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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-21713
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PRISM SOFTWARE CORPORATION
(Name of small business issuer in its charter)
Delaware 95-2621719
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
23696 Birtcher
Lake Forest, California 92630
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(Address of principal executive offices) (Zip code)
Issuer's telephone number (including area code): (949) 855-3100
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days. Yes No X
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Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy of
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB [ ]
The registrant's revenues for the year ended December 31, 1998 were
$602,461.
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The aggregate market value of the voting stock held by non-affiliates of
the registrant on August 31, 1999 was approximately $834,000.
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The number of shares outstanding of the registrant's only class of Common
Stock, par value $.01 per share, was 60,123,272 on August 31, 1999.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
COMPANY OVERVIEW
Prism Software Corporation (the "Company"), was organized under the laws of
Delaware in September 1970, under the name Foothill General Corporation and
subsequently changed its name to Century General Corporation. Between 1970 and
1983, the Company, either directly or indirectly through subsidiaries or other
affiliates, engaged in various business operations in various industries,
undergoing several corporate restructurings during this period of time. The
Company, having divested itself of all of its assets, merged out, sold or
otherwise disposed of all subsidiaries and other interests in other affiliates
and other entities, was dormant between June 1983 and September 1992. On
September 30, 1992, the Company acquired Wilkes Publishing Corporation, a
California corporation ("Wilkes"). In connection with the acquisition of Wilkes,
both the Company and Wilkes, a wholly-owned subsidiary of the Company upon
consummation of the acquisition, changed their respective names to Prism
Software Corporation. On January 25, 1995, Wilkes merged with and into the
Company.
The Company develops and markets protocol conversion software products that
connect desktop personal computers with high-volume, high-speed laser printers.
The Company's family of software products provides fast, easy access to high
production laser printers (50 to 250 pages per minute). The Company's Print
Manager products convert Hewlett-Packard ("HP") PCL and/or Adobe PostScript, the
most common page description languages for the PC, to Xerox Metacode. This
combines the benefits of desktop computing with greater user control and the
benefits of advanced document printing capabilities, for which Xerox production
laser printers have set the industry standard. The Company's growing customer
base covers participants in a broad range of industries including Monumental
Life Insurance, City University of New York, HarperCollins Publishers and the
Florida Department of Banking and Finance among other corporate and government
customers.
The Company distributes its products throughout North America, South
America and Europe through direct sales and resellers. Marketing, sales,
training and technical support are provided from its Lake Forest, California
corporate headquarters.
Management of the Company believes that one of the Company's key strengths
is its ability to respond rapidly to evolving niche markets with innovative
solutions.
The Company's principal executive office is located at 23696 Birtcher, Lake
Forest, California 92630, and its telephone number is (949) 855-3100.
THE PRISM SOLUTION
The computer industry of today is primarily concerned with connectivity -
the ability of companies to connect their existing and/or new computer equipment
to send and receive information. This includes the ability to print from
anywhere-to-anywhere and to utilize existing assets. This connectivity
requirement is the basis for the Company's product base and new development.
As a result, the Company believes that the continuing evolution from
centralized, mainframe-based corporate information systems to distributed data
networks and desktop computing presents a considerable opportunity for the
Company to sell its protocol conversion software products for high volume
printing and associated connectivity solutions, as more mission-critical
applications are transformed from the mainframe computer to a PC-based
environment.
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Currently, the vast majority of PCs and PC-based networks rely on
conventional desktop laser printers to produce "hard copy" documentation. These
laser printers generally produce documents at a relatively slow rate, ranging
from only 6 to 30 pages per minute ("PPM"). By utilizing the Company's products,
individuals using PCs can access high production laser printers (50 to 250 PPM)
and greatly reduce the length of time in which it takes to physically output a
document. In addition, the Company's products allow organizations to maximize
the use of high production laser printers already installed within their
communications infrastructure, which previously may have been underutilized due
to the limitations on the source of data and communications protocol which such
printers would accept.
To keep in line with connectivity solutions and therefore broaden its
market opportunities, the Company also distributes a line of related software
products that essentially work in reverse of the Company's other products.
Marketed under the name PRINTEXEC, these products provide a complete
enterprise-wide printing solution. The page description language conversion
employed allows users flexibility to print to any printer, whether desktop or
high-speed laser, from an organization's PC network, mainframe or minicomputer,
representing thousands of currently-installed systems.
BUSINESS STRATEGY
The Company's strategy is to become a leading provider of protocol
conversion software to connect desktop personal computers with high-volume,
high-speed laser printers. The Company intends to implement this strategy by
pursuing the following initiatives:
o LEVERAGE SALES THROUGH STRATEGIC ALLIANCES. The Company believes there
are a broad range of business applications for its protocol conversion
software. In order to more rapidly capitalize on the demand for such
software, the Company is establishing relationships with printer
manufacturers, other software providers and Original Equipment
Manufacturers.
o EXPAND THE COMPANY'S MARKETING AND SALES EFFORTS. To date, the Company
has relied primarily on sales to an installed base of users of Xerox
high-volume laser printers. The Company intends to expand its
marketing and sales activities by marketing directly to other high
production laser printer OEMs who in turn would offer the Company's
products to printer end-users as a "value-added" bundle with their
hardware solution. In addition, the Company intends to expand the
distribution channels for its products by establishing additional
distribution arrangements with other resellers, systems integrators,
distributors and third party suppliers. The Company also intends to
increase its market presence by expanding telemarketing and direct
mail campaigns, attending prominent trade shows in the printing
industry, increasing its advertising and strengthening its media and
public relations efforts.
o LEVERAGE EXISTING CUSTOMER RELATIONSHIPS. The Company considers its
relationships with its existing customers to be an important corporate
asset. The Company currently has over 200 customers worldwide
accounting for over 200 software installations. The Company routinely
introduces upgrades to enhance and extend its product line. The
Company believes that its direct and frequent contacts with its
customers provides the Company with information that enhances its
ability to continue to develop technologically advanced products and
to sell new products to existing customers.
o MAINTAIN COMMITMENT TO RESEARCH AND DEVELOPMENT ACTIVITIES. The
Company believes that to become a leader in providing protocol
conversion software products that connect desktop personal computers
with high-volume, high-speed laser printers, it must continue to
design and develop new and enhanced engineering software products that
incorporate advanced technologies. Accordingly, the Company believes
that its commitment to continuous research and development efforts
provides a competitive advantage. See "Product Development."
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INDUSTRY BACKGROUND
The document production of many organizations has grown steadily during the
past two decades due to increased office automation and a shift of such
production from centralized, mainframe-based corporate information systems to
PCs and intra-office and interoffice networks of PCs. This move to "desktop
computing" has in turn produced an ever-increasing need for cost-effective,
reliable solutions to produce documents faster and more efficiently within a PC
environment.
The Company's research forecasts over 200 million network-attached PCs by
2000. As a result of the increasing proliferation of PC-based networks, the
Company believes users worldwide will want to print from their PCs and PC
networks to high production laser printers in order to increase output speed in
document production and lower the cost-per-page compared to that which is
currently achievable on most desktop laser printers. In addition, the Company
believes that organizations which already possess high production laser printers
will want to maximize the utilization of (and their investment in) those
printers by allowing documents to be printed from their PC networks as they
become installed within the communications infrastructure of the organization.
Concurrent with the expansion of PC-based networks, the installed base of
high production laser printers has grown at a compounded annual rate of
approximately 30% to 35% since 1992. A significant number of these heavy duty,
high volume printers do not accept commands in multiple languages from PCs or
PC-based networks, or even larger computer systems, and require trained
professionals to monitor, manage and convert the data and printer instructions
which are sent to such printers by network users. Accordingly, PC and PC-based
network users are presently often limited or even precluded from access to such
high production laser printers and are instead relegated to using much slower
desktop laser printers.
SALES AND MARKETING
The Company currently markets and sells its products primarily through a
combination of direct sales and a network of independent sales organizations
(resellers).
The Company employs telemarketing, advertising, direct mail and trade shows
to generate leads. The Company also produces and distributes an array of sales
literature to prospective customers. Prospective leads are distributed to the
sales department according to assigned territories. Sales management applies
controlled procedures to track the quality and subsequent formal sales
follow-up, proposals, economic justification and closing activities. The Company
has also created a Website (www.prism-software.com), which generates leads and
results in firm sales.
The Company intends to expand the distribution channels for its products by
establishing additional distribution arrangements with other OEMs, resellers,
system integrators, distributors and third party suppliers.
BACKLOG AND ORDERS IN DEVELOPMENT
As of December 31, 1998 and August 31, 1999, the Company had approximately
$1.2 million and $1.9 million, respectively, in potential orders for its
products at various stages of development. This amount represents revenue
anticipated to be recognized in the future but for which a commitment to
purchase has not been received, work has not yet been initiated or work is
currently in progress. The typical duration from the time of initial contact
with the prospective customer ("prospect") to receipt of a commitment to
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purchase and installation of the products by the Company's technical personnel
at the customer's site ranges from five to seven months. Approximately 25% of
the Company's potential orders become sales during this time, but some orders
take longer to complete. The time depends on factors such as:
o The time required to properly analyze the prospect's printing and
connectivity requirements.
o Running test files ("proofs") from the prospect to determine if the
Company's products can meet the prospect's requirements;
o Preparing a formal proposal for the prospect;
o The prospect's budgeting needs and procedures;
o The configuration of the order upon acceptance of the proposal
(particularly if the order involves software customization or
hardware);
o The customer's ability to schedule the installation of the products
and
o The fact that the Company's products are sometimes part of a larger
solution involving other vendors. The prospect's interactions with
those other vendors are sometimes beyond the control of the Company,
which may create circumstances that the Company is not always able to
anticipate.
There can be no assurance that the prospective customers will make
commitments to purchase, the Company will be successful in fulfilling the orders
in a timely manner or the Company will recognize as revenue the amounts
reflected.
WARRANTIES
The Company typically provides a ninety-day material and workmanship
warranty on the diskettes or other media on which the Company's software
products are recorded, in addition to the pass-through warranties provided by
component suppliers and other vendors, which permits customers to return any
product for repair or replacement if the product does not perform as warranted.
Historically, warranty expenses have not had a material impact on the Company's
operations or its financial condition. However, there can be no assurance that
this will continue to be the case or that disputes over components or other
materials or workmanship will not arise in the future.
CURRENT PRODUCTS
The Company's current product offering consists of the Print Manager Series
of products which convert HP PCL and/or Adobe PostScript, the most common page
description languages, to Xerox Metacode. The Print Manager Series of products
enable organizations to expand the use and capabilities of their high-speed
laser printers while retaining the economies of scale that these printers offer.
The Company's core products, Print Manager/nt-PCL, Print Manager/nt-PostScript
and Print Manager/nt-PRO are installed within a corporate communications network
as a print server. Print jobs received from PCs, workstations, or other "nodes"
on the network are processed by the Company's software and routed to the
high-speed laser printer. By using the Company's Print Manager products in
conjunction with a high-speed laser printer, high volume documentation
production projects (5,000 pages or more) which might otherwise take most of an
entire day to print, can often be completed in a matter of several hours.
The Company also markets the PRINTEXEC family of products that migrates
mainframe data to local area network ("LAN") laser printers without having to
reprogram the host applications. PRINTEXEC's powerful drag-and-drop utilities
offer the design-once-and-print-anywhere capability by helping the user design
forms, format data exactly as needed, convert Xerox centralized resources for
network printing and print all documents on any PCL, PostScript, Xerox Metacode
or XES printer of choice.
Set forth below is a list of the current products of the Company, followed
by a brief description thereof.
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PRINT MANAGER/NT-PCL
Print Manager/nt-PCL converts document print files created with Windows or
DOS applications to Xerox DJDE/Metacode protocol for printing on high-speed
Xerox laser printers. Print Manager/nt-PCL not only eliminates the need for the
user to learn complex Xerox printer commands, but also enables the printers to
print complex form and graphic images formerly restricted to less productive
desktop laser printers. HP LaserJet printer drivers are used to print documents
to print files which have been adapted by Print Manager/nt-PCL. Print
Manager/nt-PCL fully supports the widely-used HP PCL 4 printer language and a
growing number of HP PCL 5 print commands.
Operating within a high-end PC platform, Print Manager/nt-PCL acts as a
print server on an office's LAN. Print Manager/nt-PCL provides users with a
contemporary, user-friendly "tool bar" graphic interface and works seamlessly
within a Novell or Windows NT-based LAN. Through the use of a special interface
channel card, Print Manager/nt-PCL attaches directly to a Xerox high-speed laser
printer via the printer's Bus and Tag (IBM 3211) communication channel. Various
connectivity options allow Print Manager/nt-PCL to accept parallel input or
direct file format input. Print Manager/nt-PCL can also output directly to the
LAN as a file instead of a hard copy printout. The file output can be in
magnetic tape, on-line, mainframe or other format, such as BARR spooler. This
flexibility allows Print Manager/nt-PCL to be integrated into a wide variety of
electronic publishing environments.
As the HP PCL protocol matures, more functions are being offered. The
Company is working with third party software developers to provide the Company
with future versions of HP PCL emulation.
PRINT MANAGER/NT-POSTSCRIPT
Print Manager/nt-PostScript is the Company's printer manager product for
centralized printers. Print Manager/nt-PostScript enables the user to convert PC
or LAN-generated PostScript Level 2 documents to Xerox DJDE/Metacode protocol
for printing on Xerox high-speed laser printers. Print Manager/nt-PostScript
also eliminates the need for the user to learn complex Xerox printer commands
and enables the printers to print complex form and graphic images which
previously had only been possible on slower desktop laser printers. Color is
also supported by Print Manager/nt-PostScript, allowing users to fully utilize
the highlight color capabilities of particular Xerox high-end laser printers.
Print Manager/nt-PostScript has the ability to interpret files as they are
received and then execute them in the most efficient manner. As with the
Company's Print Manager/nt-PCL product, Print Manager/nt-PostScript operates
within a Windows NT and Windows 95 PC platform and acts as a print server on an
office's LAN. Print Manager/nt-PostScript can also accept parallel input or
direct file format input and can output directly to the LAN as a file. Pursuant
to the Company's agreement with Artifex Software, the Company will be able to
provide future versions of the PostScript interpreter for incorporation into
Print Manager/nt-PostScript, which the Company believes should significantly
improve the robustness and portability of the product.
PRINT MANAGER/NT-PRO
Print Manager/nt-PRO is a print stream management solution that moves PC-
or LAN-generated documents seamlessly to Xerox high-speed production printing.
Print Manager/nt-PRO supports both HP PCL and PostScript Level 2 translation
capabilities with automatic emulation sensing. This dual print language
capability allows for the broadest range of print stream conversion for
mainframe or Windows based documents within an enterprise, taking full advantage
of Windows NT's features and benefits. In addition to its primary page
translation function, Print Manager/nt-PRO allows for adding user-defined
configurations for automated processing and printing.
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FREEFORM
FreeForm, a companion product to the Print Manager/nt series, is Prism
Software's Xerox forms generator. FreeForm runs in the Windows NT and Windows 95
operating systems environments and enables the design of electronic forms for
Xerox high end printing using standard Windows forms design software. FreeForm
also allows usage of templates that come with "off-the-shelf" forms design
software packages.
FreeForm accepts single or multi-page Print Manager/nt (-PCL or
- -PostScript) processed Xerox DJDE/Metacode file input and converts it directly
to Xerox forms. The output generated consists of the Xerox form (.FRM) plus a
set of supporting font (.FNT) and image (.IMG) files. Highlight color
information is detected automatically and produces a color form. This
PC-to-Forms process eliminates the repetitive and costly downloading and
reprogramming of print files.
PRINTEXEC FAMILY OF PRODUCTS
PRINTEXEC is a group of products that enables the user to transform raw
data from the mainframe or minicomputer into high quality laser printed
documents complete with form layout, graphics, typeface selections and logos.
PRINTEXEC allows users to send the same datastream to different printers within
the office whether they use Xerox DJDE/Metacode protocol, HP PCL, Adobe
PostScript or Xerox XES page description languages. The software for PRINTEXEC
is comprised of a form design module, a print stream data capture module and
edit and job control modules. PRINTEXEC provides a WYSIWYG ("What You See Is
What You Get") on-screen format and runs on a variety of operating systems,
including Windows 95/3.1 and IBM OS/2.
PRISM WIN95 PRINTER DRIVER
Prism Win95 Printer Driver is a Windows 95 printer driver system for Xerox
4000 series high-speed laser printers. It is a low-cost, entry level solution
for enabling Xerox high-speed printing. This product, which has been developed
by combining a standard Windows 95 printer driver with the Company's own
proprietary resource conversion technology, is an ideal tool for desktop PC
users whose low-speed desktop network printers slow down the production of
large, long documents. Prism Win95 Printer Driver looks and operates like the HP
LaserJet drivers that come with Windows 95 and is priced and packaged similar to
an "off-the-shelf" PC software product.
HARDWARE
The Company also offers to its customers hardware products that
specifically enable its software solutions to function more effectively. These
are standard hardware products that are purchased on an OEM basis and sold only
with the Company's software solutions. These products include:
o PRISM PLUS APPLICATION READY PLATFORM ("PARP"). This standard PC
system, with full performance capabilities and options, is an
advanced, high-powered Pentium-based platform for the Company's Print
Manager/nt and PRINTEXEC software products. The PARP system is
pre-loaded, fully configured and tested and allows the Company's
software solutions to be installed more quickly and perform more
effectively in a customer's environment.
o INTERFACE CHANNEL CARDS. These standard printed circuit cards are
designed and manufactured to perform a specific interface function
when installed in a PC that implements the Company's software as a
print server. They allow a more effective performance of data input
and output to Xerox high-speed printers.
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NEW PRODUCT DEVELOPMENT
The Company offers a broad range of products which are designed to keep
pace with technological developments in the marketplace and address the
increasingly sophisticated needs of its customers. The Company continually
focuses on upgrading or expanding its existing product line offerings and also
on developing and introducing new products.
The Company releases enhanced versions of its software products on an
ongoing basis. The Company works closely with its existing and prospective
customers to determine their requirements and to design enhancements and new
products to meet their needs. The Company believes that a substantial number of
its product enhancements in recent years have been developed as a result of the
ideas and suggestions of its customers.
Standard procedures are being implemented within the Company for version
control, problem tracking, testing and release. Industry standard test suites
for both HP PCL and Adobe PostScript were purchased from Genoa Technologies to
verify compatibility with the HP and Adobe page description languages. The
Company believes that the establishment of these and other quality assurance
procedures will result in improved product performance and high-quality
technical support services.
Due to the prior and current financial instability of the Company, the
Company must continue to pursue and obtain present and future sources of capital
in order to fund operations, including its product research and development
efforts. If adequate funds are not available, the Company may be required to
delay, scale back or eliminate its research and development programs or to
obtain funds through arrangements with partners or others that may require the
Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could result in a significant loss of ownership and/or control of its
proprietary technology and other important Company assets and could also
adversely affect the Company's ability to continue its research and development
efforts, which the Company believes contributes significantly to its competitive
advantage. If any of such circumstances were to arise, the Company's product
research and development efforts could be significantly deferred or curtailed,
or even eliminated altogether.
Set forth below is a list of the products currently under development
within the Company, followed by a brief description thereof.
PRINTSAFE
PrintSafe is a Windows 95/98/NT based application which performs report
archiving, online viewing and reprinting. The PrintSafe program intercepts print
stream data and archives it into a designated directory in ZIP compression
format. The print stream can then be automatically forwarded on to be printed or
viewed online. The product was originally developed to meet a new customer
requirement to save output data for future reprint. Additional features have
been added to allow the product to be used either in conjunction with other
Company solutions or as a stand-alone product for report archiving and online
viewing.
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FTPEXEC
FTPExec was designed to fill a need in allowing report data created in a
LAN environment, to be automatically routed and printed on Mainframe attached
Xerox printers. Prior to this product, report data created in a personal
computer environment, had to be manually transferred to the mainframe for
printing. This product can be used either in conjunction with other Company
solutions or as a stand-alone FTP (file transfer protocol) client, which is used
primarily by Internet users to move files back and forth between locations.
INTRANETWARE UPGRADE
The Company is upgrading its products to work with the Novell intraNetWare
technology, in addition to NetWare, with which they currently interface. These
enhancements will not only ensure the continued salability of the Company's
products within current (traditional) customer environments, but will also open
up new Internet-based market opportunities of the future.
HP PCL 5 UPGRADE
The Company, in keeping with advancements in HP PCL technology, is working
to integrate additional HP PCL 5 processing capabilities into its products. In
order to reduce the time to market these capabilities, the Company is working
with third party software developers who provide HP PCL 5 processing engines.
FORMS CONTROL PROCESSING APPLICATION
The Company is embarking on the development of a Windows 95/NT workstation
based Forms Control Processing Application, a powerful utility which will allow
the viewing, converting, editing, storing and printing of forms designed for a
Xerox printer.
The Forms Control Processing Application's sophisticated capabilities would
include: importing Prism-generated FRM or Metacode files from existing products,
or from competitive vendors; outputting or exporting files as standard FRMs for
Xerox printers, or in industry standard formats such as TIFF, CCITT, Windows
Bitmap ("BMP") and many others; viewing a saved file on the PC screen;
converting files to a standard BMP format and using an editor to modify, correct
and change forms easily; and printing imaged files to local printers using
standard Windows drivers, or optionally to the Xerox printer through a Bus and
Tag interface. In addition, the product would be able to interface with a local
database, providing the ability to optionally store forms and recall them on
demand.
RESELLER OF XEROX NETWORK LASER PRINTERS
In order to offer a single source for our customers, the Company has become
a reseller of the Xerox new network laser printers. This allows the Company to
add these printers as a total solution with its PRINTEXEC family of products.
Xerox Corporation supports the shipment and maintenance of these printers.
TECHNICAL SUPPORT AND CUSTOMER SERVICE
One of the critical aspects of customer satisfaction is the ability to
provide a high-level of service and support during all phases of customer
interaction (pre-sales, installation and post-installation). The Company's
Technical Support Department ("TSD") is staffed with highly-qualified
technicians who work with our customers in all of these phases to provide
front-line support as well as on-site installation and follow-up.
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Prior to a sale, the Company's TSD tests selected print files for the
prospective customer, assists in designing a detailed and cost-effective print
stream management solution and helps set proper product performance
expectations.
Once the customer commits to purchasing the product, the TSD technician
works closely with the customer's technical staff to review the plans for
implementation and then performs the actual on-site installation. After
successful installation, TSD management follows-up with a post-installation
survey to the customer to get feedback on product performance and expectations,
review the installation process and obtain any customer comments and
recommendations.
Qualified technicians must be well-versed in a variety of areas including
personal computer hardware and software, networking, printer technologies and
customer service techniques. As of August 31, 1999, the Technical Support
Department had 5 full-time employees providing technical and customer support
services and training.
MANUFACTURING AND SHIPPING
The Company's primary software products consist of diskette media or CD-ROM
and manuals. The Company's hardware products are supplied by third party
vendors. Master diskettes and manuals are prepared by the Company and mass
reproduced internally. The final integration and packaging of its software and
hardware products and manuals is performed at the Company's principal business
office in Lake Forest, California.
The Company ships its products using standard packaging materials. Shipping
is normally accomplished through the use of an overnight carrier. Certain
updates and upgrades of the Company's software products can be provided through
electronic distribution, such as the Company's electronic bulletin board
service. The Company is also investigating the use of its Website as an
alternate form of distribution.
STRATEGIC RELATIONSHIPS
Relationships have been or are in the process of being developed in four
general areas: software and hardware vendors that have products that the Company
resells or integrates into existing products; hardware resellers that use the
Company's products and services in their packaged sale; consulting organizations
that present the Company's products and services as part of their solution; and
value-added resellers ("VARs"), resellers and integrators that provide customer
leads to the Company for a referral fee. Some examples of the Company's efforts
in developing strategic relationships in these areas are set forth below:
o Some of the companies that manufacture products that are sold and
integrated by the Company include Xerox, BARR Systems, Spur Products,
Dell Computers, IBM Corporation, Dataware, AFP, XLPrint, JetLetter and
Artifex.
o Verilease, Officeland, LSI, IKON and Xerox have used the Company's
products and services as a part of their complete sale to their
customers.
o Harris Group, IBM Global, KPMG and Andersen Consulting have worked
with the Company on a number of projects.
o Relationships with several resellers, VARs and integrators have been
developed to support leads for the Company.
