion Price then in effect for such Series (the
"Conversion Ratio"). The Conversion Price of the Series A-1 Preferred Stock and
the Series A-2 Preferred Stock shall initially equal 10% of the respective
Original Purchase Price, and may thereafter be adjusted from time to time in
accordance with Section 5(c) hereof.
(ii) Each share of Series A-2 Preferred Stock shall be convertible
only at and after such time that the holders of a majority of the voting power
of those classes and series of the capital stock outstanding prior to the date
of issuance of the Series A-2 Preferred Stock, present in person or by proxy at
a meeting at which a quorum is present, approve the grant of such conversion
rights to shares of Series A-2 Preferred Stock.
(b) AUTOMATIC CONVERSION.
(i) MANDATORY CONVERSION (MARKET EVENTS). Subject to the provisions
of Sections 5(a)(ii) and 5(d), all outstanding shares of Series A-1 Preferred
Stock and Series A-2 Preferred Stock, shall be automatically converted into
shares of Common Stock at the then effective Conversion Ratio:
(A) upon the closing of an underwritten public offering on a
firm commitment basis pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company in which the aggregate gross proceeds to the
Company are at least $50,000,000 and in which the price per share of Common
Stock equals or exceeds 15% of the Original Purchase Price; or
(B) upon written notice from the Company to the holders
thereof at any time within 10 days after the end of any period of 20 consecutive
Trading Days in which the Market Price of the Common Stock has exceeded twenty
percent (20%) of the respective Liquidation Amount (determined as of the close
of business on the last Trading Day before the beginning of such 20-day period);
PROVIDED THAT the shares of Common Stock issued upon conversion of the Series
A-1 Preferred Stock and Series A-2 Preferred Stock are then freely tradable in
the public markets without any restriction on the holder thereof (other than a
restriction resulting from participation on the Board of Directors of the
Company by any holder of the Series A-1 Preferred Stock or Series A-2 Preferred
Stock, as the case may be).
(ii) MANDATORY CONVERSION (CONVERSION OF OTHER SHARES). Subject to
the provisions of Sections 5(a)(ii) and 5(d), all outstanding shares of Series
A-1 Preferred Stock or Series A-2 Preferred Stock, as the case may be, shall be
automatically converted into shares of Common Stock at the then effective
Conversion Ratio at such time as less than 20% of the shares of Series A-1
Preferred Stock or Series A-2 Preferred Stock, respectively, remain outstanding.
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(iii) SERIES A-2 PREFERRED STOCK. If any of the events described in
Sections 5(b)(i) or (ii) have previously occurred with respect to the Series A-2
Preferred Stock at the time such shares become convertible pursuant to Section
5(a)(ii), such shares shall thereupon automatically convert into shares of
Common Stock at the then effective Conversion Ratio.
(c) ADJUSTMENT TO APPLICABLE CONVERSION PRICE. In order to prevent
dilution of the conversion rights granted under this Section 5, the Conversion
Price shall be subject to adjustment from time to time as provided in this
Section 5(c).
(i) UPON OTHER SALES OF COMMON STOCK. If at any time while any
shares of the Series A-1 Preferred Stock or Series A-2 Preferred Stock are
outstanding, the Company issues or sells, or in accordance with Section 5(c)(ii)
is deemed to have issued or sold, any shares of Common Stock or Common Stock
Equivalents (as defined below) without consideration or at a price per share
less than the Conversion Price of the Series A-1 Preferred Stock or Series A-2
Preferred Stock, as the case may be, in effect immediately prior to such time,
then immediately upon such issue or sale, the Conversion Price shall be adjusted
to equal the product obtained by multiplying the Conversion Price in effect
immediately prior to such adjustment by a fraction:
(A) the numerator of which shall be (i) the number of shares
of Common Stock Deemed Outstanding (as defined in Section 9 hereof) immediately
prior to such issue or sale plus (ii) the number of shares of Common Stock or
Common Stock Equivalents which the aggregate purchase price of the total number
of additional shares so issued or sold would purchase at the then effective
Conversion Price, and
(B) the denominator of which shall be (i) the number of shares
of Common Stock Deemed Outstanding on the date immediately prior to such issue
or sale plus (ii) the number of additional shares of Common Stock or Common
Stock Equivalents so issued or sold.
Notwithstanding the foregoing, this Section 5(c)(i) shall not apply with respect
to the issuance of: (i) Common Stock upon the conversion of any shares of Series
A-1 Preferred Stock or Series A-2 Preferred Stock; (ii) the securities issuable
upon the exercise or conversion of any right, warrant, option or other
convertible security outstanding at the time of the issuance of the Series A-1
Preferred Stock and Series A-2 Preferred Stock; and (iii) up to 500,000 shares
of Common Stock or options to purchase such shares of Common Stock issued or
issuable at prices lower than the then current Conversion Price pursuant to any
employee benefit plans approved by the Board of Directors of the Company or the
Compensation Committee thereof.
(ii) UPON ISSUANCES OF WARRANTS, OPTIONS AND RIGHTS TO PURCHASE
COMMON STOCK OR OTHER CONVERTIBLE Securities.
(A) COMMON STOCK EQUIVALENTS. If the Company in any manner
issues or sells any options, warrants or rights to subscribe for or to purchase
Common Stock or any stock or other securities convertible into or exercisable or
exchangeable for Common Stock (collectively, "Common Stock Equivalents") and the
price per share for which Common Stock is issuable upon the exercise, conversion
or exchange of such Common Stock
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Equivalents is LESS THAN the respective Conversion Price of the Series A-1
Preferred Stock or Series A-2 Preferred Stock in effect immediately prior to the
time of such issuance or sale, then, for purposes of this Section 5(c), the
total maximum number of shares of Common Stock issuable upon the exercise,
conversion or exchange of such Common Stock Equivalents shall be deemed to be
outstanding and to have been issued and sold by the Company for the "Net
Consideration Per Share". For purposes of this paragraph, the "Net Consideration
Per Share" is determined by dividing (A) the total amount, if any, received or
receivable by the Company as consideration for the issuance or sale of such
Common Stock Equivalents, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise, conversion or exchange
thereof, by (B) the total maximum number of shares of Common Stock issuable upon
exercise, conversion or exchange of all such Common Stock Equivalents. No
adjustment of the respective Conversion Price for the Series A-1 Preferred Stock
or Series A-2 Preferred Stock shall be made under Section 5(c)(i) upon the
issuance of any shares of Common Stock pursuant to the exercise, conversion or
exchange of any Common Stock Equivalents if any such adjustment shall previously
have been made upon the original issuance of any such Common Stock Equivalents
as provided above.
(B) DECREASES IN NET CONSIDERATION PER SHARE. Should the Net
Consideration Per Share of any such Common Stock Equivalents be decreased from
time to time, then, upon the effectiveness of each such change, the respective
Conversion Price of the Series A-1 Preferred Stock and Series A-2 Preferred
Stock will be adjusted to that which would have been obtained had (1) the
adjustments made upon the issuance of such Common Stock Equivalents been made
upon the basis of the decreased Net Consideration Per Share of such securities,
and (2) all other adjustments made to the respective Conversion Price of the
Series A-1 Preferred Stock and Series A-2 Preferred Stock since the date of
issuance of such Common Stock Equivalents been made to such Conversion Price as
adjusted pursuant to (1) above. Any adjustment of the respective Conversion
Price pursuant to this paragraph which relates to Common Stock Equivalents shall
be disregarded, in whole or in part, as applicable, if, as, and when all, or
such portion, of such Common Stock Equivalents expire or are cancelled without
being exercised, so that the respective Conversion Price of the Series A-1
Preferred Stock and Series A-2 Preferred Stock effective immediately upon such
cancellation or expiration shall be equal to the respective Conversion Price of
the Series A-1 Preferred Stock and Series A-2 Preferred Stock in effect at the
time of the issuance of the expired or cancelled Common Stock Equivalents, with
such additional adjustments as would have been made to the Conversion Price had
the expired or cancelled Common Stock Equivalents not been issued.
(iii) CONSIDERATION OTHER THAN CASH. If any Common Stock or Common
Stock Equivalents are issued or sold or deemed to have been issued or sold for
cash, the consideration received therefor shall be deemed to be the gross amount
received by the Company. If any Common Stock or Common Stock Equivalents are
issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be (A) the Market
Price, in the case of securities or (B) the fair value thereof, in the case of
any other consideration. The fair value of any consideration other than cash or
securities shall be determined jointly by the Company and the holders of a
majority of the Series A-1 Preferred Stock and Series A-2 Preferred Stock. If
such parties are unable to reach agreement within thirty (30) days, such fair
value shall be determined by an Appraisal.
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(iv) INTEGRATED TRANSACTIONS. In case any Common Stock Equivalents
are issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Common Stock Equivalents by the parties
thereto, the Common Stock Equivalents shall be deemed to have been issued
without consideration.
(v) REACQUIRED SHARES. The disposition of any shares owned or held
by or for the account of the Company or any subsidiary of the Company shall be
considered an issue or sale of Common Stock.
(vi) RECORD DATE. If the Company determines a record date of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock or Common Stock
Equivalents or (B) to subscribe for or purchase Common Stock or Common Stock
Equivalents, then, for purposes of this Section 5(c), such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(vii) STOCK SPLITS, STOCK DIVIDENDS AND RECAPITALIZATIONS. If the
Company, at any time while any shares of Series A-1 Preferred Stock or Series
A-2 Preferred Stock are outstanding, shall (A) pay a stock dividend or otherwise
make a distribution or distributions on shares of its Common Stock payable in
shares of its capital stock (whether Common Stock or capital stock of any
class), (B) subdivide its outstanding shares of Common Stock into a larger
number of shares, (C) combine its outstanding shares of Common Stock into a
smaller number of shares, or (D) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the Conversion Price
designated in Section 5(a) shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock of the Company
outstanding immediately before such event and of which the denominator shall be
the number of shares of Common Stock outstanding immediately after such event.
Any adjustment made pursuant to this Section 5(c)(vii) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(viii) CAPITAL REORGANIZATION, MERGER OR SALE OF ASSETS. Any
recapitalization, reorganization, or reclassification (other than as described
in Section 5(c)(vii)), or any consolidation, merger, sale of all or
substantially all of the assets of the Company to another person or entity or
other transaction which is effected in such a way that holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as a "Fundamental Change." Subject to the provisions of Section 3(d),
prior to the consummation of any Fundamental Change, the Company shall make
appropriate provision (in form and substance satisfactory to the holders of a
majority of the Series A Preferred Stock, Series A-1 Preferred Stock and Series
A-2 Preferred Stock) to ensure that all holders of shares of Series A Preferred
Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock shall
thereafter have the right to acquire and receive in lieu of or in addition to
(as the case may be) the shares of Common Stock immediately theretofore issuable
upon conversion thereof, such shares of stock, securities
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or assets as may be issued or payable with respect to or in exchange for the
number of shares of Common Stock issuable upon conversion thereof immediately
before the Fundamental Change (without regard to Section 5(a)(ii) hereof). In
any such case, the Company shall make appropriate provision (in form and
substance satisfactory to the holders of a majority of the Series A Preferred
Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock) with respect
to the rights and interests of all holders of shares of Series A Preferred
Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock to ensure that
the provisions of this Section 5 shall thereafter be applicable to the Series A
Preferred Stock, Series A-1 Preferred Stock and Series A-2 Preferred Stock,
respectively, including, in the case of any such consolidation, merger or sale
in which the successor entity or purchasing entity is other than the Company, an
immediate adjustment of the Conversion Ratio taking into account the value of
the Common Stock reflected by the terms of such consolidation, merger or sale,
if the value per share so reflected is less than the Market Price of the Common
Stock in effect immediately prior to such consolidation, merger or sale. The
Company shall not effect any such consolidation, merger or sale unless prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from such consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance satisfactory to the holders
of a majority of the Series A Preferred Stock, Series A-1 Preferred Stock and
Series A-2 Preferred Stock, respectively), the obligation to deliver to holders
of shares of Series A-1 Preferred Stock and Series A-2 Preferred Stock such
shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to acquire.
(ix) OTHER DILUTIVE ISSUANCES. If any event occurs of the type
contemplated by the provisions of this Section 5(c) but not expressly provided
for by such provisions, including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features,
then the Board of Directors shall make an appropriate adjustment in the
respective Conversion Price so as to protect the rights of the holders of shares
of Series A-1 Preferred Stock and Series A-2 Preferred Stock, respectively.
(d) SURRENDER OF CERTIFICATES; PARTIAL CONVERSION. Upon a conversion
pursuant to Section 5(a) hereof, the holder of any shares of Series A-1
Preferred or Series A-2 Preferred Stock (after such time as shares of Series A-2
Preferred Stock may be converted to Common Stock) to be converted shall
surrender the certificates representing the shares of Series A-1 Preferred or
Series A-2 Preferred Stock, as the case may be, duly endorsed, at the office of
the Company or of its transfer agent and give written notice to the Company that
such holder elects to convert such shares of Series A-1 Preferred or Series A-2
Preferred Stock or specified portion thereof into shares of Common Stock as set
forth in such notice (the "Conversion Notice"). Each Conversion Notice shall be
given by facsimile or by mail, postage prepaid, addressed to the attention of
the Chief Financial Officer of the Company at the facsimile, telephone number or
address of the principal place of business of the Company. Any conversion of
shares of Series A-1 Preferred or Series A-2 Preferred Stock into Common Stock
shall be effective as of the date of the Company's receipt of such notice (the
"Conversion Date"). After such time as shares of Series A-1 Preferred or Series
A-2 Preferred Stock may be converted to Common Stock, upon an automatic
conversion pursuant to Section 5(b), the outstanding shares of Series A-1
Preferred or Series A-2 Preferred Stock, as the case may be, shall thereupon be
converted automatically without any further action by the Company or the holders
of such shares. At such time as the certificate or certificates representing
shares of Series A-1 Preferred or Series A-2 Preferred
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Stock which have been converted are surrendered to the Company, a certificate or
certificates representing the number of shares of Common Stock issuable upon
conversion thereof shall be issued and delivered. In case of conversion of only
part of the shares of Series A-1 Preferred or Series A-2 Preferred Stock
represented by a certificate or certificates surrendered to the Company, the
Company also shall forthwith issue and deliver a new certificate for the number
of shares of Series A-1 Preferred or Series A-2 Preferred Stock, which had not
been converted. Until such time as the certificate or certificates representing
shares of Series A-1 Preferred or Series A-2 Preferred Stock which are being
converted are surrendered to the Company and a certificate or certificates
representing the shares of Common Stock into which such shares of Series A-1
Preferred or Series A-2 Preferred Stock have been converted have been issued and
delivered, the certificate or certificates representing the shares of Series A-1
Preferred or Series A-2 Preferred Stock which had been converted shall represent
the shares of Common Stock into which such shares of Series A-1 Preferred or
Series A-2 Preferred Stock, as the case may be, have been converted.
(e) RESERVATION OF COMMON STOCK. The Company shall at all times reserve
from its authorized Common Stock a sufficient number of shares to provide for
conversion of all the shares of Series A-1 Preferred and Series A-2 Preferred
Stock (without regard to Section 5(a)(ii)) from time to time outstanding. As a
condition precedent to the taking of any action which would cause an adjustment
increasing the number of shares into which the outstanding shares of Series A-1
Preferred or Series A-2 Preferred Stock may be converted, the Company shall take
such corporate action as may be necessary in order that it may validly and
legally issue to the holders of shares of Series A-1 Preferred and Series A-2
Preferred Stock upon conversion fully paid and non-assessable shares of Common
Stock as may be required by this Section 5. If the Common Stock issuable upon
conversion of the shares of Series A-1 Preferred and Series A-2 Preferred Stock
is listed on any national securities exchange, the Company shall cause all
shares reserved for such conversion to be listed on such exchange, subject to
official notice of issuance upon such conversion.