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COMPETITION
The printer protocol conversion industry is intensely and increasingly
competitive and is characterized by rapid technological advances and changes in
industry standards. A number of companies offer software or hardware products
that compete with and target the same markets as the Company, including Solimar
Systems, Inc., Elixir Technologies Corporation and ENTIRE, Inc. Some or all of
these competitors and other potential competitors have larger technical staffs,
more established and larger marketing and sales organizations, greater name
recognition and significantly greater financial resources than the Company.
There can be no assurance that the Company will be able to successfully compete
against either current or potential competitors.
The principal competitive factors in this industry include product
functionality, product reliability, price/performance characteristics, ease of
product use, availability of products on popular computer platforms, end user
support and documentation, ability to keep pace with technological advances,
corporate reputation and financial stability. The Company believes it competes
favorably in all of these areas. However, the Company expects substantial
additional competition from existing competitors and from a number of other
companies which may enter the Company's existing or future markets. There can be
no assurance that any such competitor will not develop products that are
superior to the Company's products or that achieve greater market acceptance.
This additional competition could adversely affect the Company's sales and
profitability through price reductions, reduced gross margins and loss of market
share. There can be no assurance that the Company will be able to continue to
compete successfully against current and future competitors.
CUSTOMERS
Prism currently has about 200 customers worldwide. The following is a
representative list of the Company's customers by industry sectors.
SERVICE BUREAUS GOVERNMENT
COPI Beaver County, Pennsylvania
Kimco City of Calgary, Canada
Direct Response Florida Dept. of Banking & Finance
EDS Mississippi Dept. of Education
Policy Management Systems
Periodical Publishers
Spar Marketing Force
INSURANCE EDUCATIONAL INSTITUTIONS
Baltimore Life of Maryland City University of New York
Berkshire Life Insurance University of Iowa
Golden Eagle Insurance
Maryland Automobile Insurance Fund
Monumental Life Insurance
Workmen's Auto Insurance
FINANCIAL/RESALE/LEASING MANUFACTURING
Merrill/May Corporation Brown & Williamson
Republic National Bank HarperCollins Publishers
Tokio Marine Johnson Controls
Bank One R.J. Reynolds
Commercial Credit Toyota Motors
11
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INTELLECTUAL PROPERTY
The Company currently does not hold any patents and relies on a combination
of contract, copyright, trademark and trade secret laws, licenses and
confidentiality agreements and software security measures to protect its
proprietary intellectual property. Despite these precautions, the Company
believes that existing laws provide limited protection for the Company's
technologies. However, the Company believes that, because of the rapid pace of
technological change in the protocol conversion and printer connectivity
industry, the legal intellectual property protection for its products is a less
significant factor in the Company's success than the knowledge, abilities and
experience of the Company's employees, the frequency of its product
enhancements, the effectiveness of its marketing activities and the timeliness
and quality of its support services. There can be no assurance that the
Company's means of protecting its proprietary rights will prevent others from
misappropriating or otherwise gaining access to valuable information such as
software source codes or that others will not develop technologies similar or
superior to the Company's technologies. In addition, effective intellectual
property protection may be unavailable or limited in certain foreign countries.
The Company generally enters into confidentiality or license agreements
with its employees, consultants, customers and vendors and generally controls
access to and distribution of its software, documentation and other proprietary
information. To license its products, the Company primarily relies on signed
agreements. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that such agreements will be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company owns, licenses or has otherwise obtained the right to use
certain technologies incorporated in its products. While the Company believes
that its software products and proprietary rights do not infringe the rights of
others, there can be no assurance that third parties will not assert
infringement claims against the Company or that any such claims will not require
the Company to enter into royalty or license arrangements or result in costly
litigation, regardless of the merits of the claims. Any such third party claims,
whether or not they are meritorious, could result in costly litigation or the
requirement of royalty or license arrangements, which may not be available on
terms acceptable to the Company, or at all. Although the Company has not to date
received any infringement claims, if the Company were found to have infringed
upon the proprietary rights of third parties, it could be required to pay
damages, cease sales of the infringing products and redesign or discontinue such
products, any of which could have a material adverse effect on the Company's
business, operating results and financial condition.
EMPLOYEES
As of August 31, 1999, the Company had 17 employees, including 3 in product
development, 5 in customer service and training, 5 in sales and marketing and 4
in finance and administration. The Company's employees are not represented by
any collective bargaining organization and the Company has never experienced a
work stoppage. The Company believes that its relations with its employees are
good.
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FACILITIES
The Company's principal administrative, development, manufacturing and
shipping facilities are located in one 6,700 square foot leased facility in Lake
Forest, California, under a lease that expires in April 2004. The Company has
the right to terminate the lease starting in April 2001. The base rent under
such lease is approximately $7,600 per month, with the rent increasing
approximately 4% in the third year and approximately 4% in the fifth year. In
addition to base rent, the Company pays its share of utility costs on the
building. The Company believes its facilities are adequate for its current needs
and that suitable additional or substitute space will be available as and if
needed.
ITEM 3. LEGAL PROCEEDINGS
In or about April 1999, Arthur Wilkes, a co-founder and former President
and Chief Executive Officer of the Company, filed a demand for arbitration
against the Company with the American Arbitration Association. Mr. Wilkes
contends that the Company breached the terms of an April 1995 Settlement
Agreement ("1995 Agreement") between him and the Company by (1) failing to make
payments under a Promissory Note for $64,000 and (2) interfering with his
ability to sell his shares in the Company.
The Company responded to the arbitration demand by serving a
counter-demand based on Mr. Wilkes' failure to provide the Company with a copy
of software the Company contends Mr. Wilkes has developed and made available to
his current company, American Printware. Under the terms of the 1995 Agreement,
Mr. Wilkes is obligated to provide the Company with a non-exclusive license to
software and software derivatives based on a product Mr. Wilkes began to develop
while still employed by the Company. Mr. Wilkes denies the allegations of the
counter-demand.
The American Arbitration Association is in the process of finalizing the
selection of an arbitrator. No arbitration date has been set. The Company
believes that Mr. Wilkes' allegations concerning interference with his ability
to sell his stock in the Company are without merit, and intends to vigorously
defend those claims. The Company has not paid Mr. Wilkes the payments described
in the $64,000 Promissory Note, and contends that any amounts owing under that
Note must be offset by damages caused by Mr. Wilkes' above-described breach of
the Settlement Agreement. The liability for the $64,000 Promissory Note is
already accrued in the Company's financial statements. Management does not
believe that the outcome of this action will have a material adverse effect upon
the financial position or results of operations of the Company.
Other than with respect to the foregoing matter, the Company does not
believe that it is or has been involved in any litigation or proceeding that
will, individually or in the aggregate, have a material adverse effect on its
financial condition, results of operations or cash flow.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On October 15, 1997, the Company mailed to its stockholders a consent
solicitation to increase the number of authorized shares of Common Stock of the
Company from 50,000,000 to 100,000,000, pursuant to the written consent of such
stockholders. The final date on which such written consents could be delivered
to the Company and the date such consents received from such stockholders were
tabulated was November 10, 1997. The number of shares for which consent FOR such
action was given was 14,572,500, which exceeded the vote required to approve
such action. The number of shares for which consent AGAINST such action was
voted or WITHHELD was 0. The number of shares which abstained from such consent
solicitation was 0. The number of shares which represented broker non-votes was
0.
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On April 15, 1999, the Company mailed to its stockholders a notice of
action to increase the number of authorized shares of Common Stock of the
Company from 100,000,000 to 200,000,000, pursuant to the written consent of such
stockholders. The final date on which such written consents could be delivered
to the Company and the date such consents received from such stockholders were
tabulated was May 6, 1999. The number of shares for which consent FOR such
action was given was 44,406,621, which exceeded the vote required to approve
such action. The number of shares for which consent AGAINST such action was
voted or WITHHELD was 486,046. The number of shares which abstained from such
consent solicitation was 11,571,351. The number of shares which represented
broker non-votes was 3,659,254.
ITEM 5. MARKET FOR COMMON STOCK AND RELATED SHAREHOLDER MATTERS
The Common Stock of the Company is quoted on the National Association of
Securities Dealers, Inc. ("NASD") OTC Bulletin Board ("OTCBB") under the symbol
"PSOF" and is not listed for trading on any exchange. The OTCBB, which is
separate and distinct from the Nasdaq Stock Market, is a quotation service for
subscribing members and is regulated by the Securities and Exchange Commission
("SEC") and the NASD. OTCBB securities are traded by a community of market
makers that enter quotes and trade reports through a closed computer network.
Set forth below are the high ask and low bid prices of the Company's Common
Stock during each calendar quarter ending December 31, 1996 through June 30,
1999, and for the current quarter through September 7, 1999, as reported by a
member firm of the NASD that effects transactions in stocks quoted on the OTCBB
and acts as one of the market makers for the Company's Common Stock. The
quotations listed below reflect interdealer prices, without retail mark-up,
mark-down or commissions, and may not necessarily represent actual transactions.
See "Risk Factors - Limited Trading Market; Potential Volatility of Stock Price;
Risk of Securities Class Action Litigation."
High/Ask Low/Bid
------------ ------------
Quarter ended March 31, 1997 No known trades
Quarter ended June 30, 1997 No known trades
Quarter ended September 30, 1997 No known trades
Quarter ended December 31, 1997 0.04 0.04
Quarter ended March 31, 1998 No known trades
Quarter ended June 30, 1998 0.12 0.03
Quarter ended September 30, 1998 0.10 0.03
Quarter ended December 31, 1998 0.20 0.01
Quarter ended March 31, 1999 0.08 0.01
Quarter ended June 30, 1999 0.08 0.01
Quarter through September 7, 1999 No known trades
As of September 2, 1999, there were approximately 933 stockholders of
record of the Company's Common Stock. Within the holders of record of the
Company's Common Stock are depositories such as Cede & Co. that hold shares of
stock for brokerage firms which, in turn, hold shares of stock for beneficial
owners.
The Company currently anticipates that it will retain all of its earnings
for use in the development of its business. The Company has never paid cash
dividends on its Common Stock and does not currently intend to pay cash
dividends in the foreseeable future. See "Risk Factors - Lack of Cash Dividends;
Dividend Policy."
The following is a summary of transactions by the Company during the fiscal
year ended December 31, 1998 involving issuances and sales of the Company's
securities that were not registered under the Securities Act of 1933, as amended
(the "Securities Act").
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ISSUANCES OF COMMON STOCK
In February 1998, E. Ted Daniels, the Company's President, exercised
options to purchase 1,000,000 shares of the Company's Common Stock at no cost
pursuant to the terms of an Employment Agreement between Mr. Daniels and the
Company (see "Executive Compensation - Employment Agreements").
From January to March 1998, the Company sold 7,575,000 shares of Common
Stock to seven accredited investors for an aggregate purchase price of $303,000,
or $0.04 per share. Such investors included Chartwell Investment Partnership
("Chartwell"), Irving and Hilda Lassoff ("Lassoff"), Loyd Tarr ("Tarr"), Conrad
von Bibra, the Edith von Bibra Trust, Robert Weiner and Marty and Sara Williams.
Conrad von Bibra maintains his shares purchased under this offering in an
account with Kennedy Capital, which claims beneficial ownership of these shares.
In April 1999, the securities held by the Edith von Bibra Trust were distributed
to Carl von Bibra, the son of Conrad von Bibra. None of Chartwell, Lassoff,
Weiner nor Williams is either an affiliate or a principal stockholder of the
Company. Neither Kennedy Capital nor Third Century, nor any director, officer or
affiliate of either such company, is an affiliate (other than as a principal
stockholder) of the Company. The von Bibra family is not an affiliate (other
than as a principal stockholder) of the Company. No commissions were paid in
connection with these transactions.
CERTAIN NOTES AND NOTE CONVERSIONS
From May 1998 to October 1998, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $353,000 to seven investors (the
"1998 Notes"). The notes bear interest at the rate of 10% per annum (with
payments of accrued interest due every 3 months) and mature at various dates
from May 1999 to October 1999. All or any portion of unpaid principal and
accrued interest is convertible into shares of Common Stock at the initial rate
of $0.05 per share (for an initial total of 7,060,000 shares) at any time at the
option of the holders. All or any portion of defaulted principal or interest
payments is convertible into Common Stock at an adjusted rate of $0.01 per
share. The notes were issued to Capital Investment Partners ($35,000 in the
aggregate), Northstar ($55,000 in the aggregate), Jean Tarr ($15,000), Eric
Nickerson ($10,000), Third Century ($90,000 in the aggregate), Conrad von Bibra
($98,000 in the aggregate), and the Edith von Bibra Trust ($50,000). James
Martin is the owner of Martin Management, which is the general partner of both
Capital Investment Partners and Northstar. Mr. Nickerson is the managing partner
of Third Century. In April 1999, the securities held by the Edith von Bibra
Trust were distributed to Carl von Bibra, the son of Conrad von Bibra. Jean Tarr
is neither an affiliate nor a principal stockholder of the Company. Neither
Third Century, nor any of its directors, officers or affiliates, is an affiliate
(other than as a principal stockholder) of the Company. Neither James Martin nor
the von Bibra family is an affiliate (other than as a principal stockholder) of
the Company. No commissions were paid in connection with these transactions.
From October to December 1998, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $206,000 to two investors, (part of
the "1998/99 Notes"). The notes bear interest at the rate of 10% per annum (with
payments of accrued interest due every three months) and mature at various dates
from October to December 1999. All or any portion of unpaid principal and
accrued interest is convertible into shares of Common Stock at the rate of $0.05
per share at any time at the option of the holders. The notes were issued to
Conrad von Bibra ($156,000 in the aggregate) and the Edith von Bibra Trust
($50,000 in the aggregate). In April 1999, the securities held by the Edith von
Bibra Trust were distributed to Carl von Bibra, the son of Conrad von Bibra. The
von Bibra family is not an affiliate (other than as a principal stockholder) of
the Company. No commissions were paid in connection with these transactions.
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In May and June 1998, the principal and unpaid accrued interest on the 1997
Notes for Capital Investment Partners (principal of $48,000 and accrued interest
of $3,773), Northstar (principal of $50,000 and accrued interest of $4,911), and
Third Century (principal of $39,500 and accrued interest of $2,583), were rolled
over into their respective initial 1998 Notes. The 1997 Notes were thereby
cancelled and superseded in their entirety by the aforementioned 1998 Notes.
In October 1998, the following occurred pursuant to a Note Conversion
Agreement:
o Threshold converted all outstanding amounts under its 1995 Convertible
Promissory Note (principal of $250,000 and accrued interest of $64,265
) into 5,000,000 shares of Common Stock, reflecting an effective
conversion rate of approximately $0.06 per share. Neither Threshold,
nor any of its directors, officers or affiliates, is an affiliate
(other than as a principal stockholder) of the Company. No commissions
were paid in connection with this conversion.
o Threshold transferred all of its remaining notes to the von Bibra
family consisting of the 1996 Secured Note (principal of $750,000 and
accrued interest of $164,831 ) and the two 1997 Notes (total principal
of $118,250 and accrued interest of $13,792). The von Bibras converted
all outstanding amounts into 17,365,000 shares of Common Stock
(10,419,000 shares to Conrad von Bibra, 5,209,500 shares to the Edith
von Bibra Trust and 1,736,500 shares to Carl von Bibra, the son of
Conrad von Bibra), reflecting an effective conversion rate of
approximately $0.06 per share. In April 1999, the securities held by
the Edith von Bibra Trust were distributed to Carl von Bibra. The von
Bibra family is not an affiliate (other than as a principal
stockholder) of the Company. No commissions were paid in connection
with these conversions.
The issuance of securities of the Company in each of the above transactions
was deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) thereof or Regulation D promulgated thereunder, as a transaction by
an issuer not involving a public offering. The recipient of such securities in
each case either received adequate information about the Company or had access,
through employment or other relationships with the Company, to such information.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this Annual Report on Form 10-KSB. Except for the historical
information contained herein, the following discussion contains certain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans, objectives, expectations and intentions. The
cautionary statements made in this Annual Report on Form 10-KSB should be read
as being applicable to all related forward-looking statements wherever they
appear in this Annual Report on Form 10-KSB. See "Forward-Looking Statements;
Cautionary Statement." The Company's actual results may differ materially from
the results discussed in the forward-looking statements as a result of certain
factors including, but not limited to, those discussed in "Risk Factors" and
elsewhere in this Annual Report on Form 10-KSB.
16
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RESULTS OF OPERATIONS
COMPARISON OF FISCAL YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
REVENUES
Revenue decreased by $223,188 (27.1%) from $825,649 for the fiscal year
ended December 31, 1997 ("Fiscal 1997") to $602,461 for the fiscal year ended
December 31, 1998 ("Fiscal 1998"). The decline can be attributed primarily to
the following factors:
o Sales of the Company's PRINTEXEC products decreased approximately
$153,000, from approximately $171,000 for Fiscal 1997 to approximately
$18,000 for Fiscal 1998. This decline was due primarily to changing
industry requirements. The Company's efforts to keep up with the
industry changes were limited by its reduction in research and
development expenses (see "- Operating Expenses"). The Company is
currently attempting to address this by increasing its research and
development activities and is also trying to sell more
PRINTEXEC-related services (as opposed to the PRINTEXEC products), but
no assurance can be given that the Company will be successful in
addressing this.
o In early 1998, Xerox greatly reduced its Cooperative Marketing
program. Xerox terminated a number of partner relationships that had
been established under this program, including its relationship with
the Company. Commissions earned under this program in connection with
the sale of Xerox printers decreased approximately $38,000, from
approximately $56,000 for Fiscal 1997 to approximately $18,000 for
Fiscal 1998.
o AT&T Systems Leasing ("AT&T") divested itself of its printer
connectivity division in November 1997. In addition, Xerox launched a
major sales campaign to compete against the Company's products in
sales to Xerox's end users (this occurred soon after Xerox scaled back
its Cooperative Marketing program, discussed above). These events
contributed to a decline in sales of non-PRINTEXEC products to Xerox
and AT&T of approximately $89,000, from approximately $103,000 for
Fiscal 1997 to approximately $14,000 for Fiscal 1998 .
o The decreases described above were partially offset by an increase in
revenue recognized from increased sales of annual service contracts.
This revenue increased approximately $65,000, from approximately
$149,000 for Fiscal 1997 to approximately $214,000 for Fiscal 1998.
COST OF REVENUES
The cost of revenues decreased by approximately $47,000 from approximately
$83,000 for Fiscal 1997 to approximately $36,000 for Fiscal 1998. As a
percentage of revenue, the cost of revenue decreased from 10.1% for Fiscal 1997
to 5.9% for Fiscal 1998. The decrease in the dollar amount of the cost of
revenues is attributable primarily to a comparable decrease in sales of
hardware. Hardware revenue decreased by approximately $52,000 (approximately
47.9%) from Fiscal 1997 to Fiscal 1998, while the cost of hardware sales
decreased by approximately $45,000 (approximately 57.9%) from Fiscal 1997 to
Fiscal 1998.
The decrease as a percentage of revenue is due to a change in the sales
mix. Product sales (software and hardware) decreased as a percentage of total
revenue (from approximately 71.8% for Fiscal 1997 to approximately 57.4% for
Fiscal 1998), thereby diluting the cost of sales as a percentage of overall
revenue.
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OPERATING EXPENSES
Selling, general and administrative expenses decreased by approximately
$281,000 (approximately 17.5%) from approximately $1,604,000 for Fiscal 1997 to
approximately $1,323,000 for Fiscal 1998. The decrease was due primarily to: 1)
lower commissions and royalties resulting from the decrease in sales and 2) the
Company's overall cost cutting efforts that were necessitated primarily by the
decrease in sales.
Research and development expenses decreased by approximately $110,000
(65.1%) from $169,000 for Fiscal 1997 to approximately $59,000 for Fiscal 1998.
As a percentage of revenue, research and development expense decreased from
20.4% to 9.8%. The decrease was due to the Company's overall cost cutting
efforts that were necessitated primarily by the decrease in sales.
BENEFIT FROM RELIEF OF INDEBTEDNESS
The benefit from the relief of indebtedness was approximately $184,000 for
Fiscal 1998. This was due primarily to settlements on certain accounts payable
that the Company was able to reach.
INTEREST EXPENSE
Interest expense remained relatively constant, increasing only slightly by
approximately $1,000 (0.7%) from approximately $133,000 for Fiscal 1997 to
approximately $134,000 for Fiscal 1998. The Company's outstanding indebtedness
decreased significantly during Fiscal 1998, primarily due to the conversion of
approximately $1,118,000 in notes payable into shares of Common Stock in October
(see "Certain Relationships and Related Transactions"). However, the effect on
interest expense was offset by higher interest rates on new debt that was
incurred.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had a negative working capital of
approximately $1,693,000 and an accumulated deficit of approximately $8,334,000.
As of that date, the Company had approximately $7,000 in cash, approximately
$143,000 in net accounts receivable and approximately $808,000 in convertible
notes payable. While the Company intends to repay some or all of the amounts of
such indebtedness out of future cash flow from operations, management's internal
cash projections estimate that such borrowings may remain outstanding for the
foreseeable future.
From Fiscal 1997 to Fiscal 1998, the Company's net cash used in operating
activities increased approximately $92,000 from approximately $745,000 to
approximately $837,000, net cash used in investing activities increased
approximately $1,000 from approximately $8,000 to approximately $9,000 and net
cash provided by financing activities increased approximately $128,000 from
approximately $717,000 to approximately $845,000. The increase in net cash used
in operating activities was primarily attributable to decreases in accounts
receivable of approximately $25,000, inventories of approximately $4,000 and
accounts payable of approximately $115,000, offset by an increase in other
accrued expenses of approximately $46,000. The increase in net cash provided by
financing activities was attributable primarily to an increase in net proceeds
from the issuance of debt (primarily convertible promissory notes) of
approximately $303,000, offset by a decrease in net proceeds from the issuance
of common stock of approximately $189,000.
The Company's capital expenditures in Fiscal 1998 of approximately $9,000
consisted primarily of computers and software.
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<PAGE>
The Company believes that current and future available capital resources,
cash flow from operations and other existing sources of liquidity will be
adequate to fund its operations for the remainder of the current fiscal year.
However, there can be no assurance that sufficient funds will be available or
that future events will not cause the Company to seek additional capital sooner,
including, but not limited to, the failure by the Company to timely collect
outstanding accounts receivable. To the extent the Company is in need of any
additional financing, there can be no assurance that any additional financing
will be available to the Company on acceptable terms, or at all. The inability
to obtain such financing could have a material adverse effect on the Company's
business, financial condition and results of operations. If additional funds are
raised by issuing equity or convertible debt securities, options or warrants,
further dilution to the existing stockholders of the Company may result.
If adequate funds are not available, the Company may also be required to
delay, scale back or eliminate its product development efforts or to obtain
funds through arrangements with strategic partners or others that may require
the Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain such financing
could result in a significant loss of ownership and/or control of its
proprietary technology and other important Company assets and could also
adversely affect the Company's ability to continue its product development
efforts, which the Company believes contributes significantly to its competitive
advantage. If any of such circumstances were to arise, the Company's business,
financial condition and results of operations could be materially and adversely
affected. See "Risk Factors - Future Capital Requirements; Uncertainty of
Additional Funding."
YEAR 2000 COMPLIANCE
The Company has identified substantially all of its major hardware and
software platforms in use and is continually modifying and upgrading its
software and information technology ("IT") and non-IT systems. The Company has
modified its current financial software to be Year 2000 ("Y2K") compliant. The
Company does not believe that, with upgrades of existing software and/or
conversion to new software, the Y2K issue will pose significant operational
problems for its internal computer systems. The Company expects all systems to
be Y2K compliant by October 31, 1999 through the use of internal and external
resources. The Company has incurred insignificant costs to date associated with
Y2K compliance and the Company presently believes estimated future costs will
not be material. However, the systems of other companies on which the Company
may rely also may not be timely converted and failure to convert by another
company could have an adverse affect on the Company's systems. The Company
presently believes the Y2K problem will not pose significant operational
problems and is not anticipated to have a material effect on its financial
position of results of operations in any given year. However, actual results
could differ materially from the Company's expectations due to unanticipated
technological difficulties or project delays by the Company or its suppliers. If
the Company and third parties upon which it relies are unable to address the
issue in a timely manner, it could result in material financial risk to the
Company. In order to assure that this does not occur, the Company is in the
process of developing a contingency plan and plans to devote all resources
required to attempt resolve any significant Y2K issues in a timely manner.
The Company believes that the software products it sells are Y2K compliant
since all date-dependent data is currently handled by the computer's operating
system, which is not within the Company's control.
EFFECT OF INFLATION
The Company believes that inflation has not had a material effect on its
net sales or profitability in recent years.
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FORWARD-LOOKING STATEMENTS; CAUTIONARY STATEMENT
Certain of the statements contained in this report, including those under
"Description of Business" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and especially those contained under
"Liquidity and Capital Resources" and "Looking Ahead," are "forward-looking
statements" that involve risks and uncertainties. All forward-looking statements
included in this report are based on information available to the Company on the
date hereof and the Company assumes no obligation to update any such
forward-looking statements. The actual future results of the Company could
differ materially from those statements. Factors that could cause or contribute
to such differences include, but are not limited to, those discussed in this
Annual Report on Form 10-KSB, risks associated with managing the Company's
growth, as well as those factors discussed in "Risk Factors" described below in
this Item 6 of this Annual Report on Form 10-KSB. While the Company believes
that these statements are accurate, the Company's business is dependent upon
general economic conditions and various conditions specific to the protocol
conversion and printer connectivity industry and future trends and results
cannot be predicted with certainty. Prospective purchasers of securities of the
Company should also consult the risk factors listed from time to time in the
Company's periodic Reports on Forms 10-QSB, 8-K and 10-KSB and its Annual
Reports to Stockholders.
The Company has not experienced a material adverse impact of such risks and
uncertainties and does not anticipate such an impact. However, no assurance can
be given that such risks and uncertainties will not affect the Company's future
results of operations or its financial position.
RISK FACTORS
HISTORY OF LOSSES, ACCUMULATED DEFICIT AND NEGATIVE NET WORTH
The Company has incurred net losses in each year since inception. The net
losses for Fiscal 1997 and Fiscal 1998 were $1,162,922 and $764,894,
respectively. As of December 31, 1998, the Company had an accumulated deficit of
$8,334,154, a stockholders' deficit of $1,676,320 and negative working capital
of $1,693,425. The Company also expects to report net losses for the three
months ending March 31, 1999 and for the six months ending June 30, 1999. There
can be no assurance that the Company's operations after June 30, 1999 will be
successful or result in profits to the Company. Furthermore, profitable
operations, of which there can be no assurance, are dependent upon market
acceptance of the Company's products and services.
RISKS ASSOCIATED WITH THE COMPANY'S FINANCIAL CONDITION
The President, Chief Executive Officer, Chairman of the Board and interim
Chief Financial Officer of the Company, E. Ted Daniels, joined the Company in
1994. Most of the other current members of management joined the Company within
the past two years. Management of the Company has developed plans to stabilize
the Company's financial condition and operations. These plans include, among
other things, a restructuring of certain debt, a reduction of operating and
overhead costs, the expansion of operations through potential strategic
relationships, an upgrade of product development, customer service, sales and
marketing efforts and improvement of the Company's reporting methods. Current
management of the Company believes that the implementation of these plans is
well underway, but that additional time is required for such plans to produce
favorable results and long-term effectiveness and for the new products and
services of the Company to begin to generate significant revenue. There can be
no assurance that such plans will ever be fully implemented or, if implemented,
that any improvement in the financial condition or operations of the Company
will ever occur. Also see "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources" and "-
Future Capital Requirements; Uncertainty of Additional Funding."
In addition, the independent auditors who have audited the financial
statements of the Company as of December 31, 1998 included in this Form 10-KSB
have expressed in their report appearing herein an unqualified opinion which
includes an explanatory paragraph referring to substantial doubt about the
Company's ability to continue as a going concern.
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FUTURE CAPITAL REQUIREMENTS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company's future capital requirements will depend upon many factors,
including the development of new products and services, possible future
strategic acquisitions, the progress of the Company's research and development
efforts, the expansion of the Company's sales and marketing efforts and the
status of competitive products. The Company must continue to pursue and obtain
present and future sources of capital in order to fund its operations. However,
there can be no assurance that any additional financing will be available to the
Company on acceptable terms, or at all. The inability to obtain such financing
could have a material adverse effect on the Company's business, financial
condition and results of operations. If additional funds are raised by issuing
equity securities, further dilution to the existing stockholders may result. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources."
RISKS ASSOCIATED WITH GROWTH STRATEGY
The Company's strategy envisions a period of growth that may put a strain
on its administrative and operational resources. While the Company believes that
it has established a significant infrastructure to support growth, its ability
to effectively manage growth will require it to continue to expand the
capabilities of its operational and management systems and to attract, train,
manage and retain qualified engineers, technicians, salespeople and other
personnel. There can be no assurance that the Company will be able to do so. If
the Company is unable to successfully manage its growth, the Company's business,
operating results and financial condition could be adversely affected.
DEPENDENCE ON SALES OF HIGH-SPEED PRODUCTION PRINTERS
A significant portion of the Company's revenues to date have been derived,
and the Company believes that a significant portion of its future revenues will
be continue to be derived, from sales of its products and services for use with
high-speed production laser printers, primarily such printers manufactured by
Xerox Corporation ("Xerox"). The Company's success is therefore dependent, to a
large degree, on the continuing use of existing Xerox high-speed production
printers and on the success of Xerox and various third parties in selling new
such printers. For Fiscal 1997 and Fiscal 1998, revenue from Xerox was
approximately 17% and 7% of total revenues, respectively (see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Revenues). This decline has increased the Company's need to market directly to
end users and to pursue other distribution channels and strategic relationships.
There can be no assurance, however, that the Company will be able to do so.
REVENUE CONCENTRATION
Sales of the Company's Print Manager/nt-PCL product constituted
approximately 30% and 34% of the Company's total revenues for Fiscal 1997 and
Fiscal 1998, respectively (see "Description of Business - Current Products"). In
addition, revenue derived from annual support contracts constituted
approximately 18% and 36% of the Company's total revenues for Fiscal 1997 and
Fiscal 1998, respectively. A significant reduction in either source of revenue
resulting from changes in the industry, including the entry of new competitors
into the market, from the introduction of new or improved technology or an
unanticipated shift in the needs of the Company's customers, or for other
reasons, could have a material adverse effect on the Company's business,
operating results and financial condition.
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DEFAULTS UNDER CERTAIN OBLIGATIONS OF THE COMPANY
The Company is in default under certain debt obligations and related
agreements, such as the 1995 Convertible Promissory Notes with Northstar Capital
Partners, LP ("Northstar") and Peachtree Capital Partners, LP ("Peachtree").
Peachtree subsequently merged into Capital Investment Partners. James Martin,
the owner of Martin Management, Inc., which is the general partner of both
Capital Investment Partners and Northstar, is a not an affiliate (other than as
a principal stockholder) of the Company. See "Certain Relationships and Related
Transactions - Certain Notes and Note Conversions" and "Security Ownership of
Certain Beneficial Owners and Management."
Specifically, the Company is in default under certain provisions of the
1995 Convertible Promissory Notes which required the Company to (i) file, on or
prior to October 29, 1995, a Form 10-SB or other applicable form with the
Securities and Exchange Commission (the "Commission") to voluntarily become a
Section 12(g) reporting company under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (ii) prepare and file, on or before December 31,
1995, a registration statement under the Securities Act covering shares held by
Northstar and Peachtree, (iii) pay to Northstar and Peachtree on or prior to
December 1, 1995, all principal and accrued interest then due to them under
their respective 1995 Convertible Promissory Notes, (iv) abstain from issuing
any shares of Common Stock, or securities convertible into shares of Common
Stock, at a price per share of Common Stock less than $0.25.
In October 1997, Northstar and Peachtree agreed to amend their respective
1995 Convertible Promissory Notes to (i) reduce the conversion price from $0.25
to $0.10 per share of Common Stock, (ii) extend to December 1, 1999, the date
for preparing and filing a registration statement under the Securities Act
covering shares held by Northstar and Peachtree and (iii) extend the maturity of
all principal and accrued interest to December 31, 1999. Notwithstanding such
amendments, the Company is still in default under certain other provisions of
such notes described above.
The Company is also in default under other promissory notes owed to the
following: George E. Williams, Personal Computer Products, Inc., James or Judith
Bone, Shirley McGarvey, James Bone and Allard Villere. The aggregate principal
balance of these notes is approximately $177,894. None of George E. Williams,
Personal Computer Products, James Bone, Judith Bone or Shirley McGarvey is an
affiliate or principal stockholder of the Company. Allard Villere is the
Secretary and a Director of the Company. Specifically, the Company is in default
under the payment terms of each such debt obligation.
These defaults described above are primarily attributable to the former and
current financial instability of the Company which has rendered the Company
unable to make the payments and other expenditures necessary in order to comply
with such provisions. As a result of these defaults, each holder of such
defaulted debt obligations has the right to demand payment in full of such
obligations.
While no such holder has made any presentment or demand for payment as of
the date of this Form 10-KSB, there can be no assurance that any such holder
will not make a presentment or demand for payment in the future or otherwise
exercise any rights or remedies it may have with respect to such obligations. If
any or all of such holders were to make any such presentment or demand or
otherwise exercise any rights or remedies available to them under their
respective debt obligations and/or related agreements with the Company, such
action would have a material adverse effect on the business, financial condition
and results of operations of the Company.
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The Company is also in default under certain payment terms of the 1998
Notes and 1998/99 Notes. These notes include the 1997 Notes for Capital
Investment Partners, Northstar and Third Century II, which were rolled into the
terms of certain 1998 Notes. As provided by the terms of these notes, the
Company is in the process of converting the defaulted payments (aggregate of
approximately $436,998) into approximately 42,398,742 shares of Common Stock.
Not all of the note holders have formally notified the Company in writing of
their intent to convert. See "Certain Relationships and Related Transactions -
Certain Notes and Note Conversions."
NEED FOR ADDITIONAL SALES, MARKETING AND TECHNICAL PERSONNEL
Although the Company anticipates generating significant revenues from sales
to printer OEMs, it nevertheless will need to continue to expand its sales to
end users and to other distribution channels in order to meet the goals of its
business strategy. This will require the Company to attract and retain
additional qualified sales, marketing and technical personnel, in addition to
other personnel. Such personnel are in high demand and there can be no assurance
that the Company will be able to attract and retain the personnel it will need.
See "Description of Business - Business Strategy" and "Description of Business -
Sales and Marketing."
NEW PRODUCTS AND TECHNOLOGICAL CHANGE
The high technology software industry has been historically marked by very
rapid technological change and frequent introductions of new products and
product enhancements. Accordingly, the Company's future growth and profitability
depend in part on its continuing ability to anticipate or respond to
technological changes by maintaining its employees' technical and analytical
skills, enhancing its current products and successfully developing and marketing
new products and services. In particular, the Company believes it must continue
to respond quickly to users' needs for broad functionality and new services and
to advances in hardware and operating systems. There can be no assurance given
that the Company will be able to continue to respond to such technological
changes or that its products and services will achieve significant market
acceptance. Furthermore, any failure by the Company to anticipate or respond
adequately to technological developments and customer requirements, or any
significant delays in product development or introduction, could result in a
loss of competitiveness or revenues.
POTENTIAL FLUCTUATIONS IN QUARTERLY PERFORMANCE
The Company's quarterly results of operations may vary significantly
depending on a number of factors, including the timing of the introduction or
enhancement of products by the Company or its competitors, market acceptance of
new products, customer order deferrals in anticipation of new products, changes
in the Company's operating expenses, personnel changes, mix of products sold,
mix of distribution channels through which products are sold, changes in product
pricing, acquisitions of additional products or businesses and general business
and economic conditions. The Company has experienced substantial net losses in
each of the past two fiscal years and expects to report net losses for the three
months ending March 31, 1999 and for the six months ending June 30, 1999. Sales
of the Company's products may also be negatively affected by delays in the
introduction or availability of new hardware or software products from third
parties, particularly Xerox. There can be no assurance that the Company will be
able to grow or sustain its profitability on a quarterly basis.
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COMPETITION
The Company competes with a small group of direct and indirect competitors
in the protocol conversion and printer connectivity industry. Some of such
companies and other potential competitors of the Company have larger technical
staffs, more established and larger marketing and sales organizations and
significantly greater financial resources, and thus the capability to develop
new products which may be perceived to be superior to the Company's products.
There can be no assurance that such competitors will not develop products that
are superior to the Company's products or that achieve greater market
acceptance. In addition, the Company's software products are designed to improve
the productivity of the hardware products of extremely large, international
companies, such as Xerox, Hewlett-Packard and IBM. These companies have the
resources, if they choose to so apply them, to develop software for their own
hardware products which competes with the Company's products. Such an occurrence
would materially and adversely affect the Company's business and results of
operations. See "Description of Business - Competition."
PROTECTION OF INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success and ability to compete is dependent in part upon its
proprietary technology. The Company relies on a combination of contract,
copyright, trademark and trade secret laws, licenses and confidentiality
agreements and software security measures to protect its proprietary
intellectual property. Despite these precautions, the Company believes that
existing laws provide limited protection for the Company's technologies.
However, the Company believes that, because of the rapid pace of technological
change in the protocol conversion and printer connectivity industry, the legal
intellectual property protection for its products is a less significant factor
in the Company's success than the knowledge, abilities and experience of the
Company's employees, the frequency of its product enhancements, the
effectiveness of its marketing activities and the timeliness and quality of its
support services. There can be no assurance that the Company's means of
protecting its proprietary rights will prevent others from misappropriating or
otherwise gaining access to valuable information such as software source codes
or that others will not develop technologies similar or superior to the
Company's technologies. In addition, effective intellectual property protection
may be unavailable or limited in certain foreign countries.
The Company generally enters into confidentiality or license agreements
with its employees, consultants, customers and vendors and generally controls
access to and distribution of its software, documentation and other proprietary
information. To license its products, the Company primarily relies on signed
agreements. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy aspects of the Company's products or to
obtain and use information that the Company regards as proprietary. Policing
unauthorized use of the Company's products is difficult. There can be no
assurance that the steps taken by the Company will prevent misappropriation of
its technology or that such agreements will be enforceable. In addition,
litigation may be necessary in the future to enforce the Company's intellectual
property rights, to protect the Company's trade secrets or to determine the
validity and scope of the proprietary rights of others. Such litigation could
result in substantial costs and diversion of resources and could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company owns, licenses or has otherwise obtained the right to use
certain technologies incorporated in its products. While the Company believes
that its software products and proprietary rights do not infringe the rights of
others, there can be no assurance that third parties will not assert
infringement claims against the Company or that any such claims will not require
the Company to enter into royalty or license arrangements or result in costly
litigation, regardless of the merits of the claims. Any such third party claims,
whether or not they are meritorious, could result in costly litigation or the
requirement of royalty or license arrangements, which may not be available on
terms acceptable to the Company, or at all. If the Company were found to have
infringed upon the proprietary rights of third parties, it could be required to
pay damages, cease sales of the infringing products and redesign or discontinue
such products, any of which could have a material adverse effect on the
Company's business, operating results and financial condition.
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DEPENDENCE UPON KEY PERSONNEL
The success of the Company is dependent in part upon the active
participation and continued services of certain key executive officers and key
employees, including E. Ted Daniels, President, Chairman of the Board, Chief
Executive Officer and interim Chief Financial Officer; Larry Taylor, Sales
Manager; Richard Nicolai, Technical Support Manager; Siva Gogulapati, Director
of Engineering; Michael Cheever, Controller; and Dee Shelor, Executive
Administrator and Office Manager. The loss of any one of such officers or key
employees could have a material adverse effect on the Company's business and
results of operations. The Company intends to obtain key-man life insurance on
Mr. Daniels, but there can be no assurance that the proceeds from any such
insurance would be sufficient to compensate the Company in the event of Mr.
Daniels' death.
CUMULATIVE VOTING AND LACK OF CONTROL
Cumulative voting in the election of directors is not allowed by the
Company's Certificate of Incorporation (except to the extent, if any, required
by California law). Accordingly, the holders of a majority of the shares of the
Company's Common Stock, present in person or by proxy, will be able to elect all
of the Company's Board of Directors.
ABILITY TO ISSUE ADDITIONAL COMMON STOCK AND PREFERRED STOCK; DILUTION DUE TO
FUTURE ISSUANCES OF STOCK WITHOUT STOCKHOLDER APPROVAL
The Articles of Incorporation of the Company, as amended, currently
authorize the issuance of a maximum of 200,000,000 shares of Common Stock, par
value $0.01 per share, and 5,000,000 shares of Preferred Stock, par value $0.01
per share. In 1992, the Board of Directors established a series of preferred
shares designated $5.00, 10% Class A Cumulative Convertible Preferred Stock
("Class A Preferred Stock") and authorized the issuance of 100,000 shares of
Class A Preferred Stock, all of which were issued and 99,000 of which are
presently outstanding. Each share of Class A Preferred Stock is convertible into
approximately 100 shares of Common Stock, subject to adjustment upon the
occurrence of certain events. The number of shares of Common Stock currently
issuable upon conversion of the shares of Class A Preferred Stock is
approximately 9,900,000. In May 1993, the Board of Directors established a
series of preferred shares designated $9.00, 8% Class B Cumulative Convertible
Preferred Stock ("Class B Preferred Stock") and authorized the issuance of
27,777 shares of Class B Preferred Stock, all of which have been issued and are
outstanding. Each share of Class B Preferred Stock is convertible into
approximately 180 shares of Common Stock, subject to adjustment upon the
occurrence of certain events. The number of shares of Common Stock currently
issuable upon conversion of the shares of Class B Preferred Stock is
approximately 4,999,860. Accordingly, the Board of Directors may authorize the
issuance of up to an additional 139,876,728 shares of Common Stock and an
additional 4,872,223 shares of Preferred Stock without any approval of such
issuance by the stockholders of the Company.
Owners of the shares of Common Stock may be further diluted in their
percentage ownership of the Company if any such additional shares are issued by
the Company in the future. In addition, there is no assurance that the Board of
Directors will not authorize the establishment of an additional class of
preferred shares in the future which could operate to the significant
disadvantage of present holders of the Preferred Stock.
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LACK OF CASH DIVIDENDS; DIVIDEND POLICY
Under the Delaware General Corporation Law, dividends may be paid only out
of legally available funds as prescribed by statute, subject to the discretion
of the Company's Board of Directors. The Company has paid no cash dividends on
its Common Stock to date and the Company does not intend to pay cash dividends
on its Common Stock in the foreseeable future, including on shares of Common
Stock issued upon conversion of shares of Preferred Stock. The Company currently
intends to retain any available earnings the Company may realize in the future
for working capital and to finance future growth of the Company. The payment of
cash dividends, of which there can be no assurance, will be directly dependent
upon earnings of the Company, working capital requirements and other factors
which cannot now be determined.
Dividends on shares of Preferred Stock of the Company are cumulative.
Accordingly, dividends not paid by the Company on any payment date shall accrue
from the respective dividend payment date. The Company is not obligated to
declare dividends on any class of Preferred Stock. However, when, as and if the
Company's Board of Directors declares the payment of dividends on Preferred
Stock, such dividends shall be payable semi-annually at the rate of $0.50 per
share per year with respect to the Class A Preferred Stock and payable quarterly
at the rate of $0.72 per share per year with respect to the Class B Preferred
Stock.
CONCENTRATION OF OWNERSHIP
As of August 31, 1999, 60,123,272 shares of Common Stock were outstanding
and approximately an additional 42,398,742 shares were in the process of being
issued for the conversion of certain Convertible Promissory Notes (See "Certain
Relationships and Related Transactions Certain Notes and Note Conversions"). Of
this total of 102,522,014 shares, the major beneficial owners are E. Ted Daniels
(President, Chief Executive Officer and Chairman of the Board of the Company;
2,440,000 shares, or 2.4%), Allard C. Villere (Secretary and a Director of the
Company; 408,834 shares, or 0.4%), Kennedy Capital Management, Inc. (5,162,778
shares, or 5.0%), James Martin (24,262,951 shares or 23.7%), Third Century II
(25,766,415 shares, or 25.1%), Threshold Technology Partners (6,800,000 shares,
or 6.6%) and Conrad and Carl von Bibra (22,858,876 shares, or 22.3%). As a
result, this group of stockholders has sufficient voting power to control the
outcome of all corporate matters submitted to the vote of the stockholders.
Those matters could include the election of directors, changes in the size and
composition of the Board of Directors (and, thereby, the qualification and
appointment of officers of the Company) and mergers and other business
combinations involving the Company. In turn, through its potential effect on the
Board of Directors and beneficial ownership of Common Stock of the Company, this
group could control certain decisions, including decisions with respect to the
Company's dividend policy, the Company's access to capital (including borrowing
from third-party lenders and the issuance of additional equity securities) and
the acquisition or disposition of assets by the Company. The concentration of
ownership in this group of stockholders could have the effect of delaying or
preventing a change in control of the Company and may affect the market price of
the Common Stock of the Company.
POSSIBLE ADVERSE EFFECTS DUE TO SHARES ELIGIBLE FOR FUTURE SALE
Sales of shares by existing security holders of the Company, or the
perception that such sales could occur, could adversely affect the market price
of the Company's Common Stock or otherwise impair the Company's ability to raise
additional capital. As of August 31, 1999, the Company had approximately
148,175,906 shares of Common Stock outstanding (assuming the exercise of all
outstanding options and warrants to purchase Common Stock of the Company, the
conversion of all outstanding shares of Class A and Class B Preferred Stock of
the Company and the conversion of all outstanding Convertible Promissory Notes
of the Company). Approximately 28,360,211 shares are generally freely tradeable
without restriction or registration under the Securities Act of 1933, as amended
(the "Securities Act"), approximately 8,431,000 shares will be freely tradeable
within one year pursuant to the provisions of Rule 144(k) promulgated under the
Securities Act, approximately 733,716 shares will be freely tradeable within two
years pursuant to the provisions of Rule 144(k) promulgated under the Securities
Act and the remaining 110,650,979 shares (which are owned by affiliates of the
Company), will be freely tradeable within two years subject to the limitations
of Rule 144 promulgated under the Securities Act.
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In general, under Rule 144 as currently in effect, an affiliate of the
Company, or person (or persons whose shares are aggregated) who has beneficially
owned such shares for at least one year will be entitled to sell in any
three-month period a number of shares that does not exceed the greater of (i)
one percent (1%) of the then outstanding shares of the Company's Common Stock or
(ii) the average weekly trading volume of the Company's Common Stock during the
four calendar weeks immediately preceding the date on which notice of sale is
filed with the Securities and Exchange Commission (the "Commission"). Sales
pursuant to Rule 144 are subject to certain requirements relating to manner of
sale, notice and the availability of current public information about the
Company, and the requirement that the Company has been subject to the reporting
requirements of Section 15(d) of the Exchange Act for a period of at least 90
days immediately preceding the sale of the securities and has filed all reports
required to be filed thereunder during the twelve months preceding such sale. A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the 90 days immediately preceding
the sale and who has beneficially owned such shares for at least two years is
entitled to sell such shares under Rule 144(k) without regard to the limitations
described above. Due to the failure of the Company to file any reports required
to be filed under the Exchange Act for an extended period of time, and until and
unless the Company has timely filed all reports required to be filed thereunder
during a period of twelve months, only holders of shares of Common Stock of the
Company who are not affiliates of the Company and who have beneficially owned
such shares for at least two years will be able to sell such shares pursuant to
the provisions of Rule 144.