(f) FRACTIONAL SHARES. In lieu of any fractional shares to which the
holder of the Series A-1 Preferred or Series A-2 Preferred Stock otherwise would
be entitled, the Company shall pay cash equal to such fraction multiplied by the
Market Price of the Company's Common Stock on the applicable Conversion Date.
(g) NO REISSUANCE OF SHARES. No shares of Series A-1 Preferred or
Series A-2 Preferred Stock acquired by the Company by reason of conversion or
otherwise shall be reissued, and all such shares shall be canceled and retired
and shall resume the status of authorized shares of Preferred Stock without
designation as to series.
6. REDEMPTION.
(a) MANDATORY REDEMPTION. If the shares of Series A-2 Preferred Stock
do not have both conversion rights pursuant to Section 5(a)(i) hereof and voting
rights pursuant to section 4(a)(ii) hereof by March 31, 2002, a holder of Series
A-2 Preferred Stock may, at its option and upon giving a Redemption Notice to
the Company, redeem all or any portion of such holder's shares of Series A-2
Preferred Stock on any date on or after September 30, 2002 (the "Redemption
Date") specified in such request. The redemption price for each share of Series
A-
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2 Preferred Stock shall equal (i) the Original Purchase Price plus all declared
and unpaid dividends thereon, plus (ii) a redemption premium of 25% per annum of
the Original Purchase Price compounded annually from the date of the original
issuance of such shares of Series A-2 Preferred Stock up to and including the
date on which such shares are redeemed (the "Redemption Price"). Unless and
until redemption of any shares of Series A-2 Preferred Stock, such shares shall
continue to have all other rights of the Series A-2 Preferred Stock.
(b) REDEMPTION NOTICE. At least 30 days before the Redemption Date,
written notice (the "Redemption Notice") shall be given by the holder of such
Series A-2 Preferred Stock to be redeemed by facsimile or by mail, postage
prepaid, addressed to the attention of the Chief Financial Officer of the
Company. The Redemption Notice shall state:
(i) the number of shares of Series A-2 Preferred Stock held by the
holder that are to be redeemed by the Company;
(ii) the Redemption Date and the Redemption Price; and
(iii) that the holder will surrender to the Company, in the manner
and at the place designated by the Company, such holder's certificate or
certificates representing the shares of Series A-2 Preferred Stock that are
being redeemed.
(c) INSUFFICIENT FUNDS FOR REDEMPTION. If the funds of the Company
legally available for redemption of any shares of Series A-2 Preferred Stock on
any Redemption Date are insufficient to redeem the number of shares of Series
A-2 Preferred Stock to be so redeemed pursuant to any Redemption Notice, the
holders of shares of Series A-2 Preferred Stock to be redeemed shall share
ratably in any funds legally available for redemption of such shares according
to the respective amounts that would be payable with respect to the number of
shares owned by them if the shares to be so redeemed were redeemed in full. The
shares of Series A-2 Preferred Stock not redeemed shall remain outstanding and
entitled to all rights and preferences provided herein. At any time thereafter
when additional funds of the Company are legally available for the redemption of
such shares of Series A-2 Preferred Stock, such funds will be used as soon as
practicable to redeem the balance of such shares, or such portion thereof for
which funds are then legally available, on the basis set forth above until such
redemption obligations have been fully discharged. For purposes of determining
whether funds are legally available for redemption of shares of the Series A
Preferred Stock as provided herein, the Company shall value its assets at the
highest amount permissible under applicable law.
(d) SURRENDER OF CERTIFICATES. On or before a Redemption Date, each
holder of Series A-2 Preferred Stock to be redeemed shall surrender the
certificate or certificates representing such shares to the Company, in the
manner and at the place designated by the Company (or if no such designation is
made, the Company's main office), and thereupon the Redemption Price for such
shares shall be payable on the Redemption Date to the order of the person whose
name appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled and retired. In the event that less
than all of the shares represented by any such certificate are redeemed, a new
certificate shall be issued representing the unredeemed shares.
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(e) NO REISSUANCE OF SERIES A-2 PREFERRED STOCK. No shares of Series
A-2 Preferred Stock acquired by the Company by reason of redemption or otherwise
shall be reissued, and all such shares shall be canceled and retired and shall
resume the status of authorized shares of Preferred Stock without designation as
to series.
7. LIMITATION OF LIABILITY.
(a) To the maximum extent permitted by law, the Company does hereby
exonerate the holders of shares of Series A-1 Preferred Stock and Series A-2
Preferred Stock and their designees serving on the Board of Directors from time
to time, or any person or entity being represented by or acting on behalf of any
of the foregoing, directly and indirectly, and their respective successors and
assigns (collectively, "Indemnitees") and waives and releases any suit, claim,
demand or cause of action of any kind arising from any action taken or failure
to take any action by an Indemnitee, unless such action or failure to take
action constitutes self-dealing or willful misconduct, and to the maximum extent
permitted by law, no Indemnitee shall be personally liable for monetary damages
as such for any action or failure to take action.
(b) The Company shall indemnify and hold harmless each Indemnitee made
or threatened to be made a party to, or having to appear as a witness in
connection with, a Proceeding (as hereinafter defined), to the fullest extent
permitted by law and against all expense, liability and loss, including without
limitation judgments, penalties, fines (including without limitation excise
taxes with respect to employee benefit plans, settlements and reasonable
expenses), and attorneys' fees and disbursements incurred or suffered by the
Indemnitee in connection with any Proceeding (as hereinafter defined), except to
the extent that the act or failure to act giving rise to the claim for
indemnification is determined by a court of competent jurisdiction without right
of appeal to have constituted bad faith or, in the case of a criminal
proceeding, unlawful conduct that the Indemnitee had reasonable cause to believe
was unlawful. The right to indemnification provided in this Section 7 shall
include the right, upon written request to the Company, to have the expenses
incurred by the Indemnitee in connection with any Proceeding (including without
limitation attorney's fees and disbursements) paid or reimbursed by the Company
in advance of the final disposition of the Proceeding to the fullest extent
permitted by law; provided that, if law so requires, the payment of such
expenses incurred by the Indemnitee in advance of the final disposition of a
Proceeding shall be made upon delivery to the Company of a written affirmation
by the Indemnitee of a good faith belief that the criteria for indemnification
have been satisfied and a written undertaking, by or on behalf of the
Indemnitee, to repay all amounts so advanced without interest if it shall
ultimately be determined that the Indemnitee was not entitled to be indemnified
under this Section 7 or otherwise. The written undertaking required by the
preceding sentence is an unlimited general obligation of the Indemnitee, but
need not be secured and shall be accepted without reference to financial ability
to make repayment. Indemnification pursuant to this Section 7 shall continue as
to an Indemnitee who has ceased to be a holder of shares of Series A-1 Preferred
Stock or Series A-2 Preferred Stock, a Director or an officer or ceased to have
any relationship with the Company and shall inure to the benefit of the
Indemnitee's heirs, executors and administrators. For purpose of this Section 7,
"Proceeding" shall mean any threatened, pending or completed action, suit or
proceeding (including without limitation any action, suit or proceeding by or in
the right of the Company), whether civil, criminal, administrative or
investigative, against any one or more Indemnitees arising from or in connection
with any action or failure to take action pursuant
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hereto or any right, power or privilege granted hereunder or in connection with
any duty of such Indemnitee to the Company. The rights to indemnification and to
the advancement of expenses provided in this Section 7 shall not be exclusive of
any other rights that any person or entity may have or hereafter acquire under
any statute, provision of the Company's Certificate of Incorporation or Bylaws,
agreement, vote of Shareholders or Directors, or otherwise.
(c) The provisions of this Section 7 relating to the limitation of
Indemnitees' liability, to indemnification and to the advancement of expenses
shall constitute a contract between the Company and each of the Indemnitees
which may be modified as to any Indemnitee only with that person's or entity's
consent or as specifically provided in this Section 7. Notwithstanding any
provision in the Certificate of Incorporation of the Company relating to
amendment of the Certificate of Incorporation of the Company generally, no
repeal or amendment of this Section 7 can be effective without the prior written
consent of the holders of a majority of the Series A-1 Preferred Stock and
Series A-2 Preferred Stock, and any such amendment or repeal which is adverse to
any Indemnitee shall apply to such Indemnitee only on a prospective basis and
shall not reduce any limitation on the personal liability of an Indemnitee or
limit the rights of an Indemnitee to indemnification or to the advancement of
expenses with respect to any action or failure to act occurring prior to the
time of such repeal or amendment.
(d) In the case of any change in law which expands the liability of an
Indemnitee or limits the indemnification rights or the rights to advancement of
expenses which the Company may provide, the right to limited liability, to
indemnification and to the advancement of expenses provided in this Section 7
shall continue as theretofore to the extent permitted by law. Conversely, if any
change in law permits the Company to limit further the liability of an
Indemnitee or to provide broader indemnification rights or rights to the
advancement of expenses than the Company was permitted to provide prior to such
change, then liability thereupon shall be so limited and the rights to
indemnification and the advancement of expenses shall be so broadened to the
extent permitted by law.
8. NOTICES OF RECORD DATE; SPECIAL MEETING. In the event of
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other corporation, or any other entity or person,
or
(c) any voluntary or involuntary dissolution, liquidation or winding up
of the Company,
then and in each such event the Company shall mail or cause to be mailed to each
holder of Series A-1 Preferred Stock and Series A-2 Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the purpose
of such dividend, distribution or right and a
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description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed, as to when the
holders of record of Common Stock (or other securities) shall be entitled to
exchange their shares of Common Stock (or other securities) for securities or
other property deliverable upon such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up. Such notice shall be mailed at least thirty (30) days prior to the
date specified in such notice on which such action is to be taken.
(d) Notwithstanding anything to the contrary in the Company's bylaws or
certificate of incorporation, the Company shall, upon the written request of
holders of a majority of the outstanding shares of Series A-2 Preferred Stock,
call one or more special meetings of the stockholders of the Company, from time
to time for the purpose of approving the provision of voting and/or conversion
rights to the holders of the shares of Class A-2 Preferred Stock.
9. DEFINED TERMS.
For purposes hereof:
(a) "APPRAISAL" means the determination of fair value by an appraiser
selected by the Company and by the holders of a majority of the Series A-1
Preferred Stock and Series A-2 Preferred Stock. In the event that the Company
and the holders of a majority of the Series A-1 Preferred Stock and Series A-2
Preferred Stock are unable to agree upon an appraiser within five days, then the
Company and the holders of a majority of the Series A-1 Preferred Stock and
Series A-2 Preferred Stock shall each choose an appraiser within five days
thereafter who shall each complete their appraisals and provide a written report
of the results thereof to the Company and the holders of the Series A-1
Preferred Stock and Series A-2 Preferred Stock, respectively, within thirty (30)
days thereafter. If the appraisals made by such appraisers do not differ by more
than ten (10%) percent of the amount of the higher appraiser, the two appraisals
shall be averaged to determine the fair value. It the appraisals differ by more
than ten (10%) percent of the amount of the higher appraiser, then a third
appraiser shall be chosen by the first two appraisers within five days after the
report of the two appraisers has been submitted. If such appraisers are unable
to agree upon the third appraiser within such time, such third appraiser shall
be designated by the American Arbitration Association in San Diego, California
("AAA") upon application of the Company or the holders of a majority of the
Series A-1 Preferred Stock and Series A-2 Preferred Stock, and such third
appraiser shall complete its appraisal and provide a written report of the
results to the Company and the holders of the Series A-1 and Series A-2
Preferred Stock, within thirty (30) days after such third appraiser is selected.
If the appraisal of such third appraiser falls between the two prior appraisals,
then the third appraisal shall determine the fair value. If the third appraisal
is higher or lower than both of the prior appraisals, then the third appraisal
and the prior appraisal which is most similar in amount to the third appraisal
shall be averaged to determine the fair value: The determination of such
appraisers shall be final and binding on the Company and all holders of shares
of Series A-1 Preferred Stock and Series A-2 Preferred Stock, respectively, and
the fees and expenses of such appraisers shall be paid by the Company.
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(b) "COMMON STOCK DEEMED OUTSTANDING" means, at any given time, the
number of shares of Common Stock actually outstanding at such time (excluding
any shares held by or for the account of the Company or any subsidiary of the
Company), plus the number of shares of Common Stock deemed to be outstanding
upon the conversion of the Series A-1 Preferred Stock or Series A-2 Preferred
Stock, as the case may be, and upon the exercise, exchange or conversion of all
Common Stock Equivalents outstanding immediately prior to an issuance or sale of
Common Stock pursuant to Section 5(c) hereof.
(c) "ORIGINAL PURCHASE PRICE" of the Series A-1 Preferred Stock and
Series A-2 Preferred Stock means the price per share at which the shares of
Series A-1 Preferred Stock and Series A-2 Preferred Stock were sold by the
Company (as adjusted for stock dividends, stock splits, combinations,
reclassifications or other similar events involving the Series A-1 Preferred
Stock and Series A-2 Preferred Stock).
(d) "INVESTOR RIGHTS AGREEMENT" means that certain Investor Rights
Agreement entered into by and among the Company and the original purchasers of
the Series A-1 Preferred Stock and Series A-2 Preferred Stock on or about the
date(s) of the issuance of the Series A-1 Preferred Stock and Series A-2
Preferred Stock, as amended from time to time.
(e) "MARKET PRICE" with respect to the Company's Common Stock means on
any particular date (i) the last sale price per share of the Common Stock on
such date on the Nasdaq National Market or other stock exchange on which the
Common Stock has been listed or if there is no such price on such date, then the
last price on such exchange on the last Trading Date preceding such date, or
(ii) if the Common Stock is not listed on the Nasdaq National Market or any
stock exchange, the average of the bid and asked price for a share of Common
Stock in the over-the-counter market, as reported by the Nasdaq SmallCap Market
at the close of business on such date, or (iii) if the Common Stock is not
quoted on the Nasdaq SmallCap Market, the average of the bid and asked price for
a share of Common stock in the over-the-counter market as reported by the
National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices) or (iv) if the Common Stock is
not listed on any domestic securities exchange or quoted in the Nasdaq system or
the domestic over-the-counter market, the "Market Price" shall be the fair value
thereof determined jointly by the Company and the holders of a majority of the
Series A-1 Preferred Stock and Series A-2 Preferred Stock; provided that if such
parties are unable to reach agreement within thirty (30) days, such fair value
shall be determined by an Appraisal.
(f) "STOCK PURCHASE AGREEMENT" means each agreement for the purchase
and sale of Series A Preferred Stock, Series A-1 Preferred Stock or Series A-2
entered into by and among the Company and the original purchasers thereof, as
amended from time to time.
(g) "TRADING DAY" means (i) a day on which the Common Stock is traded
on the Nasdaq National Market or principal stock exchange on which the Common
Stock has been listed, or (ii) if the Common Stock is not listed on the Nasdaq
National Market or any stock exchange, a day on which the Common Stock is traded
in the over-the-counter market, as reported by the Nasdaq SmallCap Market, or
(c) if the Common Stock is not quoted on the Nasdaq SmallCap Market, a day on
which the Common Stock is quoted in the over-the-counter
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market as reported by the National Quotation Bureau Incorporated (or any similar
organization or agency succeeding its functions of reporting prices).
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Exhibit 10.42
VISTA INFORMATION SOLUTIONS, INC.
1999 STOCK OPTION PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 ESTABLISHMENt. This VISTA Information Solutions, Inc. 1999 Stock
Option Plan (the "PLAN") is hereby established effective as of January 27, 1999.
1.2 PURPOSE. The purpose of the Plan is to advance the interests of
the Participating Company Group and its stockholders by providing an incentive
to attract, retain and reward persons performing services for the Participating
Company Group and by motivating such persons to contribute to the growth and
profitability of the Participating Company Group.
1.3 TERM OF PLAN. The Plan shall continue in effect until the
earlier of its termination by the Board or the date on which all of the shares
of Stock available for issuance under the Plan have been issued and all
restrictions on such shares under the terms of the Plan and the agreements
evidencing Options granted under the Plan have lapsed. However, all Incentive
Stock Options shall be granted, if at all, within ten (10) years from the
earlier of the date the Plan is adopted by the Board or the date the Plan is
duly approved by the stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 DEFINITIONS. Whenever used herein, the following terms shall
have their respective meanings set forth below:
(a) "BOARD" means the Board of Directors of the Company. If one
or more Committees have been appointed by the Board to administer the Plan,
"BOARD" also means such Committee(s).
(b) "CODE" means the Internal Revenue Code of 1986, as amended,
and any applicable regulations promulgated thereunder.
(c) "COMMITTEE" means the Compensation Committee or other
committee of the Board duly appointed to administer the Plan and having such
powers as shall be specified by the Board. Unless the powers of the Committee
have been specifically limited, the Committee shall have all of the powers of
the Board granted herein, including, without limitation, the power to amend or
terminate the Plan at any time, subject to the terms of the Plan and any
applicable limitations imposed by law.
(d) "COMPANY" means VISTA Information Solutions, Inc., a
Delaware corporation, or any successor corporation thereto.
(e) "CONSULTANT" means any person, including an advisor, engaged
by a Participating Company to render services other than as an Employee or a
Director.
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(f) "DIRECTOR" means a member of the Board or of the board of
directors of any other Participating Company.
(g) "DISABILITY" means the permanent and total disability of the
Optionee within the meaning of Section 22(e)(3) of the Code.
(h) "EMPLOYEE" means any person treated as an employee
(including an officer or a Director who is also treated as an employee) in the
records of a Participating Company and, with respect to any Incentive Stock
Option granted to such person, who is an employee for purposes of Section 422 of
the Code; provided, however, that neither service as a Director nor payment of a
director's fee shall be sufficient to constitute employment for purposes of the
Plan.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(j) "FAIR MARKET VALUE" means, as of any date, the value of a
share of Stock or other property as determined by the Board, in its discretion,
or by the Company, in its discretion, if such determination is expressly
allocated to the Company herein, subject to the following:
(i) If, on such date, the Stock is listed on a national
or regional securities exchange or market system, the Fair Market Value of a
share of Stock shall be the closing price of a share of Stock (or the mean of
the closing bid and asked prices of a share of Stock if the Stock is so quoted
instead) as quoted on the Nasdaq National Market, The Nasdaq SmallCap Market or
such other national or regional securities exchange or market system
constituting the primary market for the Stock, as reported in THE WALL STREET
JOURNAL or such other source as the Company deems reliable. If the relevant date
does not fall on a day on which the Stock has traded on such securities exchange
or market system, the date on which the Fair Market Value shall be established
shall be the last day on which the Stock was so traded prior to the relevant
date, or such other appropriate day as shall be determined by the Board, in its
discretion.
(ii) If, on such date, there is no public market for the
Stock, the Fair Market Value of a share of Stock shall be as determined by the
Board in good faith without regard to any restriction other than a restriction
which, by its terms, will never lapse.
(k) "INCENTIVE STOCK OPTION" means an Option intended to be (as
set forth in the Option Agreement) and which qualifies as an incentive stock
option within the meaning of Section 422(b) of the Code.
(l) "INSIDER" means an officer or a Director of the Company or
any other person whose transactions in Stock are subject to Section 16 of the
Exchange Act.
(m) "NONSTATUTORY STOCK OPTION" means an Option not intended to
be (as set forth in the Option Agreement) or which does not qualify as an
Incentive Stock Option.
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(n) "OPTION" means a right to purchase Stock (subject to
adjustment as provided in Section 4.2) pursuant to the terms and conditions of
the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory
Stock Option.
(o) "OPTION AGREEMENT" means a written agreement, including any
related form of stock option grant agreement, between the Company and an
Optionee setting forth the terms, conditions and restrictions of the Option
granted to the Optionee and any shares acquired upon the exercise thereof.
(p) "OPTIONEE" means a person who has been granted one or more
Options.
(q) "PARENT CORPORATION" means any present or future "parent
corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "PARTICIPATING COMPANY" means the Company or any Parent
Corporation or Subsidiary Corporation.
(s) "PARTICIPATING COMPANY GROUP" means, at any point in time,
all corporations collectively which are then Participating Companies.
(t) "RULE 16B-3" means Rule 16b-3 under the Exchange Act, as
amended from time to time, or any successor rule or regulation.
(u) "SECTION 162(m)" means Section 162(m) of the Code.
(v) "SECURITIES ACT" means the Securities Act of 1933, as
amended.
(w) "SERVICE" means an Optionee's employment or service with the
Participating Company Group, whether in the capacity of an Employee, a Director
or a Consultant. The Optionee's Service shall not be deemed to have terminated
merely because of a change in the capacity in which the Optionee renders Service
to the Participating Company Group or a change in the Participating Company for
which the Optionee renders such Service, provided that there is no interruption
or termination of the Optionee's Service. Furthermore, an Optionee's Service
with the Participating Company Group shall not be deemed to have terminated if
the Optionee takes any military leave, sick leave, or other bona fide leave of
absence approved by the Company; provided, however, that if any such leave
exceeds ninety (90) days, on the ninety-first (91st) day of such leave the
Optionee's Service shall be deemed to have terminated unless the Optionee's
right to return to Service with the Participating Company Group is guaranteed by
statute or contract. Notwithstanding the foregoing, unless otherwise designated
by the Company or required by law, a leave of absence shall not be treated as
Service for purposes of determining vesting under the Optionee's Option
Agreement. The Optionee's Service shall be deemed to have terminated either upon
an actual termination of Service or upon the corporation for which the Optionee
performs Service ceasing to be a Participating Company. Subject to the
foregoing, the Company, in its discretion, shall determine whether the
Optionee's Service has terminated and the effective date of such termination.
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(x) "STOCK" means the common stock of the Company, as adjusted
from time to time in accordance with Section 4.2.
(y) "SUBSIDIARY CORPORATION" means any present or future
"subsidiary corporation" of the Company, as defined in Section 424(f) of the
Code.
(z) "TEN PERCENT OWNER OPTIONEE" means an Optionee who, at the
time an Option is granted to the Optionee, owns stock possessing more than ten
percent (10%) of the total combined voting power of all classes of stock of a
Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 CONSTRUCTION. Captions and titles contained herein are for
convenience only and shall not affect the meaning or interpretation of any
provision of the Plan. Except when otherwise indicated by the context, the
singular shall include the plural and the plural shall include the singular. Use
of the term "or" is not intended to be exclusive, unless the context clearly
requires otherwise.
3. ADMINISTRATION.
3.1 ADMINISTRATION BY THE BOARD. The Plan shall be administered by
the Board. All questions of interpretation of the Plan or of any Option shall be
determined by the Board, and such determinations shall be final and binding upon
all persons having an interest in the Plan or such Option.
3.2 AUTHORITY OF OFFICERS. Any officer of a Participating Company
shall have the authority to act on behalf of the Company with respect to any
matter, right, obligation, determination or election which is the responsibility
of or which is allocated to the Company herein, provided the officer has
apparent authority with respect to such matter, right, obligation, determination
or election.
3.3 ADMINISTRATION WITH RESPECT TO INSIDERS. With respect to
participation by Insiders in the Plan, at any time that any class of equity
security of the Company is registered pursuant to Section 12 of the Exchange
Act, the Plan shall be administered in compliance with the requirements, if any,
of Rule 16b-3.
3.4 POWERS OF THE BOARD. In addition to any other powers set forth
in the Plan and subject to the provisions of the Plan, the Board shall have the
full and final power and authority, in its discretion:
(a) to determine the persons to whom, and the time or times at
which, Options shall be granted and the number of shares of Stock to be subject
to each Option;
(b) to designate Options as Incentive Stock Options or
Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or
other property;
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(d) to determine the terms, conditions and restrictions
applicable to each Option (which need not be identical) and any shares acquired
upon the exercise thereof, including, without limitation, (i) the exercise price
of the Option, (ii) the method of payment for shares purchased upon the exercise
of the Option, (iii) the method for satisfaction of any tax withholding
obligation arising in connection with the Option or such shares, including by
the withholding or delivery of shares of stock, (iv) the timing, terms and
conditions of the exercisability of the Option or the vesting of any shares
acquired upon the exercise thereof, (v) the time of the expiration of the
Option, (vi) the effect of the Optionee's termination of Service with the
Participating Company Group on any of the foregoing, and (vii) all other terms,
conditions and restrictions applicable to the Option or such shares not
inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or
otherwise adjust the exercise price of, or grant a new Option in substitution
for, any Option or to waive any restrictions or conditions applicable to any
Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability
of any Option or the vesting of any shares acquired upon the exercise thereof,
including with respect to the period following an Optionee's termination of
Service with the Participating Company Group;
(h) to prescribe, amend or rescind rules, guidelines and
policies relating to the Plan, or to adopt supplements to, or alternative
versions of, the Plan, including, without limitation, as the Board deems
necessary or desirable to comply with the laws of, or to accommodate the tax
policy or custom of, foreign jurisdictions whose citizens may be granted
Options; and
(i) to correct any defect, supply any omission or reconcile any
inconsistency in the Plan or any Option Agreement and to make all other
determinations and take such other actions with respect to the Plan or any
Option as the Board may deem advisable to the extent consistent with the Plan
and applicable law.
3.5 COMMITTEE COMPLYING WITH SECTION 162(m). If a Participating
Company is a "publicly held corporation" within the meaning of Section 162(m),
the Board may establish a Committee of "outside directors" within the meaning of
Section 162(m) to approve the grant of any Option which might reasonably be
anticipated to result in the payment of employee remuneration that would
otherwise exceed the limit on employee remuneration deductible for income tax
purposes pursuant to Section 162(m).
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4. SHARES SUBJECT TO PLAN.
4.1 MAXIMUM NUMBER OF SHARES ISSUABLE. Subject to adjustment as
provided in Section 4.2, the maximum aggregate number of shares of Stock that
may be issued under the Plan shall be three million (3,000,000) and shall
consist of authorized but unissued or reacquired shares of Stock or any
combination thereof. If an outstanding Option for any reason expires or is
terminated or canceled or if shares of Stock are acquired upon the exercise of
an Option subject to a Company repurchase option and are repurchased by the
Company at the Optionee's exercise price, the shares of Stock allocable to the
unexercised portion of such Option or such repurchased shares of Stock shall
again be available for issuance under the Plan.
4.2 ADJUSTMENTS FOR CHANGES IN CAPITAL STRUCTURE. In the event of
any stock dividend, stock split, reverse stock split, recapitalization,
combination, reclassification or similar change in the capital structure of the
Company, appropriate adjustments shall be made in the number and class of shares
subject to the Plan and to any outstanding Options, in the Section 162(m) Grant
Limit set forth in Section 5.4, and in the exercise price per share of any
outstanding Options. If a majority of the shares which are of the same class as
the shares that are subject to outstanding Options are exchanged for, converted
into, or otherwise become (whether or not pursuant to an Ownership Change Event,
as defined in Section 8.1) shares of another corporation (the "NEW SHARES"), the
Board may unilaterally amend the outstanding Options to provide that such
Options are exercisable for New Shares. In the event of any such amendment, the
number of shares subject to, and the exercise price per share of, the
outstanding Options shall be adjusted in a fair and equitable manner as
determined by the Board, in its discretion. Notwithstanding the foregoing, any
fractional share resulting from an adjustment pursuant to this Section 4.2 shall
be rounded down to the nearest whole number, and in no event may the exercise
price of any Option be decreased to an amount less than the par value, if any,
of the stock subject to the Option. The adjustments determined by the Board
pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 PERSONS ELIGIBLE FOR OPTIONS. Options may be granted only to
Employees, Consultants, and Directors. For purposes of the foregoing sentence,
"Employees," "Consultants" and "Directors" shall include prospective Employees,
prospective Consultants and prospective Directors to whom Options are granted in
connection with written offers of an employment or other service relationships
with the Participating Company Group. Eligible persons may be granted more than
one Option.
5.2 OPTION GRANT RESTRICTIONS. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences Service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
5.3 FAIR MARKET VALUE LIMITATION. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company
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Group, including the Plan) become exercisable by an Optionee for the first time
during any calendar year for stock having a Fair Market Value greater than One
Hundred Thousand Dollars ($100,000), the portions of such options which exceed
such amount shall be treated as Nonstatutory Stock Options. For purposes of this
Section 5.3, options designated as Incentive Stock Options shall be taken into
account in the order in which they were granted, and the Fair Market Value of
stock shall be determined as of the time the option with respect to such stock
is granted. If the Code is amended to provide for a different limitation from
that set forth in this Section 5.3, such different limitation shall be deemed
incorporated herein effective as of the date and with respect to such Options as
required or permitted by such amendment to the Code. If an Option is treated as
an Incentive Stock Option in part and as a Nonstatutory Stock Option in part by
reason of the limitation set forth in this Section 5.3, the Optionee may
designate which portion of such Option the Optionee is exercising. In the
absence of such designation, the Optionee shall be deemed to have exercised the
Incentive Stock Option portion of the Option first. Separate certificates
representing each such portion shall be issued upon the exercise of the Option.
5.4 SECTION 162(m) GRANT LIMIT. Subject to adjustment as provided in
Section 4.2, no Employee shall be granted one or more Options within any fiscal
year of the Company which in the aggregate are for the purchase of more than One
Hundred Fifty Thousand (150,000) shares (the "SECTION 162(m) GRANT LIMIT"). An
Option which is canceled in the same fiscal year in which it was granted shall
continue to be counted against the Section 162(m) Grant Limit for such period.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the
number of shares of Stock covered thereby, in such form as the Board shall from
time to time establish. No Option or purported Option shall be a valid and
binding obligation of the Company unless evidenced by a fully executed Option
Agreement. Option Agreements may incorporate all or any of the terms of the Plan
by reference and shall comply with and be subject to the following terms and
conditions:
6.1 EXERCISE PRICE. The exercise price for each Option shall be
established in the discretion of the Board; provided, however, that (a) the
exercise price per share for an Incentive Stock Option shall be not less than
the Fair Market Value of a share of Stock on the effective date of grant of the
Option, (b) the exercise price per share for a Nonstatutory Stock Option shall
be not less than eighty-five percent (85%) of the Fair Market Value of a share
of Stock on the effective date of grant of the Option, and (c) no Incentive
Stock Option granted to a Ten Percent Owner Optionee shall have an exercise
price per share less than one hundred ten percent (110%) of the Fair Market
Value of a share of Stock on the effective date of grant of the Option.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a
Nonstatutory Stock Option) may be granted with an exercise price lower than the
minimum exercise price set forth above if such Option is granted pursuant to an
assumption or substitution for another option in a manner qualifying under the
provisions of Section 424(a) of the Code.
6.2 EXERCISE PERIOD. Options shall be exercisable at such time or
times, or upon such event or events, and subject to such terms, conditions,
performance criteria, and
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restrictions as shall be determined by the Board and set forth in the Option
Agreement evidencing such Option; provided, however, that (a) no Option shall be
exercisable after the expiration of ten (10) years after the effective date of
grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent
Owner Optionee shall be exercisable after the expiration of five (5) years after
the effective date of grant of such Option, and (c) no Option granted to a
prospective Employee, prospective Consultant or prospective Director may become
exercisable prior to the date on which such person commences Service with a
Participating Company. Subject to the foregoing, unless otherwise specified by
the Board in the grant of an Option, any Option granted hereunder shall have a
term of ten (10) years from the effective date of grant of the Option.