Up to an additional 177,400 shares of Common Stock of the Company are
issuable upon exercise of options available for grant under the Company's
Amended and Restated 1993 Stock Option Plan (the "1993 Plan") and an additional
150,000 shares of Common Stock are issuable upon exercise of options available
for grant under the Company's 1996 Stock Option Plan (the "1996 Plan"). The
shares of Common Stock issuable upon the exercise of such options will be
"restricted securities" within the meaning of Rule 144 under the Securities Act
and may not be sold in the absence of a registration under the Securities Act
unless an exemption from registration is available, including the exemption
contained in Rule 144 (see "Executive Compensation - Stock Option Plans").
Generally, such "restricted securities" will become eligible for resale
under Rule 144 after expiration of a minimum two-year holding period, subject to
the restrictions on manner of sale and volume limitations imposed by Rule 144.
In addition, Rule 701 under the Securities Act provides that shares of Common
Stock acquired upon exercise of outstanding options granted to employees or
consultants under the 1993 Plan or the 1996 Plan may be resold by such persons
(other than affiliates) subject only to the manner of sale provisions of Rule
144 and by affiliates subject to all provisions of Rule 144 except its two-year
minimum holding period requirement.
EXERCISE OF OUTSTANDING WARRANTS AND OPTIONS
As of August 31, 1999, the Company had reserved approximately 11,544,559
shares of Common Stock for issuance upon exercise of options and warrants
outstanding as of the date hereof. During the terms of such options and
warrants, the holders thereof will have the opportunity to profit from an
increase in the market price of Common Stock, with resulting dilution in the
interest of holders of Common Stock. The existence of such options and warrants
may adversely affect the terms on which the Company can obtain additional
financing. The holders of such options and warrants can be expected to exercise
such options and warrants at a time when the Company, in all likelihood, would
be able to obtain additional capital by offering shares of its Common Stock on
terms more favorable to the Company than those provided by the exercise of such
options and warrants. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources."
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LIMITED TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE; RISK OF SECURITIES
CLASS ACTION LITIGATION
There is currently an extremely limited trading market for the Company's
Common Stock. From June 1, 1998 to August 31, 1999, the closing bid prices for
the Company's Common Stock as quoted on the National Association of Securities
Dealers OTC Bulletin Board ranged from $0.01 to $0.20 per share. As of August
31, 1999, the closing bid price of the Company's Common Stock was $0.01 per
share. Such prices, however, may not be considered valid indications of market
value because of the extremely limited amount of trading in the Company's Common
Stock. There can be no assurance given that any regular trading market for the
securities will develop or, if developed, will be sustained.
The trading prices of the Company's securities could be subject to wide
fluctuations in response to quarter-to-quarter variations in the Company's
operating results, material announcements of technological innovations, price
reductions, significant customer orders or establishment of strategic
partnerships by the Company or its competitors or providers of alternative
products, general conditions in the protocol conversion and printer connectivity
industry, or other events or factors, many of which are beyond the Company's
control. In addition, the stock market as a whole, as well as individual stocks,
including those of many technology-based companies, have experienced extreme
price and volume fluctuations, which have often been unrelated to the
performance of the companies. The Company's operating results in future quarters
may be below the expectations of market makers, securities analysts and
investors. In any such event, the price of the Company's securities could
fluctuate substantially.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has occurred against
the issuing company. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. Any adverse determination in such
litigation could also subject the Company to substantial liabilities.
CLASSIFICATION OF COMMON STOCK AS PENNY STOCK
In October 1990, Congress enacted the "Penny Stock Reform Act of 1990." A
"penny stock" is defined as an equity security that does not meet certain
criteria established by the Commission or that is not: (a) registered or
approved for registration and traded on a national securities exchange; (b)
authorized for quotation on an automated quotation system established and
operating prior to January 1, 1990; or (c) a security of a registered investment
company. None of the equity securities of the Company meets these criteria and
therefore they are subject to Rule 15c2-6 under the Exchange Act, which imposes
additional sales practice requirements on brokers and dealers and requires that
such brokers and dealers must make a special suitability determination of each
purchaser and have received the purchaser's written consent to the transaction
prior to the sale. Consequently, Rule 15c2-6 may affect the ability of brokers
and dealers to sell the Company's securities and may affect the ability of
purchasers in this offering to sell any of the securities acquired hereby in the
secondary market.
The Common Stock, as well as the Preferred Stock of the Company, is
presently within the definition of "penny stock" as defined in Section 3(a)(51)
of the Exchange Act and the rules and regulations promulgated thereunder. Unless
the offering price per share of the Common Stock of the Company is equal to or
greater than $5.00 at the time of an initial public offering of the Common Stock
of the Company, the Common Stock will be subject to substantial additional risk
disclosures and document and information delivery requirements on the part of
brokers and dealers effecting transactions in the Common Stock of the Company.
Such additional risk disclosures and document and information delivery
requirements on the part of such brokers and dealers may have an adverse effect
on the market for and/or value of the Common Stock in connection with such
initial public offering.
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CERTAIN CHARTER PROVISIONS AND ANTI-TAKEOVER EFFECT OF DELAWARE LAW
The Company's Board of Directors has the authority to issue up to 4,872,223
additional shares of Preferred Stock and to determine the price, rights,
preferences and privileges, including voting rights, of such shares without any
further vote or action by the Company's stockholders. The rights of the holders
of Common Stock will be subject to, and could be adversely affected by, the
rights of the holders of any Preferred Stock that may be issued in the future.
The issuance of shares of Preferred Stock under certain circumstances could have
the effect of delaying, deferring or preventing a change of control of the
Company. In addition, Section 203 of the General Corporation Law of Delaware
prohibits the Company from engaging in certain business combinations with
interested stockholders, as defined by statute. These provisions may have the
effect of delaying or preventing a change in control of the Company without
action by the stockholders, and therefore could adversely affect the price of
the Company's Common Stock. The Company has no present plan or arrangement to
issue any additional shares of Preferred Stock..
ITEM 7. FINANCIAL STATEMENTS.
The financial statements of the Company are submitted as a separate section
of this Annual Report on Form 10-KSB on pages F-1 through F-23.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
The Board of Directors has selected Cacciamatta Accountancy Corporation to
audit the financial statements of the Company for the fiscal years ended
December 31, 1998 and December 31, 1997.
On December 1, 1998, the Company dismissed Deloitte & Touche, LLP as the
Company's principal independent public accountants. On December 29, 1998, the
Board of Directors of the Company approved the engagement of Cacciamatta
Accountancy Corporation as the Company's principal independent public
accountants, effective as of such date. Prior to the appointment of Cacciamatta
Accountancy Corporation, the Company had not consulted with Cacciamatta
Accountancy Corporation regarding the application of accounting principles to a
specified transaction or the type of audit opinion that might be rendered on the
Company's financial statements.
In the Company's fiscal years ended December 31, 1998 and December 31,
1997, there have been no disagreements between the Company and Cacciamatta
Accountancy Corporation on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure. In the Company's
fiscal years ended December 31, 1995 and December 31, 1994, there were no
disagreements between the Company and Deloitte & Touche, LLP on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure.
The audit report of Cacciamatta Accountancy Corporation on the Company's
financial statements for the fiscal years ended December 31, 1998 and December
31, 1997 contained no adverse opinion or disclaimer of opinion. The audit report
of Deloitte & Touche, LLP on the Company's financial statements for the fiscal
years ended December 31, 1995 and December 31, 1994 contained no adverse opinion
or disclaimer of opinion. The financial statements of the Company for the fiscal
year ended December 31, 1996 were not audited.
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PART II
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, KEY EMPLOYEES, PROMOTERS AND CONTROL
PERSONS
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to each
director, officer and key employee of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
E. Ted Daniels (1)(2) 58 President, Chief Executive Officer, Chairman
of the Board and interim Chief Financial Officer
Allard Villere (1)(2) 66 Secretary and a Director
KEY EMPLOYEES:
Larry Taylor 52 Sales Manager
Richard Nicolai 43 Technical Support Manager
Siva Gogulapati 43 Engineering Director
Michael Cheever 31 Controller
Dee Shelor 60 Executive Administrator and Office Manager
</TABLE>
(1) Named Executive Officer
(2) Member of the Audit Committee
Mr. Daniels joined the Board of Directors of Prism in September 1994 and
was appointed President, Chairman of the Board, Chief Executive Officer and
interim Chief Financial Officer at that time. He was employed by Eureka Capital
Management from 1993 to 1994 where he was the Managing Director, responsible for
defining and building the operational structure for client companies.
Previously, he was President/COO for Roberts Consolidated Industries, a provider
of flooring installation products which has operations in the United Kingdom,
Holland, South Africa, Mexico, Brazil, Australia, Japan and Canada.
Mr. Villere has served as a Director of the Company and its predecessor,
Wilkes Publishing Corporation, since September 1992, as Secretary of the Company
since August 1994 and as Vice President of Production for the Company and its
predecessor from September 1992 until June 1993. From December 1989 until
October 1992, Mr. Villere was self-employed. For the 14 years prior to that, Mr.
Villere served as Manager of Product Assurance for the Connective Devices
Division of Hughes Aircraft Company and Project Manager for various hardware
production programs.
Mr. Taylor joined Prism as its Sales Manager in August 1997. He has an
extensive backround in building sales and marketing organizations at companies
such as Arrow Electronics, where he served as Regional Manager from 1988 to
1991; Voice-Tel, a voice messaging company for which he was Director of Sales
from 1991 to 1994; View Tech, a video conferencing and network integration
company for which he was a Senior Sales Representative from 1994 to 1996; and
EIS, where he was the Director of the Teleconferencing Division from 1996 to
1997.
30
<PAGE>
Mr. Nicolai joined the Company in March 1999. He has twenty years of
experience in Information Systems Management. He has directed multiple support
areas within mainframe data center environments and was the Manager of I/S
Operations for Cox Communications from 1985 to 1999 before joining Prism.
Mr. Gogulapati joined the Company in February 1999. He has seventeen years
of experience in software product development and management. Mr. Gogulapati was
formerly the Software Development Program Manager for Unisys Corporation from
1992 to 1999.
Mr. Cheever has been with the Company since October 1993 as its Controller.
He is a licensed CPA and was formerly with the accounting firm of Deloitte &
Touche, LLP. He has been instrumental in organizing the Company's financial
structure and is responsible for maintaining all financial records and reports
for both internal and external use.
Ms. Shelor has been with the Company and its predecessor, Wilkes Publishing
Corporation, since 1989 and is primarily responsible for investor and
stockholder relations and communications. Prior to joining the Company, Ms.
Shelor was a branch business manager with Future Electronics of Montreal, an
electronics distribution company, from June 1984 to January 1989.
DIRECTORS' COMPENSATION
The members of the Board of Directors do not receive any cash compensation
for their service as directors, but are eligible for reimbursement of their
expenses incurred in connection with attendance at Board meetings in accordance
with Company policy.
AUDIT COMMITTEE
The Audit Committee of the Board of Directors consists of Messrs. Daniels
and Villere. The Audit Committee makes recommendations to the Board of Directors
regarding the selection of independent auditors, reviews the results and scope
of the audit and other services provided by the Company's independent auditors
and reviews and evaluates the Company's audit and control functions.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities (the "10% Stockholders"), to file reports of
ownership and changes of ownership with the Securities and Exchange Commission.
Officers, directors and 10% Stockholders of the Company are required by
Commission regulation to furnish the Company with copies of all Section 16(a)
forms so filed.
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<PAGE>
Some of the Company's present Section 16 reporting persons failed to file a
Form 3 upon becoming reporting persons and all failed to file a Form 4 with
respect to all or nearly all their respective transactions in the Company's
securities since becoming reporting persons.
The Company has advised each of the Company's present Section 16 reporting
persons of their obligations to file Forms 3, 4 and 5 with respect to their
initial beneficial ownership of securities of the Company and with respect to
transactions in such securities since becoming Section 16 reporting persons.
However, the Company is unable to predict whether such persons will comply with
their obligations under Section 16(a) of the Exchange Act and cannot give any
assurance that such persons will so comply or, if any of such persons does so
comply, that such persons will thereafter fail to remain in compliance with
Section 16(a) of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation awarded or paid by the
Company to its President and Chief Executive Officer during the fiscal years
ended December 31, 1998 and December 31, 1997. No other executive officer's
total annual salary and bonus for services to the Company exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------------------------ --------------------------- ----------
ALL
OTHER OTHER
ANNUAL SECURITIES COMPEN-
COMPEN- STOCK UNDERLYING SATION
NAME AND FISCAL SALARY (1) BONUS SATION (2) AWARDS (3) OPTIONS (#) (5)
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (4) ($)
- ------------------------------ -------- ------------- -------- ------------- ------------ -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
E. Ted Daniels 1998 $142,175 $0 $10,046 $10,000 2,343,769 $30,713
President and 1997 $136,822 $0 $5,107 $11,300 2,542,278 $16,830
Chief Executive Officer
</TABLE>
- --------------------
(1) Includes payments on base salary that had been deferred prior to the
beginning of the fiscal year pursuant to Mr. Daniels' employment agreement
described under "- Employment Agreements" below.
(2) Includes auto allowances and insurance and other fringe benefits.
(3) Includes the value attributable to shares of Common Stock acquired upon the
exercise of options.
(4) Includes shares of Common Stock issuable upon exercise of options granted
to Mr. Daniels pursuant to his employment agreement and related stock
issuance agreement described under "- Employment Agreements" below. As of
August 31, 1999, Mr. Daniels has been granted options to acquire an
aggregate of approximately 10,834,366 shares pursuant to his employment
agreement and related stock issuance agreement (approximately 8,704,366 of
these options remain unexercised).
(5) Additional deferred compensation granted to Mr. Daniels pursuant to his
employment agreement described under "- Employment Agreements" below.
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<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
Show below is information with respect to the number of shares of the
Company's Common Stock acquired upon the exercise of options during the fiscal
year ended December 31, 1998 ("Fiscal 1998"), the value realized therefor, the
number of unexercised options at December 31, 1998 and the value of unexercised
in-the-money options at December 31, 1998 for the Company's Chief Executive
Officer in the Summary Compensation Table above. The Company's Chief Executive
Officer did not hold any stock appreciation rights ("SARs") during Fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT FISCAL OPTIONS AT FISCAL
ACQUIRED ON VALUE YEAR-END (#) YEAR-END ($)
NAME EXERCISE (#) REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- -------------------- ------------- ----------- --------------------------- ---------------------------
<S> <C> <C> <C> <C>
E. Ted Daniels 1,000,000 $30,000 4,388,179/0 $164,557/$0
</TABLE>
EMPLOYMENT AGREEMENTS
The Company and Mr. Daniels have entered into an employment agreement
which, among other things, provides that during the term of the agreement, Mr.
Daniels shall be the President and Chief Executive Officer of the Company and
shall receive an annual base salary of $120,000 (subject to annual review and
increases), an annual bonus equal to 10% of the Company's consolidated operating
income before interest, taxes, bonus payments and certain other fringe benefits,
320,000 shares of Common Stock at no cost and a non-qualified stock option to
acquire a number of shares of Common Stock equal to the greater of (i) 640,000
or (ii) the difference between 8% of the diluted shares outstanding from time to
time and the 320,000 shares previously issued to Mr. Daniels (subject to certain
anti-dilution adjustments) at an exercise price of $0.25 per share. In December
1995, the Board of Directors approved the acceleration of the vesting of such
options to become fully vested and immediately exercisable, provided that as of
such date (i) the Company has not terminated Mr. Daniels for cause pursuant to
the Employment Agreement and (ii) Mr. Daniels has not voluntarily resigned from
the Company. Also in December 1995, the Company approved that all options
granted under this Agreement are issued pursuant to Rule 701 of the Securities
Act. In May 1996, the Board of Directors waived the payment by Mr. Daniels of
the exercise price with respect to 1,150,430 shares issuable upon exercise of
such options. In May 1997, the Board of Directors approved that the exercise
price of all options granted to Mr. Daniels under this agreement be reduced to
$0.04 per share. In December 1997, the Board of Directors amended the agreement
to provide for the annual salary increase to be set at 10% retroactive to the
date of Mr. Daniels' original contract (September 1994). The Company has not
paid Mr. Daniels the full amount of salary due under this formula and has
accrued the unpaid balance. Also in December 1997, the Board approved that all
options issuable to Mr. Daniels under this agreement be exercisable at no cost
and that the agreement be extended to September 30, 2000. In October 1998, the
Board extended the agreement to September 14, 2002.
Other than the foregoing agreement between the Company and Mr. Daniels,
there are no other employment agreements between the Company and any of its
directors, officers or key employees.
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<PAGE>
STOCK OPTION PLANS
1993 STOCK OPTION PLAN
In February 1993, the Board of Directors adopted the Company's 1993 Stock
Option Plan. Due to subsequent changes to the Internal Revenue Code (the "Code")
and for other reasons, the Board of Directors decided to amend many provisions
of this plan. As a consequence, the Board of Directors adopted an Amended and
Restated 1993 Stock Option Plan (the "1993 Plan") in May 1996. The 1993 Plan
authorizes the granting of options to purchase up to a maximum 630,000 shares of
Common Stock to qualified officers, key employees, directors and employees of
companies that do business with the Company. As of December 31, 1998, none of
the options available for grant under the 1993 Plan had been exercised,
approximately 492,600 shares of Common Stock were reserved for issuance upon
exercise of outstanding options and approximately 137,400 shares of Common Stock
remained available for grant thereunder. The 1993 Plan will terminate at
midnight on February 1, 2003 unless sooner terminated by the Board of Directors.
The 1993 Plan provides for the grant of both incentive stock options
("ISOs") and non-qualified stock options ("NQOs"). ISOs granted under the 1993
Plan are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code of 1986, as amended. NQOs granted under the 1993 Plan
are intended not to qualify as ISOs under the Code. Options granted under the
1993 Plan generally have a term of not more that 10 years and vest no sooner
than 6 months after the date of grant.
No ISO may be granted under the 1993 Plan to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
affiliate of the Company, unless the option exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant,
and the term of the option does not exceed five years from the date of grant.
For incentive stock option grants, the aggregate fair market value, determined
at the time of grant, of the shares of Common Stock with respect to which such
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000.
The Company did not grant any options to its executive officers under the
1993 Plan during the fiscal year ended December 31, 1998 nor during the fiscal
year ended December 31, 1997.
1996 STOCK OPTION PLAN
In May 1996, the Board of Directors adopted the 1996 Stock Option Plan (the
"1996 Plan"). The 1993 Plan authorizes the granting of options to purchase up to
a maximum 600,000 shares of Common Stock to qualified officers, key employees,
directors and employees of companies that do business with the Company. As of
December 31, 1998, none of the options available for grant under the 1996 Plan
had been exercised, 600,000 shares of Common Stock were reserved for issuance
upon exercise of outstanding options and no shares of Common Stock remained
available for grant thereunder. The 1996 Plan will terminate at midnight on
February 1, 2003 unless sooner terminated by the Board of Directors.
34
<PAGE>
The 1996 Plan provides for the grant of both incentive stock options
("ISOs") and non-qualified stock options ("NQOs"). ISOs granted under the 1996
Plan are intended to qualify as "incentive stock options" within the meaning of
Section 422 of the Code of 1986, as amended. NQOs granted under the 1996 Plan
are intended not to qualify as ISOs under the Code. Options granted under the
1996 Plan generally have a term of not more that 10 years and vest no sooner
than 6 months after the date of grant.
No ISO may be granted under the 1996 Plan to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
affiliate of the Company, unless the option exercise price is at least 110% of
the fair market value of the stock subject to the option on the date of grant,
and the term of the option does not exceed five years from the date of grant.
For incentive stock option grants, the aggregate fair market value, determined
at the time of grant, of the shares of Common Stock with respect to which such
options are exercisable for the first time by an optionee during any calendar
year (under all such plans of the Company and its affiliates) may not exceed
$100,000.
The Company did not grant any options to its executive officers under the
1996 Plan during the fiscal year ended December 31, 1998 nor during the fiscal
year ended December 31, 1997.
FINANCING-RELATED OPTIONS
In 1994, three stockholders of the Company transferred shares of Common
Stock to third parties in connection with certain financing transactions. Two of
these stockholders were Arthur Wilkes (a co-founder and former President and
Chief Executive Officer) and Allard Villere (a co-founder and current Secretary
and Director). In turn, these three stockholders were issued non-qualified
options (the "Financing Options") to purchase new shares of Common Stock. As of
December 31, 1998, none of the Financing Options had been exercised and
approximately 197,093 shares of Common Stock were reserved for issuance upon
exercise of outstanding options. As of December 31, 1998, the exercise price was
$2.00 per share. The Financing Options will terminate on January 19, 2004.
MANAGEMENT OPTIONS
Pursuant to his employment agreement with the Company, Mr. Daniels has been
granted options to purchase shares of Common Stock. See "Summary Compensation
Table," "- Option Exercises and Year-end Values," and "- Employment Agreements."
WARRANTS
From September 1994 to March 1996, the Company issued warrants to purchase
up to 6,242,671 shares of Common Stock. As of December 31, 1998, warrants to
purchase approximately 3,972,500 shares had been exercised, warrants to purchase
approximately 529,671 shares had expired and approximately 1,740,500 shares of
Common Stock were reserved for issuance upon exercise of outstanding warrants.
As of December 31, 1998, the exercise price of the outstanding warrants ranged
from $0.04 to $0.55 per share. The outstanding warrants expire at various dates
from September 2000 to May 2001.
35
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information regarding the beneficial
ownership of the Common Stock of the Company as of August 31, 1999, by (i) each
person known by the Company to own beneficially 5% or more of the outstanding
Common Stock of the Company; (ii) each of the Company's directors; (iii) the
Named Executive Officers identified in the Summary Compensation Table; and (iv)
all directors and Named Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
NAME AND ADDRESS NUMBER OF SHARES PERCENTAGE OF OUTSTANDING
OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) SHARES (1)
- ------------------------------------------------ ---------------------------- -----------------------------
<S> <C> <C>
E. Ted Daniels (2)(3)
c/o Prism Software Corp.
23696 Birtcher
Lake Forest, CA 92630 12,067,110 (4) 10.8%
Allard Villere (2)(3)
369 Justina Drive
Oceanside, CA 92057 474,531 (5) *
Kennedy Capital Management, Inc.
10829 Olive Blvd.
St. Louis, MO 63141-7739 5,162,778 (6) 5.0%
James Martin
3340 Peachtree Road, N.E.
Suite 1940
Atlanta, GA 30326 25,750,339 (7) 24.8%
Third Century II
1711 Chateau Court
Fallston, MD 21047 26,207,790 (8) 25.5%
Threshold Technology Partners
3340 Peachtree Road, N.E.
Suite 1940
Atlanta, GA 30326 6,800,000 6.6%
Conrad and Carl von Bibra
1810 Fair Oaks
Suite 209
South Pasadena, CA 91030 42,444,431 (9) 34.8%
All Directors and Named
Executive Officers of the
Company as a Group (2 persons) 12,541,641 (10) 11.2%
</TABLE>
- --------------------
* Less than 1%.
36
<PAGE>
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, and subject to community property laws where applicable, the
persons named in the table above have sole voting and investment power with
respect to all shares of Common Stock shown as beneficially owned by them.
Shares of Common Stock subject to securities currently convertible, or
convertible within 60 days after August 31, 1999, are deemed to be
outstanding in calculating the percentage ownership of a person or group
but are not deemed to be outstanding as to any other person or group. In
addition, the Company is in the process of issuing shares of Common Stock
upon the conversion of certain Convertible Promissory Notes, and these
shares are deemed to be issued and outstanding as of August 31, 1999 for
the purpose of determining beneficial ownership. Based on 60,123,272 shares
of Common Stock issued and outstanding as of August 31, 1999.
(2) Named Executive Officer of the Company.
(3) Director of the Company.
(4) Includes 9,627,110 shares of Common Stock issuable upon the exercise of
options that are either vested as of August 31, 1999 or could potentially
vest within 60 days after such date. These options entitle Mr. Daniels to
purchase up to 8% (subject to certain anti-dilution adjustments) of the
fully-diluted number of shares of Common Stock of the Company (see
"Executive Compensation Employment Agreements").