6.3 PAYMENT OF EXERCISE PRICE.
(a) FORMS OF CONSIDERATION AUTHORIZED. Except as otherwise
provided below, payment of the exercise price for the number of shares of Stock
being purchased pursuant to any Option shall be made (i) in cash, by check or
cash equivalent, (ii) by tender to the Company, or attestation to the ownership,
of shares of Stock owned by the Optionee having a Fair Market Value (as
determined by the Company without regard to any restrictions on transferability
applicable to such stock by reason of federal or state securities laws or
agreements with an underwriter for the Company) not less than the exercise
price, (iii) by the assignment of the proceeds of a sale or loan with respect to
some or all of the shares being acquired upon the exercise of the Option
(including, without limitation, through an exercise complying with the
provisions of Regulation T as promulgated from time to time by the Board of
Governors of the Federal Reserve System) (a "CASHLESS EXERCISE"), (iv) by the
Optionee's promissory note in a form approved by the Company, (v) by such other
consideration as may be approved by the Board from time to time to the extent
permitted by applicable law, or (vi) by any combination thereof. The Board may
at any time or from time to time, by adoption of or by amendment to the standard
forms of Option Agreement described in Section 7, or by other means, grant
Options which do not permit all of the foregoing forms of consideration to be
used in payment of the exercise price or which otherwise restrict one or more
forms of consideration.
(b) LIMITATIONS ON FORMS OF CONSIDERATION.
(i) TENDER OF STOCK. Notwithstanding the foregoing, an
Option may not be exercised by tender to the Company, or attestation to the
ownership, of shares of Stock to the extent such tender or attestation would
constitute a violation of the provisions of any law, regulation or agreement
restricting the redemption of the Company's stock. Unless otherwise provided by
the Board, an Option may not be exercised by tender to the Company, or
attestation to the ownership, of shares of Stock unless such shares either have
been owned by the Optionee for more than six (6) months or were not acquired,
directly or indirectly, from the Company.
(ii) CASHLESS EXERCISE. The Company reserves, at any and
all times, the right, in the Company's sole and absolute discretion, to
establish, decline to approve or terminate any program or procedures for the
exercise of Options by means of a Cashless Exercise.
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(iii) PAYMENT BY PROMISSORY NOTE. No promissory note
shall be permitted if the exercise of an Option using a promissory note would be
a violation of any law. Any permitted promissory note shall be on such terms as
the Board shall determine at the time the Option is granted. The Board shall
have the authority to permit or require the Optionee to secure any promissory
note used to exercise an Option with the shares of Stock acquired upon the
exercise of the Option or with other collateral acceptable to the Company.
Unless otherwise provided by the Board, if the Company at any time is subject to
the regulations promulgated by the Board of Governors of the Federal Reserve
System or any other governmental entity affecting the extension of credit in
connection with the Company's securities, any promissory note shall comply with
such applicable regulations, and the Optionee shall pay the unpaid principal and
accrued interest, if any, to the extent necessary to comply with such applicable
regulations.
6.4 TAX WITHHOLDING. The Company shall have the right, but not the
obligation, to deduct from the shares of Stock issuable upon the exercise of an
Option, or to accept from the Optionee the tender of, a number of whole shares
of Stock having a Fair Market Value, as determined by the Company, equal to all
or any part of the federal, state, local and foreign taxes, if any, required by
law to be withheld by the Participating Company Group with respect to such
Option or the shares acquired upon the exercise thereof. Alternatively or in
addition, in its discretion, the Company shall have the right to require the
Optionee, through payroll withholding, cash payment or otherwise, including by
means of a Cashless Exercise, to make adequate provision for any such tax
withholding obligations of the Participating Company Group arising in connection
with the Option or the shares acquired upon the exercise thereof. The Company
shall have no obligation to deliver shares of Stock until the Participating
Company Group's tax withholding obligations have been satisfied by the Optionee.
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6.5 EFFECT OF TERMINATION OF SERVICE.
(a) OPTION EXERCISABILITY. Subject to earlier termination of the
Option as otherwise provided herein, an Option shall be exercisable after an
Optionee's termination of Service as follows:
(i) DISABILITY. If the Optionee's Service with the
Participating Company Group is terminated because of the Disability of the
Optionee, the Option, to the extent unexercised and exercisable on the date on
which the Optionee's Service terminated, may be exercised by the Optionee (or
the Optionee's guardian or legal representative) at any time prior to the
expiration of six (6) months (or such longer or shorter period of time as
determined by the Board, in its discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the date of
expiration of the Option's term as set forth in the Option Agreement evidencing
such Option (the "OPTION EXPIRATION DATE").
(ii) DEATH. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of six (6)
months (or such longer or shorter period of time as determined by the Board, in
its discretion) after the date on which the Optionee's Service terminated, but
in any event no later than the Option Expiration Date. The Optionee's Service
shall be deemed to have terminated on account of death if the Optionee dies
within thirty (30) days (or such longer or shorter period of time as determined
by the Board, in its discretion) after the Optionee's termination of Service.
(iii) OTHER TERMINATION OF SERVICE. If the Optionee's
Service with the Participating Company Group terminates for any reason, except
Disability or death, the Option, to the extent unexercised and exercisable by
the Optionee on the date on which the Optionee's Service terminated, may be
exercised by the Optionee within thirty (30) days (or such longer or shorter
period of time as determined by the Board, in its discretion) after the date on
which the Optionee's Service terminated, but in any event no later than the
Option Expiration Date.
(b) EXTENSION IF EXERCISE PREVENTED BY LAW. Notwithstanding the
foregoing, if the exercise of an Option within the applicable time periods set
forth in Section 6.5(a) is prevented by the provisions of Section 11 below, the
Option shall remain exercisable until thirty (30) days (or such longer period of
time as determined by the Board, in its discretion) after the date the Optionee
is notified by the Company that the Option is exercisable, but in any event no
later than the Option Expiration Date.
(c) EXTENSION IF OPTIONEE SUBJECT TO SECTION 16(b).
Notwithstanding the foregoing, if a sale within the applicable time periods set
forth in Section 6.5(a) of shares acquired upon the exercise of the Option would
subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option
shall remain exercisable until the earliest to occur of (i) the tenth (10th) day
following the date on which a sale of such shares by the Optionee would no
longer be
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subject to such suit, (ii) the one hundred and ninetieth (190th) day after the
Optionee's termination of Service, or (iii) the Option Expiration Date.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 GENERAL. Unless otherwise provided by the Board at the time the
Option is granted, an Option shall comply with and be subject to the terms and
conditions set forth in the standard forms of Option Agreement adopted by the
Board concurrently with its adoption of the Plan and as amended from time to
time.
7.2 AUTHORITY TO VARY TERMS. The Board shall have the authority from
time to time to vary the terms of any of the standard forms of Option Agreement
described in this Section 7 either in connection with the grant or amendment of
an individual Option or in connection with the authorization of a new standard
form or forms; provided, however, that the terms and conditions of any such new,
revised or amended standard form or forms of Option Agreement are not
inconsistent with the terms of the Plan.
8. CHANGE IN CONTROL.
8.1 DEFINITIONS.
(a) An "OWNERSHIP CHANGE EVENT" shall be deemed to have occurred
if any of the following occurs with respect to the Company: (i) the direct or
indirect sale or exchange in a single or series of related transactions by the
stockholders of the Company of more than fifty percent (50%) of the voting stock
of the Company; (ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets
of the Company; or (iv) a liquidation or dissolution of the Company.
(b) A "CHANGE IN CONTROL" shall mean an Ownership Change Event
or a series of related Ownership Change Events (collectively, a "TRANSACTION")
wherein the stockholders of the Company immediately before the Transaction do
not retain immediately after the Transaction, in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before the Transaction, direct or indirect beneficial ownership of
more than fifty percent (50%) of the total combined voting power of the
outstanding voting stock of the Company or the corporation or corporations to
which the assets of the Company were transferred (the "TRANSFEREE
CORPORATION(S)"), as the case may be. For purposes of the preceding sentence,
indirect beneficial ownership shall include, without limitation, an interest
resulting from ownership of the voting stock of one or more corporations which,
as a result of the Transaction, own the Company or the Transferee
Corporation(s), as the case may be, either directly or through one or more
subsidiary corporations. The Board shall have the right to determine whether
multiple sales or exchanges of the voting stock of the Company or multiple
Ownership Change Events are related, and its determination shall be final,
binding and conclusive.
8.2 EFFECT OF CHANGE IN CONTROL ON OPTIONS. In the event of a Change
in Control, the surviving, continuing, successor, or purchasing corporation or
parent corporation thereof, as the case may be (the "ACQUIRING CORPORATION"),
may either assume the Company's
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rights and obligations under outstanding Options or substitute for outstanding
Options substantially equivalent options for the Acquiring Corporation's stock.
For purposes of this Section 8.2, an Option shall be deemed assumed if,
following the Change in Control, the Option confers the right to purchase in
accordance with its terms and conditions, for each share of Stock subject to the
Option immediately prior to the Change in Control, the consideration (whether
stock, cash or other securities or property) to which a holder of a share of
Stock on the effective date of the Change in Control was entitled. Any Options
which are neither assumed or substituted for by the Acquiring Corporation in
connection with the Change in Control nor exercised as of the date of the Change
in Control shall terminate and cease to be outstanding effective as of the date
of the Change in Control. Notwithstanding the foregoing, shares acquired upon
exercise of an Option prior to the Change in Control and any consideration
received pursuant to the Change in Control with respect to such shares shall
continue to be subject to all applicable provisions of the Option Agreement
evidencing such Option except as otherwise provided in such Option Agreement.
9. PROVISION OF INFORMATION.
Each Optionee shall be given access to information regarding the
Company equivalent to that information generally made available to the holders
of Stock.
10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be exercisable
only by the Optionee or the Optionee's guardian or legal representative. No
Option shall be assignable or transferable by the Optionee, except by will or by
the laws of descent and distribution.
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon
exercise of Options shall be subject to compliance with all applicable
requirements of federal, state and foreign law with respect to such securities.
Options may not be exercised if the issuance of shares of Stock upon exercise
would constitute a violation of any applicable federal, state or foreign
securities laws or other law or regulations or the requirements of any stock
exchange or market system upon which the Stock may then be listed. In addition,
no Option may be exercised unless (a) a registration statement under the
Securities Act shall at the time of exercise of the Option be in effect with
respect to the shares issuable upon exercise of the Option or (b) in the opinion
of legal counsel to the Company, the shares issuable upon exercise of the Option
may be issued in accordance with the terms of an applicable exemption from the
registration requirements of the Securities Act. The inability of the Company to
obtain from any regulatory body having jurisdiction the authority, if any,
deemed by the Company's legal counsel to be necessary to the lawful issuance and
sale of any shares hereunder shall relieve the Company of any liability in
respect of the failure to issue or sell such shares as to which such requisite
authority shall not have been obtained. As a condition to the exercise of any
Option, the Company may require the Optionee to satisfy any qualifications that
may be necessary or appropriate, to evidence compliance with any applicable law
or regulation and to make any representation or warranty with respect thereto as
may be requested by the Company.
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12. INDEMNIFICATION.
In addition to such other rights of indemnification as they may
have as members of the Board or officers or employees of the Participating
Company Group, members of the Board and any officers or employees of the
Participating Company Group to whom authority to act for the Board or the
Company is delegated shall be indemnified by the Company against all reasonable
expenses, including attorneys' fees, actually and necessarily incurred in
connection with the defense of any action, suit or proceeding, or in connection
with any appeal therein, to which they or any of them may be a party by reason
of any action taken or failure to act under or in connection with the Plan, or
any right granted hereunder, and against all amounts paid by them in settlement
thereof (provided such settlement is approved by independent legal counsel
selected by the Company) or paid by them in satisfaction of a judgment in any
such action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in such action, suit or proceeding that such person is liable
for gross negligence, bad faith or intentional misconduct in duties; provided,
however, that within sixty (60) days after the institution of such action, suit
or proceeding, such person shall offer to the Company, in writing, the
opportunity at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's stockholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's stockholders under any applicable law, regulation or rule. No
termination or amendment of the Plan may adversely affect any then outstanding
Option or any unexercised portion thereof, without the consent of the Optionee,
unless such termination or amendment is required to enable an Option designated
as an Incentive Stock Option to qualify as an Incentive Stock Option or is
necessary to comply with any applicable law, regulation or rule.
14. STOCKHOLDER APPROVAL.
The Plan or any increase in the maximum aggregate number of shares
of Stock issuable thereunder as provided in Section 4.1 (the "AUTHORIZED
SHARES") shall be approved by the stockholders of the Company within twelve (12)
months of the date of adoption thereof by the Board. Options granted prior to
stockholder approval of the Plan or in excess of the Authorized Shares
previously approved by the stockholders shall become exercisable no earlier than
the date of stockholder approval of the Plan or such increase in the Authorized
Shares, as the case may be.
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PLAN HISTORY
January 27, 1999 Board adopts Plan, with an initial reserve of
3,000,000 shares.
November 23, 1999 Stockholders approve Plan, with an initial reserve of
3,000,000 shares.
<PAGE>
Exhibit 10.44
This Secured Convertible Note has not been registered for sale under the
Securities Act of 1933, as amended, or under the laws of any State and may not
be offered, sold or transferred in the absence of such registration or an
exemption therefrom under said Act.
VISTA INFORMATION SOLUTIONS, INC.
SECURED CONVERTIBLE NOTE
No. 1 December 17, 1999
$18,700,000.00 Chicago, Illinois
FOR VALUE RECEIVED, each of the undersigned, VISTA Information
Solutions, Inc., a Delaware corporation (the "Parent"), and VISTA DMS, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Parent (the
"Purchaser", and together with the Parent, collectively the "Makers" and
individually a "Maker"), hereby jointly and severally promises to pay to the
order of Moore North America, Inc., a Delaware corporation (together with its
successors and assigns, the "Holder"), the principal sum of EIGHTEEN MILLION
SEVEN HUNDRED THOUSAND DOLLARS ($18,700,000) together with all other amounts due
and owing under paragraphs 2, 3.1, 3.3, 10, 11 and other provisions hereof to
the Holder in respect of this Secured Convertible Note (as amended, modified or
supplemented from time to time, this "Convertible Note") and to pay interest
(computed on the basis of actual days elapsed and a year of 360 days) on the
unpaid principal balance hereof outstanding from time to time from and including
the date hereof until and including the date the principal amount hereof is paid
in full at the rate of six and eight-tenths percent (6.80%) per annum (the
"Regular Rate"). Accrued and unpaid interest shall be payable in arrears on the
first business day of each March, June, September and December commencing with
the first business day of March, 2000 and at the Maturity Date (hereinafter
defined). The entire principal amount outstanding hereunder, all accrued and
unpaid interest thereon and any other amounts payable to the Holder in respect
of this Convertible Note not theretofore paid shall be paid on the earlier of
(i) subject to paragraph 2.4 below, the second anniversary of the date hereof
(the "Stated Maturity Date") and (ii) acceleration of the maturity of this
Convertible Note by the Holder on the occurrence of an Event of Default (defined
below) (the earliest of such dates, the "Maturity Date").
1. DEFINITIONS.
1.1. All capitalized terms used herein without definition shall have
the meanings set forth in the Purchase Agreement. In addition, as used herein,
the following terms have the meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued or otherwise transferred by the Parent on and after
the original date of issue hereof, except (A) shares of Common Stock
issued upon conversion of this Convertible Note, (B) shares of Common
Stock issued upon conversion of the Preferred Stock or exercise of
warrants or options, in each case issued and outstanding on the date
hereof, (C) shares of Common Stock to be issued pursuant
<PAGE>
to employee benefit plans which are either (I) listed on SCHEDULE I
hereto or (II) "qualified" plans under the U.S. Internal Revenue Code,
as amended, (D) shares of Common Stock issued upon a subdivision,
combination or stock dividend of the Common Stock for which an
adjustment to the Conversion Price is made pursuant to paragraph 6.1,
(E) shares of Common Stock issued to lessors and lenders to obtain more
favorable economic terms for the Parent with respect to such lease or
loan, which are approved by the Parent's Board of Directors, so long as
the purchase price of the Common Stock issued to any party and its
Affiliates does not exceed $2,000,000, and (F) shares of common stock
all of the net proceeds of which are used to repay Indebtedness owed to
Holder.
"Canadian Collateral Documents" means, collectively, a
guarantee and indemnity, a general security agreement, a hypothec on
the universality of movable property and a charge/mortgage of land over
the property situated at 801 Milner Avenue, Scarborough, Ontario,
Canada, each granted by VISTAinfo Canada, Inc. in favor of Moore
Corporation Limited and Moore North America, Inc. as of even date
herewith as amended, modified or supplemented from time to time."
"Common Stock" means the common stock of the Parent, par value
$.001 per share.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and the terms "Controlling" and
"Controlled" (and the lower-case versions of the same) shall have
meanings correlative thereto.
"Conversion Price" shall mean, at the time of any
determination thereof (a) if no adjustments have theretofore been made
pursuant to the provisions of paragraph 6 hereof, $5.44, and (b) if any
one or more such adjustments have been so made, the amount to which the
initial Conversion Price as set forth in (a) shall have been so
adjusted pursuant to the terms of this Convertible Note.
"Conversion Shares" shall mean shares of Common Stock
purchased or purchasable by the Holder upon the conversion of this
Convertible Note, in whole or in part.
"Convertible Notes" as used herein shall mean this Convertible
Note and any other Convertible Notes issued pursuant to the terms and
provisions of paragraphs 4(b), 13 or 14 hereof.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities or instruments which are
convertible into or exchangeable for Additional Shares of Common Stock,
either immediately or upon the arrival of a specified date or the
occurrence of a specified event.
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"Current Liabilities" shall mean, as of any applicable date,
current liabilities on the consolidated balance sheet of Parent and its
Subsidiaries, as at such date, plus, to the extent not already included
therein, all outstanding Indebtedness evidenced by this Convertible
Note and the Working Capital Note and 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
Parent or any Subsidiary to a date more than one year from the date of
determination, but excluding Subordinated Debt.
"EBITDA" shall mean, for any period, the consolidated net
income of the Parent (excluding any extraordinary cash gains) for such
period PLUS, to the extent deducted in determining such consolidated
net income, any interest expense, income tax expense, depreciation and
amortization for such period.
"Excess Cash Flow" shall mean, for any period, the remainder
of (a) EBITDA for such period less (b) the sum, without duplication, of
(i) the aggregate scheduled principal payments of indebtedness for
borrowed money, actually made during such period by the Parent on a
consolidated basis, plus (ii) cash payments made by the Parent on a
consolidated basis during such period with respect to capital
expenditures, plus (iii) all federal, state, local and foreign income
taxes paid in cash by the Parent on a consolidated basis during such
period, plus (iv) all cash interest expense paid by the Parent on a
consolidated basis during such period.
"IBJ Whitehall Agreement" means that certain Credit Agreement,
dated as of June 29, 1999, by and among the Parent, certain
Subsidiaries, and IBJ Whitehall Bank & Trust Company.
"Indebtedness" means at any time for any person (a) all lease
liabilities of such person arising pursuant to leases which in
accordance with generally accepted accounting principal would be
capitalized on the balance sheet of such person, (b) all debt, secured
or unsecured, created, issued, incurred or assumed by such person for
money borrowed or for the deferred purchase price of any fixed or
capital asset, (c) debt secured by any mortgage, pledge, lien or
security interest existing on property owned by such person whether or
not the indebtedness secured thereby has been assumed, (d) all
obligations of such person with respect to letters of credit,
acceptances or similar instruments, and (e) liabilities (including
without limitation guaranties) of third parties similar in character to
those described in clauses (a) through (d) of this definition for which
such person is contingently liable (as determined in accordance with
generally accepted accounting principles).
"Market Price" shall mean with respect to any security the
closing or last sale price on a given day on the Nasdaq Stock Market,
or if the Common Stock does not trade on the Nasdaq Stock Market, on
the primary exchange or market
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(including the OTC Bulletin Board) on which the Common Stock so trades.
If at any time such security is not listed on any securities exchange
or quoted in the Nasdaq Stock Market or the over-the-counter market,
the "Market Price" will be the fair value thereof determined jointly by
the Parent and the Holder. If such parties are unable to reach
agreement within a reasonable period of time, such fair value will be
determined by an independent appraiser jointly selected by the Parent
and the Holder and the fees and expenses of such independent appraiser
shall be borne by the party whose last assertion prior to selection of
an independent appraiser of the Market Price was furthest away from the
Market Price determined by the appraiser.
"Net Worth" shall mean as of any applicable date the
consolidated total assets of Parent and its Subsidiaries minus Total
Liabilities.
"Options" shall mean any rights or options to subscribe for or
to purchase Common Stock or Convertible Securities.
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, limited liability company,
partnership, other business entity or government, or any agency or
political subdivision thereof.
"Purchase Agreement" means the Agreement for Purchase and Sale
of Assets, dated July 28, 1999, by and among the Makers and the Holder,
as amended, modified or supplemented from time to time.
"Quick Assets" shall mean, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and
investments with maturities of fewer than 90 days of Parent.
"Security Documents" shall mean, collectively, (a) the
Security Agreement by and among the Parent, the Subsidiaries and the
Holder, (b) the Pledge Agreement by and between the Parent, certain
Subsidiaries and the Holder and (c) the Canadian Collateral Documents,
in each case dated the date hereof, and the other documents and
instruments to be executed by the Makers or any Subsidiary pursuant to
the foregoing.
"Stated Maturity Date" has the meaning set forth in the first
paragraph of this Note.
"Subordinated Debt" means any Indebtedness incurred by Parent
that is subordinated to the Indebtedness owing by Parent to Holder on
terms acceptable to Holder (and identified as being such by Parent and
Holder).
"subsidiary" shall mean, with respect to any person (herein
referred to as the "parent"), any corporation, partnership, association
or other business entity (a) of which securities or other ownership
interests representing more than 50% of
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the equity or more than 50% of the ordinary voting power or more than
50% of the general partnership interests are, at the time any
determination is being made, owned, Controlled or held, or (b) that is,
at the time any determination is made, otherwise Controlled by the
Parent or one or more subsidiaries of the Parent or by the Parent and
one or more Subsidiaries of the parent.
"Subsidiary" shall mean any subsidiary of the Parent.
"Tangible Net Worth" shall mean as of any applicable date, the
consolidated total assets of Parent 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" shall mean as of any applicable date, all
obligations classified as liabilities on the on the consolidated
balance sheet of Parent, including in any event all Indebtedness, but
specifically excluding Subordinated Debt.
"Transaction Documents" shall mean, collectively, the Purchase
Agreement, the Registration Rights Agreement, this Convertible Note,
the Working Capital Note, the Security Documents and the other
documents and agreements to be executed by the Makers or any Subsidiary
pursuant to or in connection with the Purchase Agreement.
"VISTA Canada" shall mean VISTAinfo Canada, Inc., an Ontario
corporation.
"wholly-owned subsidiary" of any person shall mean a
subsidiary of such person of which securities (except for directors'
qualifying shares) or other ownership interests representing 100% of
the equity or 100% of the ordinary voting power or 100% of the general
partnership interests are, at the time any determination is being made,
owned, Controlled or held by such person or one or more wholly-owned
subsidiaries of such person or by such person and one or more
wholly-owned subsidiaries of such person.
1.2. Unless otherwise specified, all accounting terms used in this
Secured Note shall be interpreted, and all accounting determinations and
computations thereunder shall be made, in accordance with those generally
accepted accounting principles applied in preparing the financial statements of
the Parent as of and for the period ending September 30, 1999.
2. DEFAULT INTEREST; PREPAYMENTS; EXTENSION.
2.1. Any principal or interest or other amounts owing to the Holder
hereunder not paid in full when due hereunder (whether by acceleration, maturity
or otherwise) shall bear interest at
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the rate of fifteen percent (15%) per annum (the "Default Rate"). Subject to the
immediately following sentence and to paragraph 4 below, this Convertible Note
may be voluntarily prepaid in whole or in part at any time on or after September
30, 2000 without penalty; PROVIDED that, (i) except as required by paragraph 2.3
below, this Convertible Note shall not be prepaid at any time prior to September
30, 2000 and (ii) all prepayments (except for those required by paragraph 2.3
below) must be preceded by at least 35 days' prior written notice from a Maker
to the Holder and must be accompanied by the accrued and unpaid interest on the
principal being prepaid through the date of prepayment. In the case of any
prepayment election by the Parent, the Holder shall have 30 days from the date
of receipt of notice of prepayment to elect whether to exercise its conversion
rights under paragraph 4 in respect of all or a portion of this Convertible
Note. Payments made hereunder shall be applied first to the payment of amounts
other than interest and principal payable in respect of this Convertible Note,
then to the payment of interest hereon and then to the payment of the principal
hereof.
2.2. In the event that either the Regular Rate or the Default Rate, as
applied to unpaid amounts hereunder, shall exceed the highest rate then
permitted by applicable law to be charged as interest hereunder, the Regular
Rate or the Default Rate, as the case may be, shall reduced to a rate equal such
highest rate.
2.3. Subject to the provisions of this paragraph, the Makers shall make
a mandatory prepayment of the outstanding principal amount of this Convertible
Note upon the occurrence, if any, of the following at the following times and in
the following amounts:
(a) concurrently with the receipt by any Maker or any
Subsidiary of proceeds from any issuance or sale of equity or debt
securities (including bank borrowings) which proceeds consist of cash,
cash equivalents and/or other marketable securities (other than from
exercises of options or warrants) of such Maker or Subsidiary an amount
equal to the aggregate cash proceeds received by such Maker or
Subsidiary pursuant to such issuance or sale, net of all direct costs
relating thereto (including sales and underwriter commissions and
placement fees and legal and accounting fees) less the sum of (i) any
such proceeds which are used to repay the Working Capital Note plus
(ii) a cumulative amount during the term of this Convertible Note of up
to $5,000,000 provided such amount is used solely for working capital
purposes; and
(b) within 30 days after the end of each fiscal quarter of the
Parent (or within 90 days after the end of the fourth fiscal quarter of
each fiscal year of the Parent), commencing March 31, 2000, an amount
equal to 50% of Excess Cash Flow for such fiscal quarter, together with
such information as Holder may require to determine the respective
amount of Excess Cash Flow for such fiscal quarter;
PROVIDED, that if any such prepayment is required, the Makers shall provide
Holder twenty days written notice prior to such prepayment and Holder shall have
the right to elect that such prepayment (i) be made immediately and prior to
expiration of such twenty day period, or (ii) not be made.
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2.4. The Stated Maturity Date may be extended, at the option of the
Holder and in its sole discretion, by one year, PROVIDED that the Holder shall
have provided Maker sixty days written notice prior to the original Stated
Maturity Date of such extension.
2A. COVENANTS.
2A.1 IBJ WHITEHALL COVENANTS. The Parent covenants and agrees that,
from and after the date hereof until the obligations evidenced by this
Convertible Note have been paid in full, it shall duly keep, perform and observe
each and every covenant set forth in Sections 5 and 6 of the IBJ Whitehall
Agreement (other than Sections 5.1(iv), 5.1(vi), 5.1(viii)(b), 5.1(xix),
5.1(xx), 5.1(xxi), 5.5(a)(ii), 5.7(b), 5.9, 5.11(a), 5.11(c), 5.12, 5.13, 5.14,
5.15, 6.6, 6.14 and 6.16). All of such covenants, together with related
definitions and ancillary provisions and schedules are hereby incorporated into
this Convertible Note by reference, MUTATIS MUTANDIS, as if such terms were set
forth in this Convertible Note, without regard to any expiration of any
commitment thereunder and without regard to the final payment in full of
obligations of the Parent or any other person or entity thereunder; PROVIDED,
that except as set forth in paragraph 2.3 above, any provision contained in any
of the foregoing sections of the IBJ Whitehall Agreement to the contrary
notwithstanding, no prepayments of this Convertible Note shall be required prior
to the Maturity Date.
The following terms used in the IBJ Whitehall Agreement shall have the
meanings specified below for purposes of this Convertible Note, including
without limitation this paragraph 2A:
"Agreement" means this Convertible Note.
"Borrower" means the Parent.
"Closing Date" means date hereof.
"Collateral Documents" means the Security Documents.
"Event of Default" means an Event of Default hereunder.
"Guarantors" means the Subsidiaries.
"Joinder Agreement" and "Supplement" means a supplement or counterpart
to the respective Security Documents pursuant to which a third party is added as
grantor under such documents, as appropriate.
"Lender" means the Holder.
"Loan Documents" means, collectively, this Convertible Note, the
Working Capital Note, the Security Documents and the Registration Rights
Agreement.
"Notes" means this Convertible Note and the Working Capital Note.
"Obligations" means "Obligations" as defined in the Security Documents.
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"Potential Event of Default" means a Default hereunder.
2A.2 QUICK RATIO. Parent shall maintain, as of the last day of each
calendar quarter commencing March 31, 2000, a ratio of Quick Assets to Current
Liabilities of at least .25 to 1.0. For purposes of the foregoing, however,
Current Liabilities shall not include deferred revenues.
2A.3 DEBT-NET WORTH RATIO. Parent shall maintain, as of the last day of
each calendar quarter commencing March 31, 2000, a ratio of Total Liabilities
less Subordinated Debt to Net Worth plus Subordinated Debt of not more than 1.5
to 1.0. For purposes of the foregoing, however, deferred revenues shall not be
taken into account in computing Total Liabilities or Net Worth.
2A.4 TANGIBLE NET WORTH. Parent shall maintain, as of the last day of
each calendar quarter commencing March 31, 2000, a Tangible Net Worth of not
less than ($3,000,000).
2A.5 PROFITABILITY. Parent shall maintain positive earnings before
interest, taxes, depreciation and amortization for each fiscal quarter
commencing March 31, 2000, exclusive of non-recurring charges.
2A.6 COMPLIANCE CERTIFICATE. Within thirty (30) days after the last day
of each quarter, Parent shall deliver to Holder with the quarterly financial
statements delivered pursuant to Section 5.1 of the IBJ Whitehall Agreement a
certificate in form reasonably satisfactory to the Holder and signed by either
the chief executive officer, the president, the chief financial officer or
controller of the Parent which certificate shall demonstrate compliance during
and at the end of such month with the covenants set forth in paragraphs 2A.2
through 2A.5 above.