(5) Includes 65,697 shares of Common Stock issuable upon the exercise of
options, all of which are exercisable within 60 days after August 31, 1999.
(6) Kennedy Capital Management, Inc. claims beneficial ownership of the Common
Stock of the Company that it manages for its clients. These clients include
Citizens Auto Corp. (826,667 shares), Monsanto Master Trust (1,000,000
shares), Tom Morgan and the Tom Morgan Trust (86,111 shares), Newell
Pension (850,000 shares) and Conrad von Bibra (2,400,000 shares). The
shares managed for Conrad von Bibra are separate from the shares discussed
in note (9) below. Kennedy Capital Management disclaims beneficial
ownership of securities owned by the Kennedy Capital Defined Benefit
Pension Plan and by the estate of the late Gerald Kennedy, the former
president of Kennedy Capital Management.
(7) Includes 22,993,714 shares issuable upon the conversion of certain
Convertible Promissory Notes and 99,125 shares issuable upon the conversion
of warrants that are either vested as of August 31, 1999 or could vest
within 60 days after such date which are beneficially owned by the
following entities or individuals (in addition to Mr. James Martin as an
individual): Capital Investment Partners (Martin Management, Inc., the
general partner, is owned by Mr. Martin), Northstar Capital Partners
(Martin Management, Inc., the general partner, is owned by Mr. Martin),
Huntington Partners (a family partnership owned one-third by Mr. Martin),
MARCO II Partners (a family partnership owned 90% by Mr. Martin), Cameron
Martin (Mr. Martin's son) and MV Ventures (a general partnership owned 50%
by Northstar Capital Partners). Mr. Martin individually owns 512,500 shares
of Common Stock. Capital Investment Partners beneficially owns 375,000
shares of Common Stock, 9,515,229 shares of Common Stock which are in the
process of being issued upon the conversion of certain Convertible
Promissory Notes, an additional 832,926 shares of Common Stock which are
issuable upon the exercise of outstanding Convertible Promissory Notes and
30,000 shares of Common Stock which are issuable upon the exercise of
outstanding warrants. Northstar Capital Partners beneficially owns
1,095,000 shares of Common Stock, 12,090,222 shares in the process of being
issued upon the conversion of certain Convertible Promissory Notes and an
additional 555,337 shares of Common Stock which are issuable upon the
exercise of outstanding Convertible Promissory Notes. Huntington Partners
beneficially owns 312,500 shares of Common Stock and 69,125 shares of
Common Stock which are issuable upon the exercise of outstanding warrants.
MARCO II Partners owns 100,000 shares of Common Stock, Cameron Martin owns
62,500 shares of Common Stock and MV Ventures owns 200,000 shares of Common
Stock.
37
<PAGE>
(8) Includes 15,649,415 shares issuable upon the conversion of certain
Convertible Promissory Notes and 441,375 shares issuable upon the
conversion of warrants that are either vested as of August 31, 1999 or
could vest within 60 days after such date which are beneficially owned by
Third Century II and Eric Nickerson, its managing partner. Third Century
II's ownership includes 117,000 shares of Common Stock held in the street
name of Schneider Securities, 14,566,360 shares of Common Stock which are
in the process of being issued upon the conversion of certain Convertible
Promissory Notes and 441,375 shares of Common Stock which are issuable upon
the exercise of outstanding warrants. Mr. Nickerson beneficially owns
1,083,055 shares of Common Stock which are in the process of being issued
upon the conversion of certain Convertible Promissory Notes.
(9) Includes 23,079,431 shares issuable upon the conversion of certain
Convertible Promissory Notes that are either vested as of August 31, 1999
or could vest within 60 days after such date which are beneficially owned
by Conrad von Bibra or his son, Carl von Bibra. Conrad von Bibra
beneficially owns 10,419,000 shares of Common Stock, 3,082,377 shares of
Common Stock which are in the process of being issued upon the conversion
of certain Convertible Promissory Notes and 13,423,333 shares of Common
Stock which are issuable upon the exercise of certain outstanding
Convertible Promissory Notes. Conrad von Bibra's ownership does not include
shares of Common Stock managed by Kennedy Capital Management, Inc., which
claims beneficial ownership of the shares (see note (6) above). Carl von
Bibra beneficially owns 8,946,000 shares of Common Stock, 411,499 shares of
Common Stock which are in the process of being issued upon the conversion
of accrued interest owed on certain Convertible Promissory Notes and
6,162,222 shares which are issuable upon the conversion of outstanding
Convertible Promissory Notes. Carl von Bibra's ownership includes the
securities previously held by the Edith von Bibra Trust.
(10) Includes shares of Common Stock issuable upon the exercise of options
described in notes (4) and (5) above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ISSUANCE OF COMMON STOCK AND WARRANTS
In January 1996, the Company sold to Gerald Kennedy, the former president,
now deceased, of Kennedy Capital Management ("Kennedy Capital"), 375,000 shares
of Common Stock for an aggregate purchase price of $150,000, or $0.40 per share,
and issued warrants to Mr. Kennedy to purchase an additional 750,000 shares of
Common Stock at an exercise price of $0.50 per share. Mr. Kennedy's estate is
neither an affiliate nor a principal stockholder of the Company. In connection
with this transaction, $10,500 in commissions were paid to Schneider Securities.
In February and March 1996, the Company sold to J. Patrick McLochlin, Ell &
Co. for the benefit of Monsanto Master Trust ("Monsanto"), and Ell & Co. for the
benefit of Newell Company ("Newell") and Third Century II ("Third Century"), an
aggregate of 1,625,000 shares of Common Stock for an aggregate purchase price of
$650,000, or $0.40 per share, and issued warrants to such investors to purchase
an additional 3,250,000 shares of Common Stock at an exercise price of $0.50 per
share. Monsanto and Newell maintain the shares purchased under this offering in
accounts with Kennedy Capital, which claims beneficial ownership of these
shares. Neither Kennedy Capital nor Third Century, nor any director, officer or
affiliate of either such company, is an affiliate (other than as a principal
stockholder) of the Company. No commissions were paid in connection with these
transactions.
In June 1996, the Company issued 4,000 shares to one accredited investor,
Integrated Digital Technologies ("IDT"), in exchange for the cancellation by
such investor of indebtedness in the amount of $4,000 owed to such investor by
the Company. Neither IDT nor any director, officer or affiliate of IDT is an
affiliate or a principal stockholder of the Company. No commissions were paid in
connection with this transaction.
38
<PAGE>
In June and July 1996, the Company sold to Citizens Auto Corp.
("Citizens"), Ernst & Co. for the benefit of Richard E. Frazier & Barbara A.
Frazier JTWROS ("Fraziers"), Monsanto, Newell, Pleiades Investment Partners
("Pleiades"), Third Century, Conrad von Bibra (individually), and Conrad von
Bibra, as Trustee of the Edith von Bibra Trust Dated 12-9-69 ("the Edith von
Bibra Trust"), an aggregate of 2,800,000 shares of the Company's Common Stock
for an aggregate purchase price of $560,000, or $0.20 per share. Citizens,
Monsanto, Newell and Conrad von Bibra maintain the shares purchased under this
offering in accounts with Kennedy Capital, which claims beneficial ownership of
these shares. Neither the Fraziers nor Pleiades is an affiliate or a principal
stockholder of the Company. In April 1999, the securities held by the Edith von
Bibra Trust were distributed to Carl von Bibra, the son of Conrad von Bibra.
Neither Kennedy Capital or Third Century, nor any director, officer or affiliate
of either such company, is an affiliate (other than as a principal stockholder)
of the Company. The von Bibra family is not an affiliate (other than as a
principal stockholder) of the Company. In connection with these transactions,
the Company paid an aggregate of $25,200 in commissions to Schneider Securities.
In July 1996, the Company sold 100,000 shares of Common Stock to MARCO II
Partners for a purchase price of $20,000, or $0.20 per share. James Martin is
the majority owner of MARCO II Partners, a family partnership. James Martin is
not an affiliate (other than as a principal stockholder) of the Company. In
connection with this transaction, the Company paid a commission of $900 to
Attkisson, Carter & Akers.
From September to November 1996, the Company sold 1,430,000 shares of
Common Stock to 11 accredited investors for an aggregate purchase price of
$214,500, or $0.15 per share, pursuant to the exercise of outstanding warrants.
Such exercise was effected at a discount to the stated exercise price (ranging
from $0.25 to $0.55 per share) pursuant to a limited time offer extended by the
Company to each holder of outstanding warrants. Such investors included
Citizens, Charles Dill ("Dill"), James Farnsworth ("Farnsworth"), Richard Fear
("Fear"), Gerald Kennedy, James Martin, the Tom Morgan Trust ("Morgan Trust"),
Northstar Capital Partners ("Northstar"), Preferred Yield, Third Century and
Conrad von Bibra. Citizens, the Morgan Trust and Conrad von Bibra maintain the
shares purchased under this offering in accounts with Kennedy Capital, which
claims beneficial ownership of these shares. None of Dill, Farnsworth, Fear nor
Preferred Yield is either an affiliate or a principal stockholder of the
Company. Gerald Kennedy was the former president, now deceased, of Kennedy
Capital, and his estate is neither an affiliate nor a principal stockholder of
the Company. None of Kennedy Capital or Third Century, nor any director, officer
or affiliate of any such company, is an affiliate (other than as a principal
stockholder) of the Company. James Martin is the owner of Martin Management, the
general partner of Northstar. James Martin is not an affiliate (other than as a
principal stockholder) of the Company. No commissions were paid in connection
with these transactions.
In January 1997, E. Ted Daniels, the Company's President, Chief Executive
Officer, Chairman of the Board and interim Chief Financial Officer, exercised
options to purchase 730,000 shares of the Company's Common Stock at no cost
pursuant to the terms of an Employment Agreement between Mr. Daniels and the
Company (see "Executive Compensation - Employment Agreements").
In January and February 1997, the Company issued 237,000 shares of Common
Stock at no cost to 17 of its employees (excluding E. Ted Daniels, the Company's
President, Chief Executive Officer, Chairman of the Board and interim Chief
Financial Officer) and recorded an expense of $16,886.
39
<PAGE>
In June 1997, E. Ted Daniels, the Company's President Chief Executive
Officer, Chairman of the Board and interim Chief Financial Officer, exercised
options to purchase 400,000 shares of the Company's Common Stock at no cost
pursuant to the terms of an Employment Agreement between Mr. Daniels and the
Company (see "Executive Compensation - Employment Agreements").
From April to August 1997, the Company sold 8,750,000 shares of Common
Stock to six accredited investors for an aggregate purchase price of $350,000,
or $0.04 per share. Such investors included Capital Investment Partners, Jay
Davis, Cameron Martin (the son of James Martin), James Martin, Third Century and
Robert Weiner. Neither Messrs. Davis nor Weiner is either an affiliate or a
principal stockholder of the Company. Third Century, nor any of its directors,
officers or affiliates, is an affiliate (other than as a principal stockholder)
of the Company. James Martin is the owner of Martin Management, the general
partner of Capital Investment Partners. James Martin is not an affiliate (other
than as a principal stockholder) of the Company. No commissions were paid in
connection with these transactions.
In August and September 1997, the Company sold 2,542,500 shares of Common
Stock to Third Century and Huntington Partners ("Huntington") for an aggregate
purchase price of $101,700, or $0.04 per share, pursuant to the exercise of
outstanding warrants. Such exercise was effected at a discount to the stated
exercise price (ranging from $0.25 to $0.55 per share) pursuant to an offer
extended by the Company to each holder of outstanding warrants. As part of this
offer, the exercise price of the remaining warrants held by Third Century
(441,375) and Huntington (69,125) was permanently reduced to $0.04 per share.
Third Century, nor any of its directors, officers or affiliates, is not an
affiliate (other than as a principal stockholder) of the Company. Huntington is
a family partnership owned one-third by James Martin. James Martin is not an
affiliate (other than as a principal stockholder) of the Company. No commissions
were paid in connection with these transactions.
In February 1998, E. Ted Daniels, the Company's President Chief Executive
Officer, Chairman of the Board and interim Chief Financial Officer, exercised
options to purchase 1,000,000 shares of the Company's Common Stock at no cost
pursuant to the terms of an Employment Agreement between Mr. Daniels and the
Company (see "Executive Compensation - Employment Agreements").
From December 1997 to March 1998, the Company sold 8,600,000 shares of
Common Stock to nine accredited investors for an aggregate purchase price of
$344,000, or $0.04 per share. Such investors included Chartwell Investment
Partnership ("Chartwell"), Irving and Hilda Lassoff ("Lassoff"), James Martin,
Northstar, Loyd Tarr ("Tarr"), Conrad von Bibra, the Edith von Bibra Trust,
Robert Weiner and Marty and Sara Williams. Conrad von Bibra maintains his shares
purchased under this offering in an account with Kennedy Capital, which claims
beneficial ownership of these shares. In April 1999, the securities held by the
Edith von Bibra Trust were distributed to Carl von Bibra, the son of Conrad von
Bibra. None of Chartwell, Lassoff, Weiner nor Williams is either an affiliate or
a principal stockholder of the Company. Neither Kennedy Capital nor Third
Century, nor any director, officer or affiliate of either such company, is an
affiliate (other than as a principal stockholder) of the Company. James Martin
is the owner of Martin Management, the general partner of Northstar. Neither
James Martin nor the von Bibra family is an affiliate (other than as a principal
stockholder) of the Company. No commissions were paid in connection with these
transactions.
CERTAIN NOTES AND NOTE CONVERSIONS
In July 1995, the Company issued three Convertible Promissory Notes in the
aggregate principal amount of $350,000 to Threshold Technology Partners
("Threshold"; $250,000), Peachtree ($60,000) and Northstar ($40,000) (the "1995
Convertible Promissory Notes"). The 1995 Convertible Promissory Notes were
convertible into shares of Common Stock at the initial rate of $0.25 per share
(for a total of 1,400,000 shares) at any time at the option of the holders.
During 1997, the conversion rate was adjusted to $0.10 per share (for a total of
40
<PAGE>
3,500,000 shares). Peachtree merged into Capital Investment Partners in 1998.
James Martin is the owner of Martin Management, which is the general partner of
both Capital Investment Partners and Northstar. The 1995 Threshold Convertible
Promissory Note was converted into 5,000,000 shares of Common Stock in October
1998. Neither Threshold, nor any of its directors, officers or affiliates, is an
affiliate (other than as a principal stockholder) of the Company. James Martin
is not an affiliate (other than as a principal stockholder) of the Company.
From August 1995 to January 1996, Threshold advanced an aggregate of
$750,000 to the Company. The Company issued a secured promissory note (the "1996
Threshold Secured Note"), bearing interest at the rate of 8% per annum and
secured by the Company's assets, to Threshold evidencing such advances. As a
condition to and in consideration of the advances made in August and September
1995, the Company issued an aggregate of 92,000 shares of Common Stock to
Threshold and issued four-year warrants to acquire 66,000 shares of Common Stock
at an exercise price of $0.25 per share and five-year warrants to acquire an
additional 125,000 shares of Common Stock at an exercise price of $0.55 per
share to Threshold. No commissions were paid in connection with this
transaction. In December 1997, this note was restructured to allow for
conversion into Common Stock at Threshold's option. The initial conversion rate
was $0.08 per share (for a total of 9,375,000 shares). In October 1998, this
note was transferred to the von Bibra family and converted into 15,000,000
shares of Common Stock.
In January 1996, the Company issued 400,000 shares of Common Stock to
Threshold as consideration for restructuring the terms of the 1995 Convertible
Promissory Note and completing the advances made under the 1996 Threshold
Secured Note. Neither Threshold, nor any of its directors, officers or
affiliates, is an affiliate (other than as a principal stockholder) of the
Company. No commissions were paid in connection with this transaction.
From January 1997 to November 1997, four stockholders of the Company
advanced an aggregate of $255,750 to the Company. The Company issued convertible
promissory notes (the "1997 Notes"), bearing interest at the rate of 8% per
annum, evidencing such advances. The 1997 Notes were convertible into shares of
Common Stock at the initial rate of $0.05 per share (for a total of 5,115,000
shares) at any time at the option of the holders. The notes were issued to
Capital Investment Partners ($48,000), Northstar ($50,000), Third Century
($39,500) and Threshold ($100,250 and $18,000). James Martin is the owner of
Martin Management, which is the general partner of both Capital Investment
Partners and Northstar. No commissions were paid in connection with these
transactions. None of Third Century or Threshold, nor any director, officer or
affiliate of any such company, is an affiliate (other than as a principal
stockholder) of the Company. James Martin is not an affiliate (other than as a
principal stockholder) of the Company. The 1997 Threshold note was converted
into Common Stock in October 1998.
From May 1998 to October 1998, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $353,000 to seven investors (the
"1998 Notes"). The notes bear interest at the rate of 10% per annum (with
payments of accrued interest due every 3 months) and mature at various dates
from May 1999 to October 1999. All or any portion of unpaid principal and
accrued interest is convertible into shares of Common Stock at the initial rate
of $0.05 per share (for an initial total of 7,060,000 shares) at any time at the
option of the holders. All or any portion of defaulted principal or interest
payments is convertible into Common Stock at an adjusted rate of $0.01 per
share. The notes were issued to Capital Investment Partners ($35,000 in the
aggregate), Northstar ($55,000 in the aggregate), Jean Tarr ($15,000), Eric
Nickerson ($10,000), Third Century ($90,000 in the aggregate), Conrad von Bibra
($98,000 in the aggregate), and the Edith von Bibra Trust ($50,000). Holders of
$120,000 of such notes have piggyback registration rights with respect to shares
of Common Stock into which such notes are convertible, which registration rights
expire on December 31, 1999. James Martin is the owner of Martin Management,
which is the general partner of both Capital Investment Partners and Northstar.
Mr. Nickerson is the managing partner of Third Century. In April 1999, the
securities held by the Edith von Bibra Trust were distributed to Carl von Bibra,
the son of Conrad von Bibra. Jean Tarr is neither an affiliate nor a principal
stockholder of the Company. Neither Third Century, nor any of its directors,
officers or affiliates, is an affiliate (other than as a principal stockholder)
of the Company. Neither James Martin nor the von Bibra family is an affiliate
(other than as a principal stockholder) of the Company. No commissions were paid
in connection with these transactions.
41
<PAGE>
From October 1998 to March 1999, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $314,000 to two investors, (the
"1998/99 Notes"). The notes bear interest at the rate of 10% per annum (with
payments of accrued interest due every three months) and mature at various dates
from October 1999 to March 1999. All or any portion of unpaid principal and
accrued interest is convertible into shares of Common Stock at the rate of $0.05
per share (for an initial total of 6,280,000 shares) at any time at the option
of the holders. The notes were issued to Conrad von Bibra ($264,000 in the
aggregate) and the Edith von Bibra Trust ($50,000 in the aggregate). In April
1999, the securities held by the Edith von Bibra Trust were distributed to Carl
von Bibra, the son of Conrad von Bibra. The von Bibra family is not an affiliate
(other than as a principal stockholder) of the Company. No commissions were paid
in connection with these transactions.
In May and June 1998, the principal and unpaid accrued interest on the 1997
Notes for Capital Investment Partners (principal of $48,000 and accrued interest
of $3,773), Northstar (principal of $50,000 and accrued interest of $4,911), and
Third Century (principal of $39,500 and accrued interest of $2,583), were rolled
over into their respective initial 1998 Notes. The 1997 Notes were thereby
cancelled and superseded in their entirety by the aforementioned 1998 Notes.
In October 1998, the following occurred pursuant to a Note Conversion
Agreement:
o Threshold converted all outstanding amounts under its 1995 Convertible
Promissory Note (principal of $250,000 and accrued interest of
$64,265) into 5,000,000 shares of Common Stock, reflecting an
effective conversion rate of approximately $0.06 per share. Neither
Threshold, nor any of its directors, officers or affiliates, is an
affiliate (other than as a principal stockholder) of the Company. No
commissions were paid in connection with this conversion.
o Threshold transferred all of its remaining notes to the von Bibra
family consisting of the 1996 Secured Note (principal of $750,000 and
accrued interest of $164,831 ) and the two 1997 Notes (total principal
of $118,250 and accrued interest of $13,792). The von Bibras converted
all outstanding amounts into 17,365,000 shares of Common Stock
(10,419,000 shares to Conrad von Bibra, 5,209,500 shares to the Edith
von Bibra Trust and 1,736,500 shares to Carl von Bibra, the son of
Conrad von Bibra), reflecting an effective conversion rate of
approximately $0.06 per share. In April 1999, the securities held by
the Edith von Bibra Trust were distributed to Carl von Bibra. The von
Bibra family is not an affiliate (other than as a principal
stockholder) of the Company. No commissions were paid in connection
with these conversions.
From March to August 13, 1999, the Company issued Convertible Promissory
Notes in the aggregate principal amount of $424,000 (the "1999 Notes"), to five
investors. The notes bear interest at the rate of 8% per annum (with payment of
accrued interest due at maturity) and mature at various dates from March 2000 to
August 2000. The notes are convertible upon maturity into shares of Common Stock
at the rate of $0.05 per share at the option of the holders. The notes were
issued to Capital Investment Partners ($5,000), Northstar ($5,000), Jean Tarr
($10,000), Third Century ($10,000) and Conrad von Bibra ($394,000 in the
aggregate). Holders of $5,000 of such notes have piggyback registration rights
with respect to shares of Common Stock into which such notes are convertible,
which registration rights expire on December 31, 1999. James Martin is the owner
of Martin Management, which is the general partner of both Capital Investment
Partners and Northstar. Jean Tarr is neither an affiliate nor a principal
stockholder of the Company. Neither Third Century, nor any of its directors,
officers or affiliates, is an affiliate (other than as a principal stockholder)
of the Company. Neither James Martin nor the von Bibra family is an affiliate
(other than as a principal stockholder) of the Company. No commissions were paid
in connection with these transactions.
42
<PAGE>
As of August 31, 1999, the Company is in the process of converting
approximately $436,998 of Convertible Promissory Notes and related accrued
interest into approximately 42,398,742 shares of Common Stock. Such conversions
relate to the respective 1998 Notes and 1998/99 Notes held by Capital Investment
Partners, Eric Nickerson, Northstar, Jean Tarr, Third Century, Carl von Bibra
and Conrad von Bibra. These notes also include the 1997 Notes for Capital
Investment Partners, Northstar and Third Century, which were rolled into the
terms of certain 1998 Notes. James Martin is the owner of Martin Management,
which is the general partner of both Capital Investment Partners and Northstar.
Mr. Nickerson is the managing partner of Third Century. Carl von Bibra is the
son of Conrad von Bibra. Jean Tarr is neither an affiliate nor a principal
stockholder of the Company. Neither Third Century, nor any of its directors,
officers or affiliates, is an affiliate (other than as a principal stockholder)
of the Company. Neither James Martin nor the von Bibra family is an affiliate
(other than as a principal stockholder) of the Company. No commissions are being
paid in connection with these transactions.
OTHER FINANCING TRANSACTIONS
In May 1996, one stockholder of the Company, Alex J. Pollock, converted
1,000 shares of Class A Preferred Stock of the Company held by him into 3,300
shares of Common Stock of the Company, at no cost. Mr. Pollock is neither an
affiliate nor a principal stockholder of the Company. No commissions were paid
in connection with this transaction.
The issuance of securities of the Company in each of the above transactions
was deemed to be exempt from registration under the Securities Act by virtue of
Section 4(2) thereof or Regulation D promulgated thereunder, as a transaction by
an issuer not involving a public offering. The recipient of such securities in
each case either received adequate information about the Company or had access,
through employment or other relationships with the Company, to such information.
43
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Certificate of Incorporation of Prism Software Corporation ("the
Company") (Incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form SB-2 of the Company (SEC File No.