3. EVENTS OF DEFAULT.
3.1. If any one or more of the following events (herein called "Events
of Default") shall have occurred:
(a) all or any part of the principal of, or interest on, this
Convertible Note or the Working Capital Note is not paid when and as
the same shall become due and payable, whether at the maturity thereof,
by acceleration, by notice of prepayment, or otherwise, or any other
amount payable hereunder and thereunder is not paid other than due to a
right of set-off properly asserted by the Parent under Section 12.3(k)
of the Purchase Agreement;
(b) default shall occur in the observance or performance in
any of the other covenants or agreements of either Maker or any of the
Subsidiaries contained herein, in the Working Capital Note (including,
without limitation, paragraphs 2A.1 and 2A.2 thereof), in the Security
Documents or in the Registration Rights Agreement and shall continue
for three (3) business days after written notice thereof from the
Holder;
(c) a receiver, conservator, custodian, liquidator or trustee
of either Maker or any of
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the Subsidiaries or of all or any of the assets of either Maker or any
of the Subsidiaries IS appointed by court order; or an order for relief
is entered under the federal bankruptcy laws with respect to either
Maker or any of the Subsidiaries; or any of the assets of either Maker
or any of the Subsidiaries is sequestered by court order; or a petition
is filed against either Maker or any of the Subsidiaries under the
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect;
(d) either Maker or any of the Subsidiaries files a petition
in voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, or consents to the filing of any petition
against it under any such law;
(e) either Maker or any of the Subsidiaries makes a general
assignment for the benefit of its creditors, or admits in writing its
inability to pay, or in fact does not pay, its debts generally as they
become due, or consents to the appointment of a receiver, conservator,
custodian, liquidator or trustee of either Maker or any of the
Subsidiaries, or of all or any part of the assets of either Maker or
any of the Subsidiaries;
(f) final judgment for the payment of money in excess of
$100,000 shall be rendered by a court of record against either Maker or
any of the Subsidiaries, and the Makers or any of the Subsidiaries do
not (i) discharge the same or provide for its discharge in accordance
with its terms or (ii) procure a stay of execution thereof, within
twenty-five (25) days from the date of entry thereof and within said
period of twenty-five (25) days, or such longer period during which
execution of such judgment shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal including,
but not limited to, by providing adequate bond for such judgment;
(g) any representation, warranty or certification made by
either Maker or any of the Subsidiaries or any of the Makers' or a
Subsidiary's respective officers herein or made by either Maker or any
of the Subsidiaries in this Convertible Note, the Working Capital Note,
any Security Document or any certificate, report or other instrument or
agreement delivered under or pursuant to any provision hereof or
thereof shall prove to have been false or incorrect in any material
respect on the date or dates as of which made and shall remain false or
incorrect in any material respect for 3 days following notice thereof
by the Holder;
(h) either Maker or any of the Subsidiaries shall assert that
any of the Transaction Documents is invalid or unenforceable, in whole
or in part or, except as otherwise provided in paragraph 2A.2, the
Holder shall cease to have a perfected first priority security interest
in any of the collateral owned of record or beneficially by either
Maker or any of the Subsidiaries or in the stock of the Purchaser or
any other Subsidiary pledged under the respective Security Documents;
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(i) (A) the Parent shall cease to own 100% of the issued and
outstanding capital stock of the Purchaser or the Purchaser shall cease
to own 100% of the issued and outstanding capital stock of VISTA
Canada, (B) any person or group of persons acting in concert (other
than the Holder and its affiliates) shall have acquired beneficial
ownership (within the meaning of Rule 13d-3 of the Securities and
Exchange Commission under the Securities Exchange Act of 1934) of 20%
or more of the outstanding shares of the voting stock of the Parent;
(C) the Parent shall be a party to a merger or consolidation, except a
merger or consolidation where the stockholders of the Parent prior to
such event control a majority of the voting stock of the surviving
entity after such event; or (D) as of any date a majority of the Board
of Directors of the Parent consists of individuals who were not any one
of the following (1) directors of the Parent as of the corresponding
date of the previous year, (2) selected or nominated to become
directors by the Board of Directors of the Parent of which a majority
consisted of individuals described in clause (1), or (3) selected or
nominated to become directors by the Board of Directors of the Parent
of which a majority consisted of individuals described in clause (1)
and individuals described in clause (2); or
(j) any default shall occur in any payment of principal or
interest for any other Indebtedness of the Maker or any of its
Subsidiaries having an aggregate principal amount in excess of $250,000
(whether or not the amount in default is in excess of $250,000) beyond
any grace period provided with respect thereto or in the performance of
any other term, condition or covenant contained in any agreement under
which any such Indebtedness is created, the effect of which default is
to cause or permit the holder of such Indebtedness to cause such
Indebtedness to become due prior to its stated maturity;
then, when any Event of Default described in clause (a), (b), (f), (g),
(h), (i) or (j) above has occurred and shall be continuing, the principal of
this Convertible Note and the interest accrued hereon will, upon written notice
from the Holder (provided no further notice shall be required for clauses (b)
and (g)), forthwith become and be due and payable, if not already due and
payable. When any Event of Default described in clause (c), (d) or (e) above has
occurred, then the principal of this Convertible Note and the interest accrued
hereon will immediately become due and payable, upon the occurrence thereof,
without presentment, demand, or notice of any kind. If payment of this
Convertible Note is accelerated, then the outstanding principal balance thereof
shall bear interest at the Default Rate from and after the Event of Default. The
Makers jointly and severally agree to pay to the Holder all reasonable
out-of-pocket costs and expenses incurred by the Holder in any effort to collect
this Convertible Note, including the reasonable fees of the Holder's attorneys
for services rendered in connection therewith, and pay interest at the Default
Rate on such costs and expenses to the extent not paid when demanded.
Notwithstanding anything contained herein to the contrary, the Holder, either
before or within ten days after its notice of an Event of Default (even if
payment has been made hereunder) may waive such Event of Default in whole or in
part and choose not to accelerate at such time this Convertible Note and if
payment has been made to Holder hereunder, return such payment to Maker.
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3.2. If any Event of Default specified in paragraph 3.1 above has
occurred and is continuing, the Holder may proceed to protect and enforce the
Holder's rights either by suit in equity or by action at law, or both, whether
for the specific performance of any covenant or agreement contained in this
Convertible Note or the Security Documents, or in aid of the exercise of any
power granted in this Convertible Note or the Security Documents, or to enforce
any other legal or equitable right or remedy of such holder.
3.3. Without limiting their obligations under the Security Documents,
each of the Makers jointly and severally agree to indemnify, defend and hold the
Holder, its officers, directors, agents and affiliates (and their officers and
directors) (each an "indemnified person") harmless from, against and in respect
of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
and attorneys' fees (collectively, "claims"), that such indemnified person
incurs or suffers, which arise, result from, or relate to any breach of, or
failure by either Maker or any of the Subsidiaries to perform, any of its
representations, warranties, covenants or agreements in this Convertible Note or
the Security Documents or in any schedule, certificate, exhibit or other
instrument furnished or to be furnished by either Maker or any of the
Subsidiaries hereunder or thereunder.
3.4. No failure to exercise or delay in the exercise of any right,
power or remedy accruing to the Holder, upon any breach or default of either
Maker or any of the Subsidiaries under this Convertible Note, the Purchase
Agreement or the Transaction Documents will impair any such right, power or
remedy of the Holder nor will it be construed to be a waiver of (i) any such
breach or default, or an acquiescence therein, or (ii) any similar breach or
default thereafter occurring; nor will any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.
3.5. All remedies under this Convertible Note, the Purchase Agreement
or the other Transaction Documents, by law, at equity or otherwise afforded to
the Holder, will be cumulative and not alternative.
4. CONVERSION OF CONVERTIBLE NOTE.
(a) MECHANICS. The conversion rights represented by this Convertible
Note (consisting of the right to convert $17,100,000 of the outstanding
principal portion of this Convertible Note (or any portion thereof) into shares
of Common Stock at the Conversion Price) are exercisable by the Holder in whole
or in part, at any time, or from time to time, prior to the payment in full in
cash of all of the Makers' obligations in respect of this Convertible Note, by
the surrender of this Convertible Note and the Notice of Conversion attached
hereto completed and executed on behalf of the Holder, at the office of the
Parent (or such other office or agency of the Parent as it may designate by
notice in writing to the Holder at the address of the Holder appearing on the
books of the Parent). The Notice of Conversion shall specify whether this
Convertible Note is being converted in whole or in part and if being converted
in part, the portion being converted and the portion not being converted.
(b) CERTIFICATES. This Convertible Note shall be deemed to have been
converted immediately prior to the close of business on the date of its
surrender for conversion as provided above, and the person entitled to receive
the shares of Common Stock issuable upon such
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conversion shall be treated for all purposes as the holder of record of such
shares as of the close of business on such date. As promptly as possible on or
after such date and in any event within three (3) business days thereafter, the
Parent at its expense shall issue and deliver to the person or persons entitled
to receive the same a certificate or certificates for the number of shares
issuable upon such conversion. In the event that this Convertible Note is
converted in part, the Parent at its expense will execute and deliver a new
Convertible Note of like tenor evidencing that portion of the Convertible Note
which is not being converted to Common Stock.
5. RESERVATION OF COMMON STOCK. The Parent covenants and agrees that so
long as this Convertible Note and the indebtedness evidenced thereby shall be
unpaid (in whole or in part), the Parent will at all times have authorized, and
in reserve, a sufficient number of shares of its Common Stock to provide for the
exercise of the conversion rights under this Convertible Note (assuming full
conversion at the Conversion Price from time to time in effect).
6. PROTECTION AGAINST DILUTION. The Conversion Price hereunder shall be
adjusted as hereinafter set forth:
6.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. In case after the
date hereof the Parent shall:
(a) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, or
(b) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock,
the Conversion Price shall be adjusted to the Conversion Price determined by
multiplying the Conversion Price immediately prior to such event by a fraction
(i) the numerator of which shall be the total number of outstanding shares of
Common Stock of the Parent prior to such event and (ii) the denominator of which
shall be the total number of outstanding shares of Common Stock of the Parent
immediately after such event.
6.2. ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. In case after the
date hereof the Parent shall issue, or be deemed to have issued as provided
herein, any Additional Shares of Common Stock for a price per share less than
the Conversion Price in effect immediately prior to the time of such issue, then
the Conversion Price shall be reduced to an amount equal to such price per
share. The provisions of this paragraph 6.2 shall not apply to any Additional
Shares of Common Stock which are distributed to holders of Common Stock as a
stock dividend or subdivision, for which an adjustment is provided under
paragraph 6.1 above.
6.3. ISSUANCE OF RIGHTS OR OPTIONS. If the Parent in any manner grants
any Option to subscribe for or to purchase any Additional Shares of Common Stock
or Convertible Securities and the price per share for which any Additional
Shares of Common Stock are issuable upon the exercise of such Options or upon
conversion or exchange of such Convertible Securities is less than the
Conversion Price in effect immediately prior to the time of the granting of such
Options, then the Conversion Price shall be adjusted as provided in paragraph
6.2 above on the basis that the total maximum number of Additional Shares of
Common Stock issuable upon the exercise of such Options or upon conversion or
exchange of the total maximum amount of such Convertible
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Securities issuable upon the exercise of such Options will be deemed to be
outstanding and to have been issued and sold by the Parent for such price per
share. For purposes of this paragraph 6.3, the "price per share for which
Additional Shares of Common Stock are issuable" will be determined by dividing
(a) the total amount, if any, received or receivable by the Parent as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Parent upon exercise of all
such Options, plus in the case of such Options which relate to Convertible
Securities, the minimum aggregate amount of additional consideration, if any,
payable to the Parent upon the issuance or sale of all such Convertible
Securities and the conversion or exchange thereof, by (b) the total maximum
number of Additional Shares of Common Stock issuable upon the exercise of
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options. No further adjustment of the
Conversion Price will be made when Convertible Securities are actually issued
upon the exercise of such Options or when Additional Shares of Common Stock are
actually issued upon the exercise of such Options or the conversion or exchange
of such Convertible Securities except as provided in paragraph 6.5 below.
6.4. ISSUANCE OF CONVERTIBLE SECURITIES. If the Parent in any manner
issues or sells any Convertible Securities and the price per share for which
Additional Shares of Common Stock are issuable upon such conversion or exchange
is less than the Conversion Price in effect immediately prior to the time of
such issue or sale, then the Conversion Price shall be adjusted as provided in
paragraph 6.2 above on the basis that the maximum number of Additional Shares of
Common Stock issuable upon conversion or exchange of such Convertible Securities
will be deemed to be outstanding and to have been issued and sold by the Parent
for such price per share. For the purposes of this paragraph "the price per
share for which Additional Shares of Common Stock are issuable" will be
determined by dividing (a) the total amount received or receivable by the Parent
as consideration for the issue or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to the
Parent upon the conversion or exchange thereof, by (b) the total maximum number
of Additional Shares of Common Stock issuable upon the conversion or exchange of
all such Convertible Securities. No further adjustment of the Conversion Price
will be made when Additional Shares of Common Stock are actually issued upon the
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the Conversion Price had been or are to be made pursuant to
other provisions of this paragraph 6.4, no further adjustment of the Conversion
Price will be made by reason of such issue or sale except as provided in
paragraph 6.5 below.
6.5. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS PARAGRAPH.
The following provisions shall be applicable to the making of adjustments in the
Conversion Price hereinbefore provided in this paragraph 6:
(a) CHANGE IN OPTION PRICE OR CONVERSION RATE; LAPSE OR
EXPIRATION OF OPTIONS. If the purchase price provided for in any
Options, the additional consideration, if any, payable upon the
conversion or exchange of any Convertible Securities, or the rate at
which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Conversion Price will be
readjusted to the Conversion Price which would have been applicable
hereunder at such time had such Options or Convertible
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<PAGE>
Securities still outstanding provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may
be, at the time initially granted, issued or sold; PROVIDED that if
such adjustment would result in an increase in the Conversion Price,
such adjustment will not be effective until 30 days after written
notice thereof has been given by the Parent to the Holder; PROVIDED,
that, if such Convertible Securities or Options expire or lapse without
being exercised and/or converted into Common Stock, then the Conversion
Price will be readjusted to the Conversion Price which would have been
in effect had such expired or lapsed Convertible Securities or Options
not been issued.
(b) CALCULATION OF CONSIDERATION RECEIVED. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed
to have been issued or sold for cash, the consideration received
therefor will be deemed to be the gross amount received by the Parent
therefor. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration other than cash, the amount of
the consideration other than cash received by the Parent will be the
fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration
received by the Parent will be the Market Price thereof as of the date
of receipt. If any Common Stock, Options or Convertible Securities are
issued in connection with any merger in which the Parent is the
surviving corporation, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and
business of the non-surviving corporation as is attributable to such
Common Stock, Options or Convertible Securities, as the case may be.
The fair value of any consideration other than cash and securities will
be determined jointly by the Parent and the Holder. If such parties are
unable to reach agreement within a reasonable period of time, the fair
value of such consideration will be determined by an independent
appraiser jointly selected by the Parent and the Holder and the fees
and expenses of such independent appraiser shall be borne by the party
whose last assertion of the Market Price prior to the selection of an
independent appraiser was furthest away from the Market Price
determined by the appraiser.
(c) INTEGRATED TRANSACTIONS. In case any Option is issued in
connection with the issue or sale of other securities of the Parent,
together comprising one integrated transaction in which no specific
consideration is allocated to such Option by the parties thereto, the
Option will be deemed to have been issued without consideration.
(d) TREASURY SHARES. The number of shares of Common Stock
outstanding at any given time does not include shares owned or held by
or for the account of the Parent or any of the Subsidiaries, and the
disposition of any shares so owned or held will be considered an issue
or sale of Common Stock.
6.6. CERTAIN EVENTS. If after the date hereof the Parent issues any
capital appreciation rights or other similar rights (including, but not limited
to, the granting of stock appreciation rights, phantom stock rights or other
rights with equity features), then the Parent's Board of Directors shall make an
appropriate adjustment in the Conversion Price so as to protect the rights
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<PAGE>
of the Holder; PROVIDED that no such adjustment shall increase the Conversion
Price as otherwise determined pursuant to this paragraph 6.
6.7. NOTICE OF ADJUSTMENTS. Whenever the Conversion Price shall be
required to be adjusted pursuant to this paragraph 6, the Parent shall promptly
prepare a certificate signed by the President or a Vice President of the Parent
setting forth, in reasonable detail, the event requiring the adjustment, the
amount of the adjustment, the method by which such adjustment was calculated
(including a description of the basis on which the Board of Directors of the
Parent made any determination hereunder), and shall promptly cause copies of
such certificate to be mailed (by first class mail postage prepaid) to the
Holder.
7. MERGERS, CONSOLIDATIONS, SALES. In the case of any consolidation or
merger of the Parent with another entity, or the sale of all or a substantial
part of its assets to another entity, or any reorganization or reclassification
of the Common Stock or other equity securities of the Parent (except a
subdivision or combination of the Common Stock, provision for which is made in
paragraph 6.1), then, as a condition of such consolidation, merger, sale,
reorganization or reclassification, lawful and adequate provision shall be made
whereby the Holder shall thereafter have the right to receive upon the basis and
upon the terms and conditions specified herein and in lieu of the shares of
Common Stock immediately theretofore purchasable hereunder on conversion of this
Convertible Note, such shares of stock, securities or assets as may (by virtue
of such consolidation, merger, sale, reorganization or reclassification) be
issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately
theretofore so purchasable hereunder had such consolidation, merger, sale,
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holder to the end that the provisions hereof (including, but not limited to,
provisions for adjustment of the Conversion Price) shall thereafter be
applicable as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon conversion of this Convertible Note. The
Parent shall not effect any such consolidation, merger or sale, unless prior to
or simultaneously with the consummation thereof, the successor entity (if other
than the Parent) resulting from such consolidation or merger or the entity
purchasing such assets shall assume by written instrument executed and mailed or
delivered to the Holder, the obligation to deliver to the Holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
Holder may be entitled to receive.
8. DISSOLUTION OR LIQUIDATION. In the event of any proposed
distribution of the assets of the Parent in dissolution or liquidation (except
under circumstances when the foregoing paragraph 7 shall be applicable) the
Parent shall mail notice thereof to the Holder and shall make no distribution to
stockholders until the expiration of 30 days from the date of mailing of the
aforesaid notice and, in any such case, the Holder may exercise the conversion
rights with respect to this Convertible Note within 30 days from the date of
mailing such notice and all rights herein granted not so exercised within such
30 day period shall thereafter become null and void.
9. NOTICE OF EXTRAORDINARY DIVIDENDS. If the Board of Directors of the
Parent shall declare any dividend or other distribution on its Common Stock,
except out of earned surplus or by way of a stock dividend payable on its Common
Stock, the Parent shall mail notice thereof to
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<PAGE>
the Holder not less than 30 days prior to the record date fixed for determining
stockholders entitled to participate in such dividend or other distribution and
the Holder shall participate in such dividend or other distribution to the
extent that the Convertible Notes are converted prior to such record date.
10. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
conversion of this Convertible Note but in any case where the Holder would,
except for the provisions of this paragraph, be entitled under the terms hereof
to receive a fractional share upon the complete conversion of this Convertible
Note, the Parent shall, upon the conversion of this Convertible Note for the
largest number of whole shares then called for, pay a sum in cash equal to the
proportional part of the Conversion Price represented by such fractional share.
11. FULLY PAID STOCK; TAXES. The Parent covenants and agrees that the
shares of stock represented by each and every certificate for its Common Stock
to be delivered on the exercise of the conversion rights herein provided for
shall, at the time of such delivery, be validly issued and outstanding and be
fully paid and nonassessable. Any sales, transfer or similar taxes payable in
connection with this Convertible Note, any Common Stock or certificates
representing such securities or the Security Documents shall be payable (a) by
the party which customarily pays such taxes in the applicable jurisdiction and
(b) in the absence of any customary practice, one-half by Seller and one-half by
Purchaser. All withholding taxes in respect of this Convertible Note or the
Security Documents shall be paid by Makers (i.e., the amount payable shall be
grossed up so that the net amount received after withholding shall equal the net
amount which would have been payable if no withholding obligation existed).
12. CLOSING OF TRANSFER BOOKS. The stock transfer books of the Parent
for its Common Stock shall not be closed in any manner which interferes with the
exercise of this Convertible Note, subject to the reasonable right of the Parent
promptly to assure itself that the party exercising the Convertible Note is
entitled to such Common Stock under the assignability provisions in paragraph
16.
13. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. If this Convertible Note
is exercised in part only, the Holder shall be entitled to receive a new
Convertible Note covering the portion of principal and interest hereunder of
which this Convertible Note shall not have been converted as provided in
paragraph 4 hereof. If this Convertible Note is partially assigned, this
Convertible Note shall be surrendered at the principal office of the Parent, and
thereupon a new Convertible Note shall be issued by the Makers to the Holder
covering the principal amount not assigned. The assignee of such partial
assignment of this Convertible Note shall also be entitled to receive a new
Convertible Note covering the principal and interest so assigned.
14. LOST, STOLEN, DESTROYED OR MUTILATED CONVERTIBLE NOTES. In case any
Convertible Note shall be mutilated, lost, stolen or destroyed, the Makers shall
issue a new Convertible Note of like date, tenor and denomination and deliver
the same in exchange and substitution for and upon surrender and cancellation of
any mutilated Convertible Note, or in lieu of any Convertible Note lost, stolen
or destroyed, upon receipt of evidence satisfactory to the Makers of the loss,
theft or destruction of such Convertible Note, and upon receipt of indemnity
reasonably satisfactory to the Makers (PROVIDED that in the case of an
institutional investor, its own agreement shall be deemed satisfactory to the
Makers).
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15. CONVERTIBLE NOTE HOLDER NOT SHAREHOLDER. This Convertible Note does
not confer upon the Holder any right to vote or to consent as a stockholder of
the Parent, as such, in respect of any matters whatsoever, or any other rights
or liabilities as a shareholder, prior to the exercise hereof as hereinbefore
provided.
16. GENERAL.
This Convertible Note is one of the Secured Convertible Notes referred
to in the Purchase Agreement and is subject to all of the terms and conditions
expressly made applicable to it or to Transaction Documents generally in the
Purchase Agreement which, among other things, contains waivers of certain rights
and indemnification obligations of the Makers in respect of this Convertible
Note.
All payments on account of principal, interest or other amounts shall
be made in such coin and currency of the United States of America as at the time
of payment is legal tender for the payment of public and private debts by check
drawn on a United States domiciled bank mailed and addressed to the Holder at
the address shown in the register maintained by the Makers for such purpose, or,
at the option of the Holder, in such manner and at such other place in the
United States of America as the Holder shall have designated to the Makers in
writing.
Each of the Makers hereby waives diligence, presentment, demand,
protest and notice of every kind whatsoever. The failure of the Holder to
exercise any of its rights hereunder in any particular instance shall not
constitute a waiver of the same or of any other right in that or any subsequent
instance.
This Convertible Note is secured by liens on the assets of the Makers
and the Subsidiaries pursuant to the Security Documents.
The Holder may assign all or any portion of this Convertible Note
without the consent of the Makers to not more than three persons who deliver to
the Parent documentation reasonably satisfactory to it evidencing that they meet
the following Investor Suitability Standards: at the time of the assignment of
all or any portion of the Convertible Note and at the time of conversion such
person (a) (i) has acquired the securities for investment and not with a view to
distribution and (ii) acknowledge that such securities will not be registered
under the Securities Act or applicable state securities laws and may have to be
held indefinitely unless they are subsequently registered or qualified under
such laws; (b) either (i) has a pre-existing personal or business relationship
with the Parent or its executive officers, or (ii) by reason of such person's
business or financial experience has the capacity to protect such person's own
interests in connection with the transaction; and (c) is an accredited investor
as that term is defined in Regulation D promulgated under the Securities Act.
The Makers shall not assign any of their respective rights or obligations in
respect of this Convertible Note without the prior written consent of the
Holder. This Convertible Note shall be the binding obligation of each of the
Makers and their respective successors and assigns.
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This Convertible Note is a contract made under and governed by, and
shall be construed and enforced in accordance with, the laws of the State of
Illinois applicable to contracts made and to be performed in that state.
VISTA Information Solutions, Inc.
By:
--------------------------------
Its:
--------------------------------
VISTA DMS, Inc.
By:
--------------------------------
Its:
--------------------------------
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FORM OF
NOTICE OF CONVERSION
TO: VISTA Information Solutions, Inc.
(1) The undersigned hereby elects to convert $______________ of the
outstanding balance under the Secured Convertible Note (the "Note") attached
hereto into __________ shares of Common Stock of VISTA Information Solutions,
Inc., pursuant to paragraph 4 of the attached Secured Convertible Note, and
tenders herewith the Note for [partial] cancellation [and reissuance in the
amount of $____________ under paragraph 13 of the Note].
(2) In exercising its conversion rights, the undersigned hereby
confirms and acknowledges that such person (a) (i) has acquired the securities
for investment and not with a view to distribution and (ii) acknowledges that
such securities will not be registered under the Securities Act or applicable
state securities laws and may have to be held indefinitely unless they are
subsequently registered or qualified under such laws; (b) either (i) has a
pre-existing personal or business relationship with the Parent or its executive
officers, or (ii) by reason of such person's business or financial experience
has the capacity to protect such person's own interests in connection with the
transaction; and (c) is an accredited investor as that term is defined in
Regulation D promulgated under the Securities Act.
(3) Please issue a certificate representing said shares of Common Stock
in the name of the undersigned:
--------------------------------
(Name)
- ------------- --------------------------------
(Date) (Signature)
<PAGE>
SCHEDULE I
EMPLOYEE STOCK BENEFIT PLANS
1999 Stock Option Plan
1995 Stock Incentive Plan
401(k) Plan
<PAGE>
Exhibit 10.45
VISTA INFORMATION SOLUTIONS, INC.
VISTA DMS, INC.
SECURED WORKING CAPITAL TERM NOTE
No. 1 December 17, 1999
$7,500,000 Chicago, Illinois
FOR VALUE RECEIVED, each of the undersigned, VISTA Information
Solutions, Inc., a Delaware corporation (the "Parent"), and VISTA DMS, Inc., a
Delaware corporation and a wholly-owned subsidiary of the Parent (the
"Purchaser", and together with the Parent, collectively the "Makers" and
individually a "Maker"), hereby jointly and severally promises to pay to the
order of Moore North America, Inc., a Delaware corporation (together with its
successors and assigns, the "Holder"), the principal sum of SEVEN MILLION FIVE
HUNDRED THOUSAND Dollars ($7,500,000), or if less the Aggregate Borrowing from
time to time outstanding hereunder, together with all other amounts due and
owing under paragraphs 2, 3.1, 3.3 or other provisions hereof to the Holder in
respect of this Secured Working Capital Term Note (as amended, modified or
supplemented from time to time, this "Working Capital Note") and to pay interest
(computed on the basis of actual days elapsed and a year of 360 days) on the
unpaid principal balance hereof outstanding from time to time at the rate per
annum equal to the Prime Rate plus one percent (1%) per annum (the "Regular
Rate"). Accrued and unpaid interest shall be payable monthly in arrears on the
first business day of each month commencing with the first business day of
February, 2000 and at the Maturity Date (hereinafter defined). The entire unpaid
principal amount outstanding hereunder, all accrued and unpaid interest thereon
and any other amounts payable to the Holder in respect of this Working Capital
Note not theretofore paid shall be paid on the earlier of (i) April 17, 2000
(the "Stated Maturity Date") and (ii) acceleration of the maturity of this
Working Capital Note following the occurrence of an Event of Default (defined
below) (the earlier of such dates, the "Maturity Date").
1. DEFINITIONS.
All capitalized terms used herein without definition shall have the
meanings set forth in the Purchase Agreement (hereinafter defined). In addition,
as used herein, the following terms have the meanings set forth below:
"Aggregate Borrowings" shall mean, at any time, the aggregate
principal amount of all borrowings made by the Makers which then remain
outstanding.
"Aggregate Collections" shall mean, at any time, the aggregate
amount of collections in respect of the Retained Receivables received
after the date hereof by the Holder, but in no event shall such amount
exceed $7,500,000.
"Available Amount" shall mean, at any time, the lesser of (i)
$7,500,000 and (ii) the Aggregate Collections at such time.
<PAGE>
"Canadian Collateral Documents" means, collectively, a
guarantee and indemnity, a general security agreement, a hypothec on
the universality of movable property and a charge/mortgage of land over
the property situated at 801 Milner Avenue, Scarborough, Ontario,
Canada, each granted by VISTAinfo Canada, Inc. in favor of Moore
Corporation Limited and Moore North America, Inc. as of even date
herewith, as amended, modified or supplemented from time to time.
"Control" shall mean the possession, directly or indirectly,
of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of voting
securities, by contract or otherwise, and the terms "Controlling" and
"Controlled" (and the lower-case versions of the same) shall have
meanings correlative thereto.
"Default" shall mean any event or circumstance which, but for
the giving of notice or lapse of time or both, would constitute an
Event of Default.
"Indebtedness" means at any time for any person (a) all lease
liabilities of such person arising pursuant to leases which in
accordance with generally accepted accounting principal would be
capitalized on the balance sheet of such person, (b) all debt, secured
or unsecured, created, issued, incurred or assumed by such person for
money borrowed or for the deferred purchase price of any fixed or
capital asset, (c) debt secured by any mortgage, pledge, lien or
security interest existing on property owned by such person whether or
not the indebtedness secured thereby has been assumed, (d) all
obligations of such person with respect to letters of credit,
acceptances or similar instruments, and (e) liabilities (including
without limitation guaranties) of third parties similar in character to
those described in clauses (a) through (d) of this definition for which
such person is contingently liable (as determined in accordance with
generally accepted accounting principles).
"person" shall mean any natural person, corporation, business
trust, joint venture, association, company, limited liability company,
partnership, other business entity or government, or any agency or
political subdivision thereof.
"Prime Rate" means the prime commercial lending rate from time
to time as published in The Wall Street Journal (United States
edition). Each change in any interest rate provided for herein based
upon the Prime Rate resulting from a change in the Prime Rate shall
take effect on the beginning of the day of such change in the Prime
Rate.
"Purchase Agreement" shall mean the Agreement for Purchase and
Sale of Assets, dated July 28, 1999, by and among the Makers and the
Holder, as amended, modified or supplemented from time to time.
"Retained Receivables" shall mean all lease and accounts
receivable from obligors located in the United States, retained by
Holder pursuant to the Purchase Agreement.
2
<PAGE>
"Security Documents" shall mean, collectively, (a) the
Security Agreement by and among the Parent, the Subsidiaries and the
Holder, (b) the Pledge Agreement by and between the Parent, certain
Subsidiaries and the Holder and (c) the Canadian Collateral Documents,
in each case dated the date hereof, and the other documents and
instruments to be executed by either Maker or any Subsidiary pursuant
to the foregoing.
"subsidiary" shall mean, with respect to any person (herein
referred to as the "parent"), any corporation, partnership, association
or other business entity (a) of which securities or other ownership
interests representing more than 50% of the equity or more than 50% of
the ordinary voting power or more than 50% of the general partnership
interests are, at the time any determination is being made, owned,
Controlled or held, or (b) that is, at the time any determination is
made, otherwise Controlled by the Parent or one or more subsidiaries of
the Parent or by the Parent and one or more Subsidiaries.
"Subsidiary" shall mean any subsidiary of the Parent.
"Transaction Documents" shall mean, collectively, the Purchase
Agreement, the Registration Rights Agreement, this Working Capital
Note, the Convertible Note, the Security Documents and the other
documents and agreements to be executed by the Purchaser, the Parent or
any Subsidiary pursuant to or in connection with the Purchase
Agreement.
"wholly-owned subsidiary" of any person shall mean a
subsidiary of such person of which securities (except for directors'
qualifying shares) or other ownership interests representing 100% of
the equity or 100% of the ordinary voting power or 100% of the general
partnership interests are, at the time any determination is being made,
owned, Controlled or held by such person or one or more wholly-owned
subsidiaries of such person or by such person and one or more
wholly-owned subsidiaries of such person.
"Working Capital Notes" shall mean this Secured Working
Capital Term Note and any other Secured Working Capital Term Notes
issued pursuant to the terms and provisions hereof.
2. BORROWING MECHANICS; PREPAYMENTS; DEFAULT INTEREST.
(a) The Purchaser may borrow funds from the Holder in an aggregate
principal amount outstanding at any time not to exceed the Available Amount then
in effect. The Purchaser shall be deemed to have requested on each business day
borrowings from Holder in an amount equal to the amount of proceeds actually
received by Holder in immediately available funds on such business day from
Retained Receivables. The Holder shall make available to the Purchaser the
amount of such proceeds, PROVIDED that the Holder shall have no obligation to
fund borrowings hereunder if:
(i) after giving effect to such borrowing, the Aggregate
Borrowings then outstanding would be greater than the Available Amount
then in effect,
3
<PAGE>
(ii) any Default or Event of Default has occurred and is
continuing,
(iii) the representations contained in the Security Documents
shall fail to be true and correct in all material respects,
(iv) there shall have occurred, since September 30, 1999, any
event which has, or could reasonably be expected to have, a material
adverse effect on the business, financial condition, assets,
properties, operations or prospects of the Parent or the Purchaser,
either individually or taken as whole,
(v) this Working Capital Note shall have been paid in full
because of an optional prepayment,
(vi) the New Financing has occurred, or
(vii) the Convertible Note shall have been paid in full or
otherwise terminated or cancelled.