333-5450-LA))
3.2 Bylaws of the Company (Incorporated by reference to Exhibit 3.2
to the Registration Statement on Form SB-2 of the Company (SEC
File No. 333-5450-LA))
3.3 Amendments dated February 24, 1998 and May 5, 1999 to
Certificate of Incorporation
4.1 Specimen common stock certificate of the Company (Incorporated
by reference to Exhibit 4.1 to the Registration Statement on
Form SB-2 of the Company (SEC File No. 333-5450-LA))
4.2 Form of Warrant of the Company (Incorporated by reference to
Exhibit 4.2 to the Registration Statement on Form SB-2 of the
Company (SEC File No. 333-5450-LA))
4.3 Certificate of Designation of $5.00, 10% Class A Cumulative
Convertible Preferred Stock, as amended to date
4.4 Certificate of Designation of $9.00, 8% Class B Cumulative
Convertible Preferred Stock, as amended to date
10.1 Prism Software Corporation Amended and Restated 1993 Stock
Option Plan ("1993 Plan") (Incorporated by reference to Exhibit
10.1 to the Registration Statement on Form SB-2 of the Company
(SEC File No. 333-5450-LA))
10.2 Form of Employee Installment Incentive Stock Option and
Nonstatutory Stock Option Agreement pertaining to the 1993 Plan
(Incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form SB-2 of the Company (SEC File No.
333-5450-LA))
10.3 Prism Software Corporation 1996 Stock Option Plan ("1996 Plan")
(Incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form SB-2 of the Company (SEC File No.
333-5450-LA))
10.4 Form of Nonqualified Stock Option Agreement pertaining to the
1996 Plan (Incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form SB-2 of the Company (SEC File No.
333-5450-LA))
10.5 Form of Incentive Stock Option Agreement pertaining to the 1996
Plan (Incorporated by reference to Exhibit 10.5 to the
Registration Statement on Form SB-2 of the Company (SEC File No.
333-5450-LA))
<PAGE>
Exhibit No. Description
- ----------- -----------
10.6 Lease dated April 21, 1994 made between the Company and the Mort
Herrmann Family Trust (Incorporated by reference to Exhibit 10.6
to the Registration Statement on Form SB-2 of the Company (SEC
File No. 333-5450-LA))
10.7 Amendments dated April 15, 1999 to the lease made between the
Company and the Mort Herrmann Family Trust
10.8 Amended and Restated Employment Agreement dated as of April 21,
1995, by and between the Company and E. Ted Daniels
(Incorporated by reference to Exhibit 10.7 to the Registration
Statement on Form SB-2 of the Company (SEC File No.
333-5450-LA))
10.9 Non-Qualified Stock Option Agreement dated as of April 21, 1995,
by and between the Company and E. Ted Daniels (Incorporated by
reference to Exhibit 10.8 to the Registration Statement on Form
SB-2 of the Company (SEC File No. 333-5450-LA))
10.10 Summary of Resolutions and Amendments through October 15, 1998
to Employment Agreement and Non-Qualified Stock Option Agreement
by and between the Company and E. Ted Daniels
10.11 Promissory Note dated August 9, 1991 made to the order of George
E. Williams in the principal amount of $22,000
10.12 Promissory Note dated December 9, 1991 made to the order of
Personal Computer Products, Inc. in the principal amount of
$40,000
10.13 Promissory Note dated April 15, 1993 made to the order of James
or Judith Bone in the principal amount of $63,031
10.14 Promissory Note dated February 17, 1994 made to the order of
Shirley McGarvey in the principal amount of $35,000
10.15 Promissory Note dated December 31, 1994 made to the order of
James Bone in the principal amount of $70,168
10.16 Promissory Note dated December 31, 1994 made to the order of
Allard Villere in the principal amount of $15,996
10.17 Convertible Promissory Note dated July 29, 1995 made to the
order of Northstar Capital Partners, LP ("Northstar") in the
principal amount of $40,000 (Incorporated by reference to
Exhibit 10.15 to the Registration Statement on Form SB-2 of the
Company (SEC File No. 333-5450-LA))
<PAGE>
Exhibit No. Description
- ----------- -----------
10.18 Amendment dated October 20, 1997 to Convertible Promissory Note
made to the order of Northstar in the principal amount of
$40,000 (dated July 29, 1995)
10.19 Convertible Promissory Note dated July 29, 1995 made to the
order of Peachtree Capital Partners, LP ("Peachtree") in the
principal amount of $60,000 (Incorporated by reference to
Exhibit 10.14 to the Registration Statement on Form SB-2 of the
Company (SEC File No. 333-5450-LA))
10.20 Amendment dated October 20, 1997 to Convertible Promissory Note
made to the order of Peachtree in the principal amount of
$60,000 (dated July 29, 1995)
10.21 Convertible Promissory Note dated December 31, 1997 made to the
order of Capital Investment Partners in the principal amount of
$48,000
10.22 Convertible Promissory Note dated December 31, 1997 made to the
order of Northstar in the principal amount of $50,000
10.23 Convertible Promissory Note dated December 31, 1997 made to the
order of Third Century II in the principal amount of $39,500
10.24 Form of Convertible Promissory Notes dated June 12 to October
14, 1998 in the aggregate principal amount of $233,000
10.25 Form of Convertible Promissory Notes dated May 1 to September 1,
1998 in the aggregate principal amount of $120,000
10.26 Form of Convertible Promissory Notes dated October 30, 1998 to
March 12, 1999 in the aggregate principal amount of $314,000
10.27 Form of Convertible Promissory Notes dated March 31 to August
13, 1999 in the aggregate principal amount of $419,000
10.28 Convertible Promissory Note dated April 8, 1999 made to the
order of Northstar in the principal amount of $5,000
10.29 Original Equipment Manufacturer ("OEM") Agreement dated May 13,
1997 by and between the Company and Artifex Software, Inc., as
amended to date
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants......................... F-2
Consolidated Balance Sheets as of December 31, 1998 and 1997............... F-3
Statements of Operations for the Years Ended
December 31, 1998 and 1997........................................ F-4
Statements of Stockholders' Deficit for the Years Ended
December 31, 1998 and 1997........................................ F-5
Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997........................................ F-6
Notes to Financial Statements.............................................. F-7
<PAGE>
PRISM SOFTWARE CORPORATION
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------
The Board of Directors
Prism Software Corporation
We have audited the accompanying balance sheets of Prism Software Corporation as
of December 31, 1998 and 1997, and the related statements of operations,
stockholders' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Prism Software Corporation as
of December 31, 1998 and 1997 and the results of its operations and cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
financial statements, the Company's continued operating losses, limited capital
and stockholders' deficit raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to this matter are also
described in Note 10. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Cacciamatta Accountancy Corporation
CACCIAMATTA ACCOUNTANCY CORPORATION
Irvine, California
July 22, 1999
F-2
<PAGE>
<TABLE>
PRISM SOFTWARE CORPORATION
Balance Sheets
<CAPTION>
DECEMBER 31,
----------------------------------
1998 1997
------------ ------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 7,491 $ 8,085
Accounts receivable, net of allowance for doubtful accounts
of $43,377 and $72,022 142,794 168,076
Inventories 3,154 7,171
Other 11,053 5,920
------------ ------------
Total current assets 164,492 189,252
Equipment, net of accumulated depreciation of $184,964
and $162,146 33,541 94,586
Other 3,667 13,924
------------ ------------
$ 201,700 $ 297,762
============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Current portion of long-term debt $ 1,052,639 $ 266,557
Accounts payable 195,951 495,633
Deferred revenue 163,187 156,858
Accrued expenses 446,141 643,110
------------ ------------
Total current liabilities 1,857,918 1,562,158
------------ ------------
Long term liabilities:
Deferred revenue 20,102 29,836
Notes payable - 1,358,728
------------ ------------
Total long term liabilities 20,102 1,388,564
------------ ------------
Stockholders' deficit:
Preferred stock - 5,000,000 shares authorized, $.01 par value
Series A - 99,000 shares issued and outstanding 990 990
Series B - 27,777 shares issued and outstanding 278 278
Common stock - 200,000,000 shares authorized, $.01 par
value; 60,123,272 and 29,183,272 shares issued and outstanding 601,233 291,833
Additional paid-in capital 6,055,333 4,623,199
Accumulated deficit (8,334,154) (7,569,260)
------------ ------------
Total stockholders' deficit (1,676,320) (2,652,960)
------------ ------------
$ 201,700 $ 297,762
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
PRISM SOFTWARE CORPORATION
Statements of Operations
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1998 1997
------------ ------------
<S> <C> <C>
Revenue $ 602,461 $ 825,649
Cost of sales 35,792 83,045
------------ ------------
Gross profit 566,669 742,604
Operating expenses:
Selling, general and administrative 1,322,789 1,603,683
Research and development 58,993 168,839
------------ ------------
Total operating expenses 1,381,782 1,772,522
Loss from operations (815,113) (1,029,918)
Interest expense 133,908 133,004
------------ ------------
Loss before extraordinary item (949,021) (1,162,922)
Extraordinary item:
Gain on accounts payable settlements 184,127 -
------------ ------------
Net loss $ (764,894) $(1,162,922)
============ ============
Basic and diluted net loss per common share:
Loss before extraordinary item $ (0.02) $ (0.05)
Extraordinary item - -
------------ ------------
Net loss per common share $ (0.02) $ (0.05)
============ ============
Basic and diluted weighted average number
of common shares outstanding 41,968,094 22,526,662
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
PRISM SOFTWARE CORPORATION
Statements of Stockholders' Deficit
Years ended December 31, 1998 and 1997
<CAPTION>
SERIES A SERIES B ADDITIONAL TOTAL
PREFERRED STOCK PREFERRED STOCK COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT DEFICIT
----------------- ------------------ ------------------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996 99,000 $ 990 27,777 $ 278 15,498,772 $ 154,988 $ 4,175,859 $(6,406,338) $ (2,074,223)
Common stock issued for services - - - - 237,000 2,370 14,516 - 16,886
Issuance of stock options - - - - - - 78,284 - 78,284
Common stock issued in a
private placement - - - - 9,775,000 97,750 289,565 - 387,315
Common stock issued upon
exercise of options and
warrants - - - - 3,672,500 36,725 64,975 - 101,700
Net loss - - - - - - - (1,162,922) (1,162,922)
------- -------- ------- ------- ---------- --------- ----------- ------------ -------------
BALANCE AT DECEMBER 31, 1997 99,000 990 27,777 278 29,183,272 291,833 4,623,199 (7,569,260) (2,652,960)
Common stock issued in a
private placement - - - - 7,575,000 75,750 223,845 - 299,595
Common stock issued upon
exercise of options - - - - 1,000,000 10,000 (10,000) - -
Common stock issued upon
conversion of debt - - - - 22,365,000 223,650 1,137,488 - 1,361,138
Issuance of stock options - - - - - - 80,801 - 80,801
Net loss - - - - - - - (764,894) (764,894)
------- -------- ------- ------- ---------- --------- ----------- ------------ -------------
BALANCE AT DECEMBER 31, 1998 99,000 $ 990 27,777 $ 278 60,123,272 $ 601,233 $ 6,055,333 $(8,334,154) $ (1,676,320)
======= ======== ======= ======= ========== ========= =========== ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
PRISM SOFTWARE CORPORATION
Statements of Cash Flows
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1998 1997
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (764,894) $ (1,162,922)
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation 72,947 49,295
Issuance of stock options 80,801 78,284
Issuance of stock for services - 16,886
Extraordinary gain on accounts payable settlements (184,127) -
(Increase) decrease in assets:
Accounts receivable 25,282 43,233
Inventories 4,017 1,775
Other assets 1,791 (10,452)
Increase (decrease) in liabilities:
Accounts payable (114,855) (5,493)
Deferred revenue (3,404) 102,901
Accrued expenses 45,918 141,425
------------- -------------
Net cash used by operating activities (836,524) (745,068)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets (9,269) (8,182)
------------- -------------
Net cash used by investing activities (9,269) (8,182)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of notes payable 559,000 255,750
Payments on notes payable (13,396) (27,528)
Proceeds from issuance of common stock 299,595 489,015
------------- -------------
Net cash provided by financing activities 845,199 717,237
------------- -------------
Net decrease in cash (594) (36,013)
Cash, beginning of year 8,085 44,098
------------- -------------
Cash, end of year $ 7,491 $ 8,085
============= =============
Cash paid during the year for interest $ 1,843 $ 6,963
============= =============
Supplemental disclosure of non-cash financing activities:
Notes payable and accrued interest converted to stock $ 1,361,138 $ -
============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
December 31, 1998
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Organization
- ------------
Prism Software Corporation (the "Company") is a Delaware Corporation
incorporated in 1992. The Company develops and markets protocol conversion
software products that connect desktop personal computers with high-volume,
high-speed laser printers. The Company's family of software products provides
fast, easy access to high production laser printers. The Company's Print Manager
products convert Hewlett Packard ("HP") PCL and/or Adobe PostScript
("PostScript"), the most common page description languages for the personal
computer ("PC"), to Xerox Metacode. This combines the benefits of desktop
computing with greater user control and the benefits of advanced documentation
printing capabilities, for which Xerox production laser printers have set the
industry standard. The Company's customer base covers participants in a broad
range of industries all over the world.
Concentrations of risk
- ----------------------
In 1998 and 1997 the three largest customers accounted for 19% and 34%,
respectively of sales. The three largest accounts receivable totaled 60% and 55%
at December 31, 1998 and 1997, respectively.
Use of estimates
- ----------------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.
Inventories
- -----------
Inventories are reported at the lower of cost (determined on the
first-in-first-out method) or market and consist principally of finished goods.
Equipment
- ---------
Equipment is recorded at cost. Depreciation is provided over the estimated
useful lives of the related assets using the straight-line method.
Software Development Costs
- --------------------------
Development costs related to new software products and enhancements to existing
software products are expensed as incurred until technological feasibility has
been established. After technological feasibility is established, any additional
costs are capitalized in accordance with Statement of Financial Accounting
Standards (SFAS) No. 86, Accounting for the Costs of Computer Software to be
sold, leased or otherwise Marketed. Because the Company believes the
establishment of technological feasibility occurs concurrently with the
completion of software development, no costs have been capitalized as of
December 31, 1998 or 1997.
F-7
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Revenue recognition
- -------------------
Revenues from the licensing of computer software products are recognized upon
receipts of authorized customer purchase orders and subsequent delivery of the
products to customers, as there are no significant obligations remaining and
collection of the related receivable is probable. The Company accounts for
significant vendor obligations and post-contract support at the time of product
delivery by accruing such costs and recognizing them ratably over the contract
period. The Company records returns at the time of product delivery based on
historical experience. Revenues related to service agreements are deferred and
amortized over the terms of the related agreements, generally 12 months.
Income taxes
- ------------
The Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) 109, "Accounting for Income Taxes." Under the asset
and liability method of SFAS 109, deferred income taxes are recognized for the
tax consequences of temporary differences by applying enacted statutory rates
applicable to future years to the difference between the financial statement
carrying amounts and the tax basis of existing assets and liabilities.
Stock-based compensation
- ------------------------
The Company accounts for compensation costs related to employee stock options
and other forms of employee stock-based compensation plans in accordance with
the requirements of Accounting Principles Board Opinion 25 ("APB 25"). APB 25
requires compensation costs for stock based compensation plans to be recognized
based on the difference, if any, between the fair market value of the stock on
the date of the grant and the option exercise price. In October 1995, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards 123, Accounting for Stock-Based Compensation ("SFAS 123"). SFAS 123
established a fair value-based method of accounting for compensation costs
related to stock options and other forms of stock-based compensation plans.
However, SFAS 123 allows an entity to continue to measure compensation costs
using the principles of APB 25 if certain pro forma disclosures are made. The
Company adopted the provisions of pro forma disclosure requirements of SFAS 123
in fiscal 1996. Options granted to non-employees are recognized at their
estimated fair value at the date of grant.
F-8
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
- --------------------------------------------------------------------------------
Basic and diluted net loss per share
- ------------------------------------
Net loss per share is calculated in accordance with Statement of Financial
Accounting Standards 128, Earnings per Share ("SFAS 128"), which superseded
Accounting Principles Board Opinion 15 ("APB 15"). Net loss per share for all
periods presented has been stated to reflect the adoption of SFAS 128. Basic net
loss per share is based upon the weighted average number of common shares
outstanding. Diluted net loss per share is based on the assumption that all
dilutive convertible shares and stock options were converted or exercised.
Dilution is computed by applying the treasury stock method. Under this method,
options and warrants are assumed to be exercised at the beginning of the period
(or at the time of issuance, if later), and as if funds obtained thereby were
used to purchase common stock at the average market price during the period.
Fair value of financial instruments
- -----------------------------------
The fair value of financial instruments, consisting principally of notes
payable, are based on interest rates available to the Company and comparison to
quoted prices. The fair value of these financial instruments approximates
carrying value.
Research and development costs
- ------------------------------
Costs and expenses that can be clearly identified as research and development
are charged to expense as incurred in accordance with FASB Statement No. 2,
"Accounting for Research and Development Costs."
F-9
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 2 - NOTES PAYABLE
- ----------------------
DECEMBER 31,
---------------------------
1998 1997
------------ ------------
Unsecured notes payable, bearing interest at 10%
per annum, principal and interest past due. $ 38,700 $ 38,700
Unsecured notes payable, bearing interest at 10%
per annum, principal and interest payments of
$1,009 due monthly through March 1999. 2,977 14,172
Unsecured notes payable to shareholders, bearing
interest at 7% to 10% per annum, principal and
interest past due. 203,195 203,195
Unsecured notes payable to shareholders, bearing
interest at 8% per annum, principal and interest
at December 31, 1998 convertible into 1,000,000
shares of common stock at lenders' option,
principal and interest due December 31, 1999. 100,000 605,750
Unsecured notes payable to shareholders, bearing
interest at 10% per annum, interest due quarterly,
principal and interest convertible, at lenders'
option into shares of common stock at
an initial rate of $.05. Principal and unpaid
accrued interest due at various dates from May
to December 1999. (The conversion rate on
$501,767 of these notes adjusts to $.01 on
any payments that are defaulted.) 707,767 -
Notes payable to shareholders, bearing interest
at 8% per annum, collateralized by all Company
assets, principal and interest due December 1999. - 750,000
Other - 13,468
------------ ------------
1,052,639 1,625,285
Less current portion of notes payable (1,052,639) (266,557)
------------ ------------
Long-term debt $ - $ 1,358,728
============ ============
F-10
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 3 - ACCRUED EXPENSES
- -------------------------
December 31,
--------------------------
1998 1997
---------- ----------
Wages and benefits $ 150,863 $ 183,341
Interest 170,597 292,119
Sales commissions 42,367 70,327
Other 82,314 97,323
---------- ----------
$ 446,141 $ 643,110
========== ==========
NOTE 4 - PREFERRED STOCK
- ------------------------
The Company has authorized 5,000,000 shares of $.01 par value preferred stock,
of which 100,000 shares have been designated as $5.00 Series A 10% cumulative
convertible preferred stock (Series A), and 27,777 shares have been designated
as $9.00 Series B 8% cumulative convertible preferred stock (Series B).
Series A
- --------
The holders of Series A are entitled to receive, when and as declared by the
Company's Board of Directors (the Board), cumulative annual dividends of $.50
per share commencing upon issuance and payable semi-annually. Series A has a
liquidation preference of $5.00 per share plus any accrued but unpaid dividends.
Series A is redeemable at the Company's election upon 30 days' notice at a price
per share of $5.50 plus accrued but unpaid dividends thereon. The 99,000 shares
of Series A outstanding at December 31, 1998 are currently convertible at the
election of the holders into 9,900,000 shares of common stock. The conversion
rate is subject to the adjustments set forth in the certificate of designation
for Series A based on the current market price of the Company's common stock.
The holders of the Series A are entitled to cast one noncumulative vote per
share of Series A in all matters presented to the shareholders, and the majority
of holders of Series A, voting as a class, have certain protective rights
relating to their dividends and preference rights. No amounts have been accreted
in relation to the Series A redemption as the likelihood of the Company electing
to repurchase is remote.
F-11
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 4 - PREFERRED STOCK (CONTINUED)
- ------------------------------------
Series B
- --------
The holders of Series B are entitled to receive, when and as declared by the
Board, cumulative annual dividends of $.72 per share commencing upon issuance
and payable quarterly. Series B has a liquidation preference of $9.00 per share
plus any accrued but unpaid dividends.
Series B is redeemable at the Company's election upon 30 days' notice at a price
per share of $10.00 plus accrued but unpaid dividends thereon. The 27,777 shares
of Series B outstanding at December 31, 1998 are currently convertible at the
election of the holders into 4,998,860 shares of common stock. The conversion
rate is subject to the adjustments set forth in the certificate of designation
for Series B based on the current market price of the Company's common stock.
The holders of Series B are entitled to cast one noncumulative vote per share of
Series B in all matters presented to the shareholders, and the majority of
holders of Series B, voting as a class, have certain protective rights relating
to their dividends and preference rights. No amounts have been accreted in
relation to the Series B redemption as the likelihood of the Company electing to
repurchase is remote.
NOTE 5 - CAPITAL TRANSACTIONS
- -----------------------------
In January 1996, the Company issued 400,000 shares of common stock as
consideration for the restructuring of debt. The Company has ascribed a value of
$160,000 or $0.40 per share based on comparable issuances at the time and
expensed such amount.
In March 1996, the Company completed a private placement of common stock at
$0.40 per share. From January to March 1996, the Company issued 2,000,000 shares
of common stock and raised gross proceeds of $800,000. In connection with this
issuance, warrants to purchase 4,000,000 shares of common stock at the initial
rate of $0.50 per share were issued. No value has been ascribed to the warrants
because they were deemed to have no intrinsic value.
In May 1996, the shareholders converted 1,000 shares of their Series A preferred
stock into 3,300 shares of common stock.
In June 1996, the company issued 4,000 shares in exchange for the cancellation
of indebtedness in the amount of $4,000.
In July 1996, the Company completed a private placement of common stock at $0.20
per share. In June and July 1996, the Company issued 2,900,000 shares of common
stock and raised gross proceeds of $580,000.
In July 1996, the Company's Board of Directors and stockholders voted to
increase the number of authorized common shares from 25,000,000 to 50,000,000
and the number of authorized preferred shares from 500,000 to 5,000,000.
F-12
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 5 - CAPITAL TRANSACTIONS (CONTINUED)
- -----------------------------------------
From September to November 1996, holders of warrants to purchase 1,430,000
shares of common stock exercised the warrants at $0.15 per share. Gross proceeds
were $214,500.
In January and June 1997, the Company's President and Chief Executive Officer
exercised options to purchase 1,130,000 shares of the Company's common stock at
no cost pursuant to the terms of an employment agreement.
In January and February 1997, the Company issued 237,000 shares of common stock
at no cost to its employees (excluding the President and Chief Executive
Officer).
In August 1997, the Company completed a private placement of common stock at
$0.04 per share. From April to December 1997, the Company issued 8,750,000
shares of common stock and raised gross proceeds of $350,000.
In August and September 1997, holders of warrants to purchase 2,542,500 shares
of common stock exercised the warrants at $0.04 per share. Gross proceeds were
$101,700.
In October and November 1997, the Company's Board of Directors and stockholders
voted to increase the number of authorized shares of common stock from
50,000,000 to 100,000,000.
In February 1998, the Company's President and Chief Executive Officer exercised
options to purchase 1,000,000 shares of the Company's common stock at no cost
pursuant to the terms of an employment agreement.
In March 1998, the Company completed a private placement of common stock at
$0.04 per share. In December 1997, the Company issued 1,025,000 shares of common
stock for $37,315. From January to March 1998, the Company issued 7,575,000
shares of common stock and raised gross proceeds of $303,000.
In October 1998, the Company issued 22,365,000 shares of common stock in
connection with the conversion of $1,118,250 in notes payable and approximately
$242,000 of related accrued interest.
In April 1999, the Company's Board of Directors and stockholders voted to
increase the number of authorized shares of common stock from 100,000,000 to
200,000,000.
F-13
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 6 - STOCK OPTIONS AND WARRANTS
- -----------------------------------
Financing options - The Company issued 197,093 options to certain lenders during
1994 in connection with loans made to the Company. At December 31, 1998 all of
these options are exercisable at $2.00 per share. They expire January 19, 2004.
1993 Stock Option Plan - The Company's 1993 Stock Option Plan provides for the
issuance of options to acquire up to 630,000 shares of the Company's common
stock to employees, directors, officers, agents and advisors of the Company. At
December 31, 1998, options to purchase 492,600 shares of the Company's common
stock at prices between $0.05 and $2.25 per share were outstanding under the
plan, of which options to purchase 381,808 shares were exercisable. Options
issued under this plan are generally granted at an estimated market value, vest
at varying rates and expire within ten years from the date of grant or, in many
cases, up to 90 days after termination of employment.
1996 Stock Option Plan - The Company's 1996 Stock option plan provides for the
issuance of options to acquire up to 600,000 shares of the company's common
stock to employees, directors, officers, agents and advisors of the Company. At
December 31, 1998, all of the available options were outstanding and exercisable
under the plan at an exercise price of $0.03 per share. The options were granted
at an estimated market value, and expire within three years from the date of
grant or in many cases, up to 90 days after termination of employment.
Other Management Options - In connection with the employment terms of the
Company's President and Chief Executive Officer, all equity issuances result in
additional options awarded to the President and Chief Executive Officer to
maintain an 8% interest in the Company's fully-diluted and vested common stock.
These options are exercisable at no cost. The Company has recorded and will
record any required compensation expense related to issuances of these options.
Warrants - Certain warrants have been issued to various lenders and shareholders
from 1994 to 1996. At December 31, 1998, 1,740,500 shares can be purchased at
exercise prices ranging from $.04 to $.55 per share. No expense was charged in
connection with the issuance of these warrants due to the exercise price being
greater than the market price at the time of issuance.
F-14
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 6 - STOCK OPTIONS AND WARRANTS (CONTINUED)
- -----------------------------------------------
All outstanding options and warrants at December 31, 1998 are summarized as
follows:
TYPE OF OPTION NUMBER EXERCISE AGGREGATE
or warrant of shares Price Exercise Price
- ---------------------------- -------------- -------------- --------------
Financing-related options 197,093 $ 2.00 $ 394,186
1993 stock option plan 492,600 $ 0.05-$2.25 416,150
1996 stock option plan 600,000 $ 0.03 18,000
Other management options 4,388,179 $ - -
Warrants 1,740,500 $ 0.04-$0.55 636,920
------------- --------------
7,418,372 $ 1,465,256
============= ==============
Stock option and warrant activity for 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1993 1996 OTHER
PLAN PLAN OPTIONS WARRANTS
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
December 31, 1996 221,600 - 1,632,132 4,283,000
Granted 271,000 - 2,542,278 -
Exercised - - (1,130,000) (2,542,500)
-------------- ------------- ------------- -------------
December 31, 1997 492,600 - 3,044,410 1,740,500
Granted - 600,000 2,343,769 -
Exercised - - (1,000,000) -
-------------- ------------- ------------- -------------
December 31, 1998 492,600 600,000 4,388,179 1,740,500
============== ============= ============= =============
</TABLE>
The following information applies to employee options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Average Weighted Weighted
remaining average average
Number contractual exercise Number exercise
Outstanding life ( years) price Exercisable price
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
1993 Plan 492,600 2 $ 0.84 381,808 $ 1.07
1996 Plan 600,000 3 $ 0.03 600,000 $ 0.03
President's options 4,388,179 6 $ - 4,388,179 $ -
---------------- ----------------
5,480,779 5,369,987
================ ================
</TABLE>
F-15
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 6 - STOCK OPTIONS (CONTINUED)
- ----------------------------------
Statement of Financial Accounting Standards 123, "Accounting for Stock Based
Compensation" encourages, but does not require, companies to record compensation
cost for stock-based compensation plans at fair value. The Company has chosen to
continue to account for stock-based compensation using the intrinsic value
method prescribed in Accounting Principles Board Opinion 25, "Accounting for
Stock Issued to Employees," and related interpretations. Accordingly,
compensation cost for stock options is measured as the excess, if any, of the
quoted market price of the Company's stock at the date of grant over the amount
an employee must pay to acquire the stock.
Had compensation cost been determined based on the fair value of the options at
the grant dates consistent with the method of SFAS 123, the Company's net loss
and loss per share would have been:
1998 1997
------------- -------------
Net loss
As reported (764,894) (1,162,922)
Pro forma (910,349) (1,276,622)
Basic and diluted loss per share
As reported $ (0.02) $ (0.05)
Pro forma $ (0.02) $ (0.06)
These pro forma amounts may not be representative of future disclosures because
they do not take into effect pro forma compensation expense related to grants
made before 1996. In addition, potential deferred tax benefits of approximately
$58,000 in 1998 and $45,000 in 1997 have not been reflected in the pro forma
amounts due to the uncertainty of realizing any benefit. The fair value of these
options was estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions for 1998
and 1997:
Expected life (years) 4 years
Risk-free interest rate 6.50%
Volatility 200%
The weighted fair value of options granted during the year ended December 31,
1998 and 1997 for which the exercise price approximated the market price on the
grant date was $.05 and $.04, respectively.
F-16
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 7. BASIC AND DILUTED NET LOSS PER SHARE
- --------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------- --------------
BASIC AND DILUTED NET LOSS PER SHARE:
- -------------------------------------
<S> <C> <C>
Numerator
---------
Loss before extraordinary item $ (949,021) $ (1,162,922)
Preferred dividends (69,500) (69,500)
Extraordinary item 184,127 -
------------- --------------
Net loss $ (834,394) $ (1,232,422)
============= ==============
Denominator
-----------
Basic and diluted weighted average number of
common shares outstanding during the period 41,968,094 22,526,662
------------- --------------
Basic and diluted net loss per share
Loss before extraordinary item $ (0.02) $ (0.05)
Extraordinary item - -
------------- --------------
Net loss per common share $ (0.02) $ (0.05)
============= ==============
Incremental common shares (not included in denominator
of diluted earnings per share calculation due to their
antidilutive nature) attributable to exercise of:
Outstanding options and warrants 7,418,372 6,088,603
Convertible debt and accrued interest 17,608,574 20,455,610
Preferred stock 14,898,860 14,898,860
</TABLE>
NOTE 8 - INCOME TAXES
- ---------------------
A reconciliation between the actual income tax benefit and the statutory rate
follows:
1998 1997
----------------- ------------------
AMOUNT % AMOUNT %
----------------- ------------------
Computed income tax
benefit at statutory rate $ 323,000 42% $ 395,000 34%
Extraordinary item (63,000) -8% - -
Operating loss with no
current tax benefit (260,000) -34% (395,000) -34%
---------- ----------
Income tax benefit $ - $ -
========== ==========
F-17
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 8 - INCOME TAXES (CONTINUED)
- ---------------------------------
At December 31, 1998, the Company had a net operating loss carryforward for
federal tax purposes of approximately $7,415,000 which, if unused to offset
future taxable income, will expire between 2004 and 2018, and approximately
$2,831,000 for California purposes which will expire, if unused, between 1999
and 2003. The Company's net operating losses expire as follows:
Federal California
--------------------- ---------------------
1999 - 398,210
2000 - 844,531
2001 - 680,112
2002 - 569,620
2003 - 339,017
2004 34,398 -
2005 58,611 -
2006 144,681 -
2007 152,491 -
2008 1,357,053 -
2009 799,619 -
2010 1,689,061 -
2011 1,361,024 -
2012 1,140,040 -
2018 678,834
A valuation allowance has been recognized for 1998 and 1997 to offset the
related deferred tax assets due to the uncertainty of realizing any benefit
therefrom. During 1998, no changes occurred in the conclusions regarding the
need for a 100% valuation allowance in all tax jurisdictions.
Significant components of the Company's deferred tax assets as of December 31,
1998 and 1997 are as follows:
1998 1997
-------------- -------------
Net operating loss carryforwards $ 2,966,400 $ 2,694,400
Valuation allowance (2,966,400) (2,694,400)
-------------- -------------
Net deferred tax assets $ - $ -
============== =============
F-18
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 9 - LITIGATION
- -------------------
In April 1999 a former officer of the Company filed suit against the Company for
breach of a settlement agreement reached in 1995. The former officer seeks
payment of a $64,000 note due him and damages due to his inability to sell his
Company stock. The Company believes the charges are without merit and intends to
vigorously defend against his claims and has filed a counterclaim. An
unfavorable outcome of this suit would not have a material effect on the
Company. The $64,000 is included in notes payable in the accompanying financial
statements.
NOTE 10 - GOING CONCERN
- -----------------------
Management's plans to continue strengthening the Company's financial condition
and operations include: restructuring the Company's debt and other liabilities,
monitoring costs and cash flow activities, expanding operations through
potential joint ventures, continuing to upgrade sales and marketing efforts and
upgrading customer service and product development efforts. The Company also
intends to continue raising capital to fund its operations, but no assurance can
be given that such funding will be available.
NOTE 11 - COMMITMENTS
- ---------------------
Lease
- -----
The office lease expires March 31, 2004 and provides for a basic rent of $7,613
per month. Rent expense was $85,700 and $81,900 in 1998 and 1997, respectively.
The Company is subject to minimum annual lease payments as follows:
1999 $ 90,345
2000 91,356
2001 94,389
2002 95,400
2003 98,433
NOTE 12 - EXTRAORDINARY ITEM
- ----------------------------
During 1998, the Company recognized an extraordinary gain of $184,127 on the
settlement of trade payables whereby certain vendors accepted cash payments of
$46,000 for extinguishment of accounts payable balances totaling $230,127.
F-19
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 13 - PREFERRED DIVIDENDS
- -----------------------------
At December 31, 1998, the amounts of dividends in arrears on the Series A 10%
and the Series B 8% cumulative preferred stock were $323,500 ($3.27 per share)
and $110,000 ($3.96 per share), respectively.
At December 31, 1997, the amounts of dividends in arrears on the Series A 10%
and the Series B 8% cumulative preferred stock were $274,000 ($2.77 per share)
and $90,000 ($3.24 per share), respectively.
NOTE 14 - QUARTERLY INFORMATION (UNAUDITED)
- -------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
SEPT. 30, 1998 JUNE 30, 1998 MARCH 31, 1998
-------------- ------------- --------------
<S> <C> <C> <C>
Revenue $ 93,587 $ 118,119 $ 164,873
Cost of sales 9,352 3,513 5,116
-------------- ------------- --------------
Gross profit 84,235 114,606 159,757
-------------- ------------- --------------
Expenses:
Operating expenses 276,088 320,063 396,395
Miscellaneous income - (5,750) (15,504)
Interest expense 39,199 35,870 34,549
-------------- ------------- --------------
Total expenses 315,287 350,183 415,440
-------------- ------------- --------------
Net loss $ (231,052) $ (235,577) $ (255,683)
============== ============= ==============
</TABLE>
F-20
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 14 - QUARTERLY INFORMATION (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
SEPT. 30, 1998 JUNE 30, 1998 MARCH 31, 1998
-------------- ------------- --------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 22,633 $ 29,516 $ 83,356
Accounts receivable 35,652 69,943 95,514
Inventory 7,579 7,800 8,484
Other 8,846 12,317 13,016
-------------- ------------- --------------
Total current assets 74,710 119,576 200,370
Equipment and furniture, net 79,159 85,023 93,283
Other 5,800 6,200 6,600
-------------- ------------- --------------
Total assets $ 159,669 $ 210,799 $ 300,253
============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' DEFICIT
<S> <C> <C> <C>
Current liabilities:
Current portion of long-term debt $ 535,776 $ 408,992 $ 261,060
Accounts payable 406,869 410,784 453,398
Deferred revenue 163,315 168,258 152,903
Accrued expenses 705,633 652,017 633,477
-------------- ------------- --------------
Total current liabilities 1,811,593 1,640,051 1,500,838
Long-term liabilities:
Deferred revenue 25,920 31,261 33,070
Notes payable 1,355,750 1,355,750 1,355,750
-------------- ------------- --------------
Total long-term liabilities 1,381,670 1,387,011 1,388,820
Preferred stock - Series A 990 990 990
Preferred stock - Series B 278 278 278
Common stock 377,583 377,583 377,583
Additional paid-in capital 4,879,127 4,865,406 4,856,687
Accumulated deficit (8,291,572) (8,060,520) (7,824,943)
-------------- ------------- --------------
Total stockholders' deficit (3,033,594) (2,816,263) (2,589,405)
-------------- ------------- --------------
Total liabilities and
stockholders' deficit $ 159,669 $ 210,799 $ 300,253
============== ============= ==============
</TABLE>
F-21
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 14 - QUARTERLY INFORMATION (UNAUDITED) - CONTINUED
- -------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------
SEPT. 30, 1997 JUNE 30, 1997 MARCH 31, 1997
-------------- ------------- --------------
<S> <C> <C> <C>
Revenue $ 121,937 $ 295,542 $ 139,040
Cost of sales 7,255 35,489 16,054
-------------- ------------- --------------
Gross profit 114,682 260,053 122,986
-------------- ------------- --------------
Expenses:
Operating expenses 369,888 479,766 465,921
Interest expense 33,624 34,734 31,420
-------------- ------------- --------------
Total expenses 403,512 514,500 497,341
-------------- ------------- --------------
Net loss $ (288,830) $ (254,447) $ (374,355)
============== ============= ==============
</TABLE>
F-22
<PAGE>
PRISM SOFTWARE CORPORATION
Notes to Financial Statements
NOTE 14 - QUARTERLY INFORMATION (UNAUDITED) - CONTINUED
- -------------------------------------------------------
<TABLE>
<CAPTION>
SEPT. 30, 1997 JUNE 30, 1997 MARCH 31, 1997
-------------- ------------- --------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 75,059 $ 32,366 $ 43,883
Accounts receivable 147,976 205,934 51,706
Inventory 6,475 6,822 7,369
Other 12,169 16,272 4,051
-------------- ------------- --------------
Total current assets 241,679 261,394 107,009
Equipment and furniture, net 102,027 111,840 123,101
Other 14,325 16,028 8,341
-------------- ------------- --------------
Total assets $ 358,031 $ 389,262 $ 238,451
============== ============= ==============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current portion of long-term debt $ 468,212 $ 469,662 $ 408,001
Accounts payable 455,519 436,801 457,644
Deferred revenue 157,969 136,848 67,208
Accrued expenses 643,356 619,175 617,048
-------------- ------------- --------------
Total current liabilities 1,725,056 1,662,486 1,549,901
Long-term liabilities:
Deferred revenue 15,953 19,365 4,690
Notes payable 1,108,382 1,112,099 1,107,688
-------------- ------------- --------------
Total long-term liabilities 1,124,335 1,131,464 1,112,378
Preferred stock - Series A 990 990 990
Preferred stock - Series B 278 278 278
Common stock 281,583 232,408 164,658
Additional paid-in capital 4,549,760 4,396,776 4,190,939
Accumulated deficit (7,323,971) (7,035,140) (6,780,693)
-------------- ------------- --------------
Total stockholders' deficit (2,491,360) (2,404,688) (2,423,828)
-------------- ------------- --------------
Total liabilities and
stockholders' deficit $ 358,031 $ 389,262 $ 238,451
============== ============= ==============
</TABLE>
F-23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
PRISM SOFTWARE CORPORATION
Dated: September 16, 1999 By: /s/ E. Ted Daniels
-------------------------------
President, Chief Executive Officer,
Chief Financial Officer and Director
(Principal Executive Officer and
Principal Financial and Principal
Accounting Officer)
In accordance with the Exchange Act, this report has been signed by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ E. Ted Daniels President, Chief Executive Officer, September 16, 1999
- ---------------------- Chief Financial Officer and Director
E. Ted Daniels (Principal Executive Officer and
Principal Financial and Principal
Accounting Officer)
/s/ Allard C. Villere Director September 16, 1999
- ----------------------
Allard C. Villere
</TABLE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PRISM SOFTWARE CORPORATION
(Pursuant to Section 242)
Prism Software Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That pursuant to an action by unanimous written consent of the
Board of Directors of the corporation, in accordance with Section 141(f) of the
Delaware General Corporation Law, resolutions were duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing ARTICLE FOURTH so that, as amended, said ARTICLE
FOURTH shall be and read as follows:
FOURTH, The total number of shares which the Corporation have
authority to issue is one hundred five million (105,000,000) shares of capital
stock, of which one hundred million (100,000,000) shares shall be designated
Common Stock, par value of $.01 per share, and five million (5,000,000) shares
shall be designated Preferred Stock, par value of $.01 per share.
Shares of Preferred Stock may be issued from time in one or
more classes or series as the Board of Directors, by resolution or resolutions,
may from time to time determine, each of said classes or series to be
distinctively designated. The voting powers, preferences and relative,
participating, optional and other special rights, and the qualifications,
limitations, or restrictions thereof, if any, of each such class or series may
differ from those of any and all other classes or series of Preferred Stock at
any time outstanding, and the Board of Directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, of each such class or series, including, but without limiting the
generality of the foregoing, the following:
(i) The distinctive designation of, and the number of shares of
preferred Stock that shall constitute, such class or series, which
number (except as otherwise provided by the Board of Directors in the
resolution establishing such class or series) may be increased or
decreased (but not below the number of shares of such class or series
then outstanding) from time to time by like action of the Board of
Directors;
<PAGE>
(ii) The rights in respect of dividends, if any, of such class or
series of Preferred Stock, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other class or
classes or any other series of the same or other class or classes of
capital stock of the Corporation, and whether such dividends shall be
cumulative or noncumulative;
(iii) The right, if any, of the holders of such class or series of
Preferred Stock to convert the same into, or exchange the same for,
shares of any other class or classes or of any other series of the same
or any other class or classes of capital stock of the Corporation and
the terms and conditions of such conversion or exchange;
(iv) Whether or not shares of such class or series of Preferred
Stock shall be subject to redemption, and the redemption price or
prices and the time or times at which, and the terms and conditions on
which, shares of such class or series of Preferred Stock may be
redeemed;
(v) The rights, if any, of the holders of such class or series of
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation or in the event of any
merger or consolidation of or sale of assets by the Corporation;
(vi) The terms of any sinking fund or redemption or purchase
account, if any, to be provided for shares of such class or series of
Preferred Stock;
(vii) The voting powers, if any, of the holders of any class or
series of Preferred Stock generally or with respect to any particular
matter, which may be less than, equal to or greater than one vote per
share, and which may, without limiting the generality of the foregoing,
include the right, voting as a class or series by itself or together
with the holders of any other class or classes or series of the same or
other class or classes of Preferred Stock or all classes or series of
Preferred Stock, to elect one or more directors of the Corporation
(which, without limiting the generality of the foregoing, may include a
specified number or portion of the then-existing number of authorized
directorships of the Corporation, or a specified number or portion of
directorships in addition to the then-existing number of authorized
directorships of the Corporation) generally or under such specific
circumstances and on such conditions, as shall be provided in the
resolution or resolutions of the Board of Directors adopted pursuant
hereto; and
(viii) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations
and restrictions thereof, as the Board of Directors shall determine."
<PAGE>
SECOND: That thereafter, pursuant to an action by written consent of
the stockholders of the corporation in accordance with Section 228(a) of the
General Corporation Law of the State of Delaware, the necessary number of shares
as required by statute and this corporation's Certificate of Incorporation were
voted in favor of and thereby duly adopted said amendment in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
Executed on February 24, 1998
/s/ E. Ted Daniels
----------------------------
E. Ted Daniels, President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PRISM SOFTWARE CORPORATION
(PURSUANT TO SECTION 242)
Prism Software Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, DOES
HEREBY CERTIFY:
FIRST: That pursuant to an action by unanimous written consent of the
Board of Directors of the corporation, in accordance with Section 141(f) of the
Delaware General Corporation Law, resolutions were duly adopted setting forth a
proposed amendment to the Certificate of Incorporation of said corporation,
declaring said amendment to be advisable. The resolution setting forth the
proposed amendment is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing ARTICLE FOURTH so that, as amended, said ARTICLE FOURTH
shall be and read as follows:
"FOURTH. The total number of shares which the Corporation shall have
authority to issue is two hundred and five million (205,000,000) shares of
capital stock, of which two hundred million (200,000,000) shares shall be
designated Common Stock, par value of $.01 per share, and five million
(5,000,000) shares shall be designated Preferred Stock, par value $.01 per share
Shares of Preferred Stock may be issued from time to time in one or
more classes or series as the Board of Directors, by resolution or resolutions,
may from time to time determine, each of said classes or series to be
distinctively designated. The voting powers, preferences and relative,
participating, optional and other special rights, and the qualification,
limitations or restrictions thereof, if any, of each such class or series may
differ from those of any and all other classes or series of Preferred Stock at
any time outstanding, and the Board of Directors is hereby expressly granted
authority to fix or alter, by resolution or resolutions, the designation,
number, voting powers, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions
thereof, of each such class or series, including, but without limiting the
generality of the foregoing, the following:
(i) The distinctive designation of, and the number of shares of
Preferred Stock that shall constitute, such class or series, which
number (except as otherwise provided by the Board of Directors in the
resolution establishing such class or series) may be increased or
decreased (but not below the number o shares of such class or series
then outstanding) from time to time by like action of the Board of
Directors;
(ii) The rights in respect of dividends, if any, of such class or
series of Preferred Stock, the extent of the preference or relation, if
any, of such dividends to the dividends payable on any other class or
classes or any other series of the same or other class or classes of
capital stock of the Corporation, and whether such dividends shall be
cumulative or noncumulative;
<PAGE>
(iii) The right, if any, of the holders of such class or series of
Preferred Stock to convert the same into, or exchange the same for,
shares of any other class or classes or of any other series of the same
or any other class or classes of capital stock of the Corporation and
the terms and conditions of such conversion or exchange;
(iv) Whether or not shares of such class or series of Preferred Stock
shall be subject to redemption, and the redemption price or prices and
the time or times at which, and the terms and conditions on which,
shares of such class or series of Preferred Stock may be redeemed;
(v) The rights, if any, of the holders of such class or series of
Preferred Stock upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation or in the event of any
merger or consolidation of or sale of assets by the Corporation;
(vi) The terms of any sinking fund or redemption or purchase account,
if any, to be provided for shares of such class or series of Preferred
Stock;
(vii) The voting powers, if any, of the holders of any class or series
of Preferred Stock generally or with respect to any particular matter,
which may be less than, equal to or greater than one vote per share,
and which may, without limiting the generality of the foregoing,
include the right, voting as a class or series by itself or together
with the holders of any other class or classes or series of the same or
other class or classes of Preferred Stock or all classes or series of
Preferred Stock, to elect one or more directors of the Corporation
(which, without limiting the generality of the foregoing, may include a
specified number or portion of the then-existing number of authorized
directorships in addition to the then-existing number of authorized
directorships of the Corporation) generally or under such specific
circumstances and on such conditions, as shall be provided in the
resolution or resolutions of the Board of directors adopted pursuant
hereto; and
(viii) Such other powers, preferences and relative, participating,
optional and other special rights, and the qualifications, limitations
and restrictions thereof, as the Board of Directors shall determine."
<PAGE>
SECOND: That thereafter, pursuant to an action by written consent of
the stockholders of the corporation in accordance with Section 228(a) of the
General Corporation Law of the State of Delaware, the necessary number of shares
as required by statute and this corporation's Certificate of Incorporation were
voted in favor of and thereby duly adopted said amendment in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
Executed on May 5, 1999
/s/ E. Ted Daniels
-------------------------------------
E. Ted Daniels, President/CEO
CERTIFICATE OF DESIGNATIONS
of
$5.00, 10% Class A Cumulative Convertible Preferred Stock
PRISM SOFTWARE CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Prism Software Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that,
pursuant to the authority conferred on the Board of Directors of the Corporation
by the Certificate of Incorporation, of the Corporation and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation adopted the following resolution establishing a
series of 100,000 shares of Preferred Stock of the Corporation designated as
CONVERTIBLE PREFERRED STOCK
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Certificate of Incorporation, a
series of Class A Preferred Stock, $.10 par value, of the Corporation
be and hereby is established and created, and that the designation and
number of shares thereof and the voting and other powers, preferences
and relative, participating, optional or other rights of the shares of
such series and qualifications, limitations and restrictions thereof
are as follows:
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred Stock
designated as Class A "$5.00, 10% Cumulative Convertible Preferred Stock", and
the number of shares constituting such series shall be 100,000. Such series is
referred to herein as the "Class A Preferred Stock."