(b) This Working Capital Note may be prepaid at the option of Makers in
whole or in part at any time without penalty. Amounts which are optionally
prepaid cannot be reborrowed. The Makers shall make mandatory principal
prepayments (accompanied in each case by the accrued and unpaid interest on the
principal amount being repaid):
(i) on the last business day of each calendar month
(commencing with the last business day of January, 2000) to the extent
necessary so that after giving effect thereto the Aggregate Borrowings
then in effect shall not exceed the Available Amount at such date;
(ii) in connection with any working capital facility for the
Purchaser or the Parent (which shall in any event be in an amount
sufficient to pay in full all amounts then outstanding under this
Working Capital Note); and
(iii) in the event the Convertible Note shall be paid in full
or for any other reason shall be terminated or cancelled.
(c) Payments, including optional and mandatory prepayments, made
hereunder shall be applied first to the payment of amounts other than interest
and principal payable in respect of this Working Capital Note, then to the
payment of interest hereon and then to the payment of the principal hereof.
(d) Upon the occurrence and during the continuance of any Default or
Event of Default, the outstanding principal amount hereunder shall bear interest
at a per annum rate equal to the Regular Rate from time to time in effect plus
5% (the "Default Rate"), but in no event shall such Default Rate be lower than
the Regular Rate plus 5% as of the first date in the period commencing upon the
occurrence of such Default or Event of Default.
4
<PAGE>
(e) In the event that either the Regular Rate or the Default Rate, as
applied to unpaid amounts hereunder, shall exceed the highest rate then
permitted by applicable law to be charged as interest hereunder, the Regular
Rate or the Default Rate, as the case may be, shall reduced to a rate equal to
such highest rate.
2A. COVENANTS.
2A.1 WORKING CAPITAL UNDERTAKING. Parent shall use its best efforts to
promptly obtain working capital financing (the "New Financing") in order to
replace this Working Capital Note; PROVIDED that the outstanding principal
amount of all indebtedness under the New Financing shall in no event exceed
$10,000,000 and any proceeds of borrowings under the New Financing shall only be
used for working capital purposes after payment in full of all obligations under
this Working Capital Note. The New Financing may be secured by a Lien on all
inventory and accounts receivable of the Parent and the Subsidiaries in which
case the Secured Party shall subordinate its Lien on the inventory and accounts
receivable of the Parent and the Subsidiaries to the rights of the lender of the
New Financing on terms reasonably satisfactory to the Secured Party. Anything
herein to the contrary notwithstanding, all proceeds from the initial borrowing
to be made at the closing of the New Financing shall be in an amount sufficient,
and shall be used to repay all amounts outstanding under this Secured Working
Capital Note.
2A.2 LOCKBOXES. So long as this Working Capital Note shall remain
outstanding the U.S. Purchaser shall not instruct its account debtors to remit
their payments on Accounts to any address other than the lockboxes described on
SCHEDULE I to this Working Capital Note (collectively, the "Lockboxes").
Remittances which are sent directly to the U.S. Purchaser or otherwise received
by the U.S. Purchaser directly from an account debtor shall be forwarded to one
of the Lockboxes on the day received
3. EVENTS OF DEFAULT.
3.1 If any one or more of the following events (herein called
"Events of Default") shall have occurred:
(a) all or any part of the principal of, or interest on, this
Working Capital Note or the Convertible Note is not paid when and as
the same shall become due and payable, whether at the maturity thereof,
by acceleration, by notice of prepayment, or otherwise, or any other
amount payable hereunder and thereunder is not paid other than due to a
right of set-off properly asserted by the Parent under Section 12.3(k)
of the Purchase Agreement;
(b) default shall occur in the observance or performance in
any of the other covenants or agreements of either Maker or any of the
Subsidiaries contained herein or in the Convertible Note (including,
without limitation paragraph 2A.1 through 2A.5 thereof), in the
Security Documents or in the Registration Rights Agreement and shall
continue for three (3) business days after written notice thereof from
the Holder;
(c) a receiver, conservator, custodian, liquidator or trustee
of either Maker or any of the Subsidiaries or of all or any of the
assets of either Maker or any of the Subsidiaries
5
<PAGE>
is appointed by court order; or an order for relief is entered under
the federal bankruptcy laws with respect to either Maker or any of the
Subsidiaries; or any of the assets of either Maker or any of the
Subsidiaries is sequestered by court order; or a petition is filed
against either Maker or any of the Subsidiaries under the bankruptcy,
reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or
hereafter in effect;
(d) either Maker or any of the Subsidiaries files a petition
in voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of
debt, dissolution or liquidation law of any jurisdiction, whether now
or hereafter in effect, or consents to the filing of any petition
against it under any such law;
(e) either Maker or any of the Subsidiaries makes a general
assignment for the benefit of its creditors, or admits in writing its
inability to pay, or in fact does not pay, its debts generally as they
become due, or consents to the appointment of a receiver, conservator,
custodian, liquidator or trustee of either Maker or any of the
Subsidiaries, or of all or any part of the assets of either Maker or
any of the Subsidiaries;
(f) final judgment for the payment of money in excess of
$100,000 shall be rendered by a court of record against either Maker or
any of the Subsidiaries, and the Maker or any of the Subsidiaries do
not (i) discharge the same or provide for its discharge in accordance
with its terms or (ii) procure a stay of execution thereof, within
twenty-five (25) days from the date of entry thereof and within said
period of twenty-five (25) days, or such longer period during which
execution of such judgment shall have been stayed, appeal therefrom and
cause the execution thereof to be stayed during such appeal including,
but not limited to, by providing adequate bond for such judgment;
(g) any representation, warranty or certification made by
either Maker or any of the Subsidiaries or any of either Maker's or a
Subsidiary's respective officers herein or made by either Maker or any
of the Subsidiaries in this Working Capital Note, the Convertible Note,
any Security Document or any certificate, report or other instrument or
agreement delivered under or pursuant to any provision hereof or
thereof shall prove to have been false or incorrect in any material
respect on the date or dates as of which made and shall remain false or
incorrect in any material respect for 3 days following notice thereof
by the Holder;
(h) either Maker or any of the Subsidiaries shall assert that
any of the Transaction Documents is invalid or unenforceable, in whole
or in part or, except as otherwise provided in paragraph 2A.2, the
Holder shall cease to have (i) a perfected first priority security
interest in any of the collateral owned of record or beneficially by
either Maker or any of the Subsidiaries or in the stock of the
Purchaser or any other Subsidiary pledged by the Parent or Purchaser
under the respective Security Documents;
(i) (A) the Parent shall cease to own 100% of the issued and
outstanding capital stock of the Purchaser or the Purchaser shall cease
to own 100% of the issued and outstanding capital stock of VISTA
Canada, (B) any person or group of persons acting in
6
<PAGE>
concert (other than the Holder and its affiliates) shall have acquired
beneficial ownership (within the meaning of Rule 13d-3 of the
Securities and Exchange Commission under the Securities Exchange Act of
1934) of 20% or more of the outstanding shares of the voting stock of
the Parent; or (C) the Parent shall be a party to a merger or
consolidation, except a merger or consolidation where the stockholders
of the Parent prior to such event control a majority of the voting
stock of the surviving entity after such event, or (D) as of any date a
majority of the Board of Directors of the Parent consists of
individuals who were not any one of the following (1) directors of the
Parent as of the corresponding date of the previous year, (2) selected
or nominated to become directors by the Board of Directors of the
Parent of which a majority consisted of individuals described in clause
(1), or (3) selected or nominated to become directors by the Board of
Directors of the Parent of which a majority consisted of individuals
described in clause (1) and individuals described in clause (2); or
(j) any default shall occur in any payment of principal or
interest for any other Indebtedness of the Borrower or any of its
Subsidiaries having an aggregate principal amount in excess of $250,000
(whether or not the amount in default is in excess of $250,000) beyond
any grace period provided with respect thereto or in the performance of
any other term, condition or covenant contained in any agreement under
which any such Indebtedness is created, the effect of which default is
to cause or permit the holder of such Indebtedness to cause such
Indebtedness to become due prior to its stated maturity.
then, when any Event of Default described in clause (a), (b), (f), (g),
(h), (i) or (j) above has occurred and shall be continuing, the principal of
this Working Capital Note and the interest accrued hereon will, upon written
notice from the Holder (provided no further notice shall be required for clauses
(b) and (g)), forthwith become and be due and payable, if not already due and
payable. When any Event of Default described in clause (c), (d) or (e) above has
occurred, then the principal of this Working Capital Note and the interest
accrued hereon will immediately become due and payable, upon the occurrence
thereof, without presentment, demand, or notice of any kind. If payment of this
Working Capital Note is accelerated, then the outstanding principal balance
thereof shall bear interest at the Default Rate from and after the Event of
Default. The Makers jointly and severally agree to pay to the Holder all
reasonable out-of-pocket costs and expenses incurred by the Holder in any effort
to collect this Working Capital Note, including the reasonable fees of the
Holder's attorneys for services rendered in connection therewith, and pay
interest at the Default Rate on such costs and expenses to the extent not paid
when demanded.
3.2 If any Event of Default specified in paragraph 3.1 above has
occurred and is continuing, the Holder may proceed to protect and enforce the
Holder's rights either by suit in equity or by action at law, or both, whether
for the specific performance of any covenant or agreement contained in this
Working Capital Note or the Security Documents, or in aid of the exercise of any
power granted in this Working Capital Note or the Security Documents, or to
enforce any other legal or equitable right or remedy of such holder.
3.3 Without limiting their obligations under the Security Documents,
the Maker agrees to indemnify, defend and hold the Holder, its officers,
directors, agents and affiliates (and
7
<PAGE>
their officers and directors) (each an "indemnified person") harmless from,
against and in respect of any and all claims, demands, losses, costs, expenses,
obligations, liabilities, damages, recoveries and deficiencies, including
interest, penalties and attorneys' fees (collectively, "claims"), that such
indemnified person incurs or suffers, which arise, result from, or relate to any
breach of, or failure by either Maker or any of the Subsidiaries to perform any
of its representations, warranties, covenants or agreements in this Working
Capital Note or the Security Documents or in any schedule, certificate, exhibit
or other instrument furnished or to be furnished by either Maker or any of the
Subsidiaries hereunder or thereunder.
3.4 No failure to exercise or delay in the exercise of any right, power
or remedy accruing to the Holder, upon any breach or default of either Maker or
any of the Subsidiaries under this Working Capital Note, the Purchase Agreement
or the Transaction Documents will impair any such right, power or remedy of the
Holder nor will it be construed to be a waiver of (i) any such breach or
default, or an acquiescence therein, or (ii) any similar breach or default
thereafter occurring; nor will any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring.
3.5 All remedies under this Working Capital Note, the Purchase
Agreement or the other Transaction Documents, by law, at equity or otherwise
afforded to the Holder, will be cumulative and not alternative.
4. PARTIAL EXERCISE AND PARTIAL ASSIGNMENT. If this Working Capital
Note is partially assigned, this Working Capital Note shall be surrendered at
the principal office of the Parent, and thereupon a new Working Capital Note
shall be issued by the Maker to the Holder covering the principal amount not
assigned. The assignee of such partial assignment of this Working Capital Note
shall also be entitled to receive a new Working Capital Note covering the
principal and interest so assigned.
5. LOST, STOLEN, DESTROYED OR MUTILATED WORKING CAPITAL NOTES. In case
any Working Capital Note shall be mutilated, lost, stolen or destroyed, the
Maker shall issue a new Working Capital Note of like date, tenor and
denomination and deliver the same in exchange and substitution for and upon
surrender and cancellation of any mutilated Working Capital Note, or in lieu of
any Working Capital Note lost, stolen or destroyed, upon receipt of evidence
satisfactory to the Maker of the loss, theft or destruction of such Working
Capital Note, and upon receipt of indemnity reasonably satisfactory to the
Makers (PROVIDED that in the case of an institutional investor or bank lender,
its own agreement shall be deemed satisfactory to the Makers).
6. GENERAL.
(a) This Working Capital Note is one of the Working Capital Notes
referred to in the Purchase Agreement and is subject to all of the terms and
conditions expressly made applicable to it or to Loan Documents generally in the
Purchase Agreement which, among other things, contains waivers of certain rights
and indemnification obligations of the Makers in respect of this Working Capital
Note.
(b) All payments on account of principal, interest or other amounts
shall be made in such coin and currency of the United States of America as at
the time of payment is legal tender for
8
<PAGE>
the payment of public and private debts by check drawn on a United States
domiciled bank mailed and addressed to the Holder at the address shown in the
register maintained by the Maker for such purpose, or, at the option of the
Holder, in such manner and at such other place in the United States of America
as the Holder shall have designated to the Maker in writing.
(c) Each of the Makers hereby waives diligence, presentment, demand,
protest and notice of every kind whatsoever. The failure of the Holder to
exercise any of its rights hereunder in any particular instance shall not
constitute a waiver of the same or of any other right in that or any subsequent
instance.
(d) This Working Capital Note is secured by liens on the assets of the
Makers and the Subsidiaries pursuant to the Security Documents.
(e) The Makers shall not assign any of their respective rights or
obligations in respect of this Working Capital Note without the prior written
consent of the Holder. This Working Capital Note shall be the binding obligation
of each of the Makers and their respective successors and assigns.
9
<PAGE>
This Working Capital Note is a contract made under and governed by, and
shall be construed and enforced in accordance with, the laws of the State of
Illinois applicable to contracts made and to be performed in that state.
VISTA Information Solutions, Inc.
By:
--------------------------------
Its:
--------------------------------
VISTA DMS, Inc.
By:
--------------------------------
Its:
--------------------------------
10
<PAGE>
SCHEDULE I
LOCKBOXES
As provided in Lockbox Servicing Agreement
11
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
333-77575 on Form S-3 and Registration Statement No. 333-96411 on Form S-8 of
VISTA Information Solutions, Inc. of our report dated April 13, 2000,
appearing in this Annual Report on Form 10-KSB of VISTA Information
Solutions, Inc. for the year ended December 31, 1999.
Deloitte & Touche LLP
San Diego, California
April 13, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 5,105
<SECURITIES> 0
<RECEIVABLES> 12,733
<ALLOWANCES> 2,503
<INVENTORY> 799
<CURRENT-ASSETS> 5,328
<PP&E> 10,610
<DEPRECIATION> 0
<TOTAL-ASSETS> 77,652
<CURRENT-LIABILITIES> 24,712
<BONDS> 0
0
1
<COMMON> 25
<OTHER-SE> 34,047
<TOTAL-LIABILITY-AND-EQUITY> 77,652
<SALES> 27,496
<TOTAL-REVENUES> 27,496
<CGS> 7,217
<TOTAL-COSTS> 33,043
<OTHER-EXPENSES> 2,670
<LOSS-PROVISION> 1,595
<INTEREST-EXPENSE> 2,670
<INCOME-PRETAX> (15,434)
<INCOME-TAX> 0
<INCOME-CONTINUING> (15,434)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,434)
<EPS-BASIC> (.87)
<EPS-DILUTED> (.87)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 25,117
<TOTAL-REVENUES> 25,117
<CGS> 6,087
<TOTAL-COSTS> 21,534
<OTHER-EXPENSES> 757
<LOSS-PROVISION> 182
<INTEREST-EXPENSE> 617
<INCOME-PRETAX> (3,192)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,192)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,192)
<EPS-BASIC> (.32)
<EPS-DILUTED> (.32)
</TABLE>