2. PAR VALUE. The par value for each share of Class A Preferred Stock
shall be $.10.
3. RANK. All shares of Preferred Stock shall rank prior to all of the
Corporation's Common Stock, $.10 par value (the "Common Stock"), now or
hereafter issued, both as to payment of dividends and as to distributions of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
4. DIVIDENDS. The holders of Class A Preferred Stock are entitled to
receive, when and as declared by the Board of Directors of the Company,
dividends at an annual rate of $.50 per share, payable semi-annually. Dividends
will be cumulative from the date of issuance of the Class A Preferred Stock and
will be payable semi-annually to holders of record on the stock records of the
Company on such record dates as shall be fixed by the Board of Directors of the
Company.
Shares redeemed or converted after the record date for a dividend and
before the payment date will be entitled to the dividend but no adjustment will
be made on account of dividends with respect to the period after the last record
date before the redemption or conversion, as the case may be.
<PAGE>
Unless all annual cumulative dividends on the Class A Preferred Stock
have been paid, no dividends or other distributions may be paid or declared and
set apart for payment on the Common Stock or any other capital stock of the
Company ranking junior to the Class A Preferred Stock as to dividends.
Delaware law provides that a corporation may pay dividends in cash or
shares of its stock. Such dividends may be paid from either surplus or net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year, provided, however, that if the capital of the corporation
shall have been diminished by depreciation in the value of its property, or by
losses, or otherwise, to an amount less than the aggregate amount of the capital
represented by the outstanding stock of all classes having a preference upon the
distribution of assets, the directors of such corporation shall not declare and
pay out of such net profits any dividends upon any shares of any classes of its
capital stock until the deficiency in the amount of capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets shall have been repaired. Surplus is defined as the excess of the net
assets of the Company over the amount determined to be capital. The capital of
the Company will be the aggregate of the par values of the shares of Common
Stock and Class A Preferred Stock issued. Net assets means the amount by which
total assets exceed total liabilities. Neither capital nor surplus are
liabilities for this purpose. Thus, the amount by which the net proceeds
received by the Company as a part of this offering exceeds the par value of the
Common Stock and the par value of Class A Preferred Stock issued is included in
surplus from which dividends may be paid.
5. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, holders of the Class A Preferred Stock are entitled
to receive $5.00 in cash per share plus accumulated and unpaid dividends out of
assets available for distribution to shareholders, prior to any distribution to
holders of Common Stock or any other stock ranking junior to the Class A
Preferred Stock. If, upon any liquidation, dissolution or winding up of the
Company, the amounts payable with respect to the Class A Preferred Stock (and
with respect to any other Preferred Stock ranking on a parity with the Class A
Preferred Stock in any such distribution) are not paid in full, the holders of
the Class A Preferred Stock (and of such other Preferred Stock) will share
ratably in any such distribution of assets in proportion to the full
preferential amounts to which such shares are entitled. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of shares of Class A Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Company.
A consolidation or merger of the Company with or into any other
corporation or a sales of all or any part of the assets of the Company (which
shall not in fact result in the liquidation of the Company and the distribution
of assets to stockholders) shall not be deemed to be a liquidation, dissolution
or winding up of the Company.
6. REDEMPTION. The Class A Preferred Stock may be redeemed upon 30-days'
written notice at a redemption price of $5.50 per share. Preferred Stock
shareholders shall have the right to convert into common stock during this
30-day period. The redemption price shall be payable together with accumulated
and unpaid dividends to the date fixed for redemption. If full cumulative
dividends on the Class A Preferred Stock through the most recent dividend
payment date have not been paid, the Class A Preferred Stock may not be redeemed
in part unless approved by the holders of a majority of share of the Class A
Preferred Stock then outstanding and the Company may not purchase or acquire any
share of Class A Preferred Stock other than pursuant to a purchase or exchange
offer made on the same terms to all holders of the Class A Preferred Stock. If
less than all the outstanding shares of Class A Preferred Stock are to be
redeemed, the Company will select those to be redeemed by lot or a substantially
equivalent method.
<PAGE>
The shares of Class A Preferred Stock are not subject to any sinking
fund or any other similar provision.
The redemption by the Company of all or any part of the Class A
Preferred Stock is subject to the availability of cash. Moreover, under Delaware
law, shares of capital stock shall not be redeemed when the capital of the
Company is impaired or when the redemption would cause any impairment of
capital.
7. CONVERSION RIGHTS. Holders of the Class A Preferred Stock will have the
right, at their option, to convert such shares into shares of Common Stock at
any time at the conversion rate then in effect, provided that, if any of the
Class A Preferred Stock is redeemed, the conversion rights pertaining thereto
will terminate on the third business day preceding the redemption date.
Each share of Class A Preferred Stock will be initially convertible
into three (3) shares of Common Stock. No fractional share or scrip representing
a fractional share will be issued upon conversion of the Class A Preferred
Stock. Cash will be paid in lieu of fractional shares.
The conversion rate will be appropriately adjusted if the Company (a)
pays a dividend or makes a distribution on its shares of Common Stock (but not
the outstanding Class A Preferred Stock) which is paid or made in shares of
Common Stock, (b) subdivides or reclassifies its outstanding shares of Common
Stock, (c) combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, (d) issues shares of Common Stock, or issues rights
or warrants to all holders of its Common Stock entitling them to subscribe to or
purchase shares of Common Stock (or securities convertible into Common Stock),
at a price per share less than $1.67, or (e) distributes to all holders of its
Common Stock evidences of its indebtedness or assets (excluding any dividend
paid in cash out of legally available funds) subject to the limitation that
adjustments by reason of any of the foregoing need not be made until they result
in a cumulative change in the conversion rate of at least five percent (5%). The
conversion rate will not be adjusted upon the conversion of shares of Class A
Preferred Stock or presently outstanding stock options or warrants.
In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the surviving
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
case of any statutory exchange of securities with another corporation, there
will be no adjustment of the conversion price, but each holder of shares of
Class A Preferred Stock then outstanding will have the right thereafter to
convert such shares into the kind and amount of securities, cash or other
property which he would have owned or have been entitled to receive immediately
after such consolidation, merger, statutory exchange sale or conveyance had such
shares been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale or conveyance. In the case of a
cash merger of the Company into another corporation or any other cash
transaction of the type mentioned above, the effect of these provisions would be
that the conversion features of the Class A Preferred Stock would thereafter be
limited to converting the Class A Preferred Stock at the conversion price in
effect at such time into the same amount of cash per share that such holder
would have received had such holder converted the Class A Preferred Stock into
Common Stock immediately prior to the effective date of such cash merger or
transaction. Depending upon the terms of such cash merger or transaction, the
aggregate amount of cash so received in conversion could be more or less than
the liquidation preference of the Class A Preferred Stock.
<PAGE>
Class A Preferred Stock may be converted upon surrender of the stock
certificate at least three (3) days prior to the redemption date at the offices
of the Corporation, Prism Software Corporation, 23696 Birtcher, Lake Forest,
California with the form of "Election to Convert" on the reverse side of the
stock certificate completed and executed as indicated. Share of Common Stock
issued upon conversion will be fully paid and non-assessable.
8. VOTING RIGHTS. Shares of Common Stock and of Class A Preferred Stock
have one non-cumulative vote each. Shares of Common Stock and Class A Preferred
Stock vote as a single class on all matters presented to the stockholders for
action. Without the affirmative vote of the holders of a majority of the Class A
Preferred Stock then outstanding, voting as a separate class, the Company may
not (i) amend, alter or repeal any of the preferences or rights of the Class A
Preferred Stock, (ii) authorize any reclassification of the Class A Preferred
Stock, (iii) increase the authorized number of shares of Class A Preferred Stock
or (iv) create any class or series of shares ranking prior to the Class A
Preferred Stock as to dividends or upon liquidation.
9. STATUS OF ACQUIRED SHARES. Shares of Class A Preferred Stock redeemed
by the Company or received upon conversion Pursuant to Section 6 or otherwise
acquired by the Company will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Class A Preferred Stock.
10. PREEMPTIVE RIGHTS. The Class A Preferred Stock is not entitled to any
preemptive or subscription rights in respect of any securities of the Company.
11. SEVERABILITY OF PROVISIONS. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely affecting
the remaining provisions hereof. If a court of competent jurisdiction should
determine that a provision hereof would be valid or enforceable if a period of
time were extended or shortened or a particular percentage were increased or
decreased, then such court may make such change as shall be necessary to render
the provision in question effective and valid under applicable law.
<PAGE>
IN WITNESS WHEREOF, Prism Software Corporation has caused this certificate to be
signed by Arthur L. Wilkes, its President, and its corporate seal hereunto
affixed and attested by Shirley K. McGarvey, its Secretary, this 2nd day of
July, 1993.
PRISM SOFTWARE CORPORATION
By: /s/ Arthur L. Wilkes
-------------------------------
ARTHUR L. WILKES
President
Attest:
By: /s/ Shirley K. McGarvey
------------------------------------
SHIRLEY K. MC GARVEY
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS
OF THE $5.00, 10% CLASS A CUMULATIVE
CONVERTIBLE PREFERRED STOCK
PRISM SOFTWARE CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the board,
adopted resolutions proposing and declaring advisable the following amendments
to the Certificate of Designations of the $5.00, 10% Class A Cumulative
Convertible Preferred Stock ("Class A Preferred Stock") of said corporation and
directing that said amendments be considered at the next annual meeting of the
stockholders of the Corporation:
RESOLVED, that the Certificate of Designations of the Corporation governing
the Class A Preferred Stock be amended by changing Section 8 thereof so
that, as amended, said Section shall be and read as follows:
"8. VOTING RIGHTS. Shares of Common Stock and of Class A Preferred
Stock have one non-cumulative vote each. Notwithstanding the foregoing,
so long as certain of the Corporation Laws of the State of California
apply to this Corporation by virtue of Section 2115 thereof, all
holders of Shares of Common Stock and Class A Preferred Stock shall
have cumulative voting rights with respect to the election of
Directors. Shares of Common Stock and Class A Preferred Stock vote as a
single class on all matters presented to the stockholders for action.
Without the affirmative vote of the holders of a majority of the Class
A Preferred Stock then outstanding, voting as a separate class, the
Company may not (i) amend, alter or repeal any of the preferences or
rights of the Class A Preferred Stock, (ii) authorize any
reclassification of the Class A Preferred Stock, (iii) increase the
authorized number of shares of Class A Preferred Stock or (iv) create
any class or series of shares ranking prior to the Class A Preferred
stock as to dividends or upon liquidation."
RESOLVED, that the Certificate of Designations of the Corporation governing
the Preferred Stock be amended by changing Sections 2 and 3 thereof so
that, as amended, said Sections shall be and read as follows:
"2. PAR VALUE. The par value for each share of Class A Preferred Stock
shall be $0.01."
"3. RANK. All Shares of Preferred Stock shall rank prior to all of the
Corporation's Common Stock, $0.01 par value, (the "Common Stock"), now
or hereafter issued, both as to payment of dividends and as to
distributions of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary of involuntary."
<PAGE>
SECOND: That thereafter, pursuant to resolutions of its Board of
Directors, an annual meeting of the Stockholders of the Corporation was duly
called and held on May 25, 1995, upon notice in accordance with Section 222 of
the General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendments.
THIRD: That the aforesaid amendments were duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said PRISM SOFTWARE CORPORATION has caused this
certificate to be signed by E. Ted Daniels, its President, and attested by its
Secretary, as of the 5th day of June, 1995
PRISM SOFTWARE CORPORATION
By: /s/ E. Ted Daniels
------------------------------
E. Ted Daniels
President
Attest:
By: /s/ Allard C. Villere
---------------------------------
Allard C. Villere
Secretary
<PAGE>
CERTIFICATE OF DESIGNATIONS
of
$9.00, 8% Class B Cumulative Convertible Preferred Stock
PRISM SOFTWARE CORPORATION
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Prism Software Corporation, a corporation organized and existing under
the laws of the State of Delaware (the "Corporation"), does hereby certify that,
pursuant to the authority conferred on the Board of Directors of the Corporation
by the Certificate of Incorporation, of the Corporation and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation adopted the following resolution establishing a
series of 27,777 shares of Preferred Stock of the Corporation designated as
CONVERTIBLE PREFERRED STOCK
RESOLVED, that pursuant to the authority conferred on the Board of
Directors of this Corporation by the Certificate of Incorporation, a
series of Class B Preferred Stock, $.10 par value, of the Corporation
be and hereby is established and created, and that the designation and
number of shares thereof and the voting and other powers, preferences
and relative, participating, optional or other rights of the shares of
such series and qualifications, limitations and restrictions thereof
are as follows:
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred Stock
designated as Class B "$9.00, 8% Cumulative Convertible Preferred Stock", and
the number of shares constituting such series shall be 27,777. Such series is
referred to herein as the "Class B Preferred Stock."
2. PAR VALUE. The par value for each share of Class B Preferred Stock
shall be $.10.
3. RANK. All shares of Preferred Stock shall rank prior to all of the
Corporation's Common Stock, $.10 par value (the "Common Stock"), now or
hereafter issued, both as to payment of dividends and as to distributions of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
4. DIVIDENDS. The holders of Class B Preferred Stock are entitled to
receive, when and as declared by the Board of Directors of the Company,
dividends at an annual rate of $.72 per share, payable quarterly. Dividends will
be cumulative from the date of issuance of the Class B Preferred Stock and will
be payable quarterly to holders of record on the stock records of the Company on
such record dates as shall be fixed by the Board of Directors of the Company.
Shares redeemed or converted after the record date for a dividend and
before the payment date will be entitled to the dividend but no adjustment will
be made on account of dividends with respect to the period after the last record
date before the redemption or conversion, as the case may be.
<PAGE>
Unless all annual cumulative dividends on the Class B Preferred Stock
have been paid, no dividends or other distributions may be paid or declared and
set apart for payment on the Common Stock or any other capital stock of the
Company ranking junior to the Class B Preferred Stock as to dividends.
Delaware law provides that a corporation may pay dividends in cash or
shares of its stock. Such dividends may be paid from either surplus or net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year, provided, however, that if the capital of the corporation
shall have been diminished by depreciation in the value of its property, or by
losses, or otherwise, to an amount less than the aggregate amount of the capital
represented by the outstanding stock of all classes having a preference upon the
distribution of assets, the directors of such corporation shall not declare and
pay out of such net profits any dividends upon any shares of any classes of its
capital stock until the deficiency in the amount of capital represented by the
outstanding stock of all classes having a preference upon the distribution of
assets shall have been repaired. Surplus is defined as the excess of the net
assets of the Company over the amount determined to be capital. The capital of
the Company will be the aggregate of the par values of the shares of Common
Stock, Class A Preferred Stock and Class B Preferred Stock issued. Net assets
means the amount by which total assets exceed total liabilities. Neither capital
nor surplus are liabilities for this purpose. Thus, the amount by which the net
proceeds received by the Company as a part of this offering exceeds the par
value of the Common Stock, the par value of Class A Preferred Stock and the par
value of Class B Preferred Stock issued is included in surplus from which
dividends may be paid.
5. LIQUIDATION RIGHTS. In the event of any liquidation, dissolution or
winding up of the Company, holders of the Class B Preferred Stock are entitled
to receive $9.00 in cash per share plus accumulated and unpaid dividends out of
assets available for distribution to shareholders, prior to any distribution to
holders of Common Stock or any other stock ranking junior to the Class B
Preferred Stock. If, upon any liquidation, dissolution or winding up of the
Company, the amounts payable with respect to the Class B Preferred Stock (and
with respect to any other Preferred Stock ranking on a parity with the Class B
Preferred Stock in any such distribution) are not paid in full, the holders of
the Class B Preferred Stock (and of such other Preferred Stock) will share
ratably in any such distribution of assets in proportion to the full
preferential amounts to which such shares are entitled. After payment of the
full amount of the liquidating distribution to which they are entitled, the
holders of shares of Class B Preferred Stock will not be entitled to any further
participation in any distribution of assets by the Company.
A consolidation or merger of the Company with or into any other
corporation or a sales of all or any part of the assets of the Company (which
shall not in fact result in the liquidation of the Company and the distribution
of assets to stockholders) shall not be deemed to be a liquidation, dissolution
or winding up of the Company.
6. REDEMPTION. The Class B Preferred Stock may be redeemed upon 30-days'
written notice, beginning June 7, 1994, at a redemption price of $10.00 per
share. Preferred Stock shareholders shall have the right to convert into common
stock during this 30-day period. The redemption price shall be payable together
with accumulated and unpaid dividends to the date fixed for redemption. If full
cumulative dividends on the Class B Preferred Stock through the most recent
dividend payment date have not been paid, the Class B Preferred Stock may not be
redeemed in part unless approved by the holders of a majority of share of the
Class B Preferred Stock then outstanding and the Company may not purchase or
acquire any share of Class B Preferred Stock other than pursuant to a purchase
or exchange offer made on the same terms to all holders of the Class B Preferred
Stock. If less than all the outstanding shares of Class B Preferred Stock are to
be redeemed, the Company will select those to be redeemed by lot or a
substantially equivalent method.
<PAGE>
The shares of Class B Preferred Stock are not subject to any sinking
fund or any other similar provision.
The redemption by the Company of all or any part of the Class B
Preferred Stock is subject to the availability of cash. Moreover, under Delaware
law, shares of capital stock shall not be redeemed when the capital of the
Company is impaired or when the redemption would cause any impairment of
capital.
7. CONVERSION RIGHTS. Holders of the Class B Preferred Stock will have the
right, at their option, to convert such shares into shares of Common Stock at
any time at the conversion rate then in effect, provided that, if any of the
Class B Preferred Stock is redeemed, the conversion rights pertaining thereto
will terminate on the third business day preceding the redemption date.
Each share of Class B Preferred Stock will be initially convertible
into four (4) shares of Common Stock. No fractional share or scrip representing
a fractional share will be issued upon conversion of the Class B Preferred
Stock. Cash will be paid in lieu of fractional shares.
The conversion rate will be appropriately adjusted if the Company (a)
pays a dividend or makes a distribution on its shares of Common Stock (but not
the outstanding Class B Preferred Stock) which is paid or made in shares of
Common Stock, (b) subdivides or reclassifies its outstanding shares of Common
Stock, (c) combines its outstanding shares of Common Stock into a smaller number
of shares of Common Stock, (d) issues shares of Common Stock, or issues rights
or warrants to all holders of its Common Stock entitling them to subscribe to or
purchase shares of Common Stock (or securities convertible into Common Stock),
at a price per share less than $2.25, or (e) distributes to all holders of its
Common Stock evidences of its indebtedness or assets (excluding any dividend
paid in cash out of legally available funds) subject to the limitation that
adjustments by reason of any of the foregoing need not be made until they result
in a cumulative change in the conversion rate of at least five percent (5%). The
conversion rate will not be adjusted upon the conversion of shares of Class B
Preferred Stock or presently outstanding stock options or warrants.
In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the surviving
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
case of any statutory exchange of securities with another corporation, there
will be no adjustment of the conversion price, but each holder of shares of
Class B Preferred Stock then outstanding will have the right thereafter to
convert such shares into the kind and amount of securities, cash or other
property which he would have owned or have been entitled to receive immediately
after such consolidation, merger, statutory exchange sale or conveyance had such
shares been converted immediately prior to the effective date of such
consolidation, merger, statutory exchange, sale or conveyance. In the case of a
cash merger of the Company into another corporation or any other cash
transaction of the type mentioned above, the effect of these provisions would be
that the conversion features of the Class B Preferred Stock would thereafter be
limited to converting the Class B Preferred Stock at the conversion price in
effect at such time into the same amount of cash per share that such holder
would have received had such holder converted the Class B Preferred Stock into
Common Stock immediately prior to the effective date of such cash merger or
transaction. Depending upon the terms of such cash merger or transaction, the
aggregate amount of cash so received in conversion could be more or less than
the liquidation preference of the Class B Preferred Stock.
<PAGE>
Class B Preferred Stock may be converted upon surrender of the stock
certificate at least three (3) days prior to the redemption date at the offices
of the Corporation, Prism Software Corporation, 23696 Birtcher, Lake Forest,
California with the form of "Election to Convert" on the reverse side of the
stock certificate completed and executed as indicated. Share of Common Stock
issued upon conversion will be fully paid and non-assessable.
8. VOTING RIGHTS. Shares of Common Stock and of Class B Preferred Stock
have one non-cumulative vote each. Shares of Common Stock and Class B Preferred
Stock vote as a single class on all matters presented to the stockholders for
action. Without the affirmative vote of the holders of a majority of the Class B
Preferred Stock then outstanding, voting as a separate class, the Company may
not (i) amend, alter or repeal any of the preferences or rights of the Class B
Preferred Stock, (ii) authorize any reclassification of the Class B Preferred
Stock, (iii) increase the authorized number of shares of Class B Preferred Stock
or (iv) create any class or series of shares ranking prior to the Class B
Preferred Stock as to dividends or upon liquidation.
9. STATUS OF ACQUIRED SHARES. Shares of Class B Preferred Stock redeemed
by the Company or received upon conversion Pursuant to Section 6 or otherwise
acquired by the Company will be restored to the status of authorized but
unissued shares of Preferred Stock, without designation as to class, and may
thereafter be issued, but not as shares of Class B Preferred Stock.
10. PREEMPTIVE RIGHTS. The Class B Preferred Stock is not entitled to any
preemptive or subscription rights in respect of any securities of the Company.
11. SEVERABILITY OF PROVISIONS. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely affecting
the remaining provisions hereof. If a court of competent jurisdiction should
determine that a provision hereof would be valid or enforceable if a period of
time were extended or shortened or a particular percentage were increased or
decreased, then such court may make such change as shall be necessary to render
the provision in question effective and valid under applicable law.
<PAGE>
IN WITNESS WHEREOF, Prism Software Corporation has caused this certificate to be
signed by Arthur L. Wilkes, its President, and its corporate seal hereunto
affixed and attested by Shirley K. McGarvey, its Secretary, this 2nd day of
July, 1993.
PRISM SOFTWARE CORPORATION
By: /s/ Arthur L. Wilkes
-----------------------------
ARTHUR L. WILKES
President
Attest:
By: /s/ Shirley K. McGarvey
--------------------------------
SHIRLEY K. MC GARVEY
Secretary
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF DESIGNATIONS
OF THE $9.00, 8% CLASS B CUMULATIVE
CONVERTIBLE PREFERRED STOCK
PRISM SOFTWARE CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the board,
adopted resolutions proposing and declaring advisable the following amendments
to the Certificate of Designations of the $9.00, 8% Class B Cumulative
Convertible Preferred Stock ("Class B Preferred Stock") of said corporation and
directing that said amendments be considered at the next annual meeting of the
stockholders of the Corporation:
RESOLVED, that the Certificate of Designations of the Corporation governing
the Class B Preferred Stock be amended by changing Section 8 thereof so
that, as amended, said Section shall be and read as follows:
"8. VOTING RIGHTS. Shares of Common Stock and of Class B Preferred
Stock have one non-cumulative vote each. Notwithstanding the foregoing,
so long as certain of the Corporation Laws of the State of California
apply to this Corporation by virtue of Section 2115 thereof, all
holders of Shares of Common Stock and Class B Preferred Stock shall
have cumulative voting rights with respect to the election of
Directors. Shares of Common Stock and Class B Preferred Stock vote as a
single class on all matters presented to the stockholders for action.
Without the affirmative vote of the holders of a majority of the Class
B Preferred Stock then outstanding, voting as a separate class, the
Company may not (i) amend, alter or repeal any of the preferences or
rights of the Class B Preferred Stock, (ii) authorize any
reclassification of the Class B Preferred Stock, (iii) increase the
authorized number of shares of Class B Preferred Stock or (iv) create
any class or series of shares ranking prior to the Class B Preferred
stock as to dividends or upon liquidation."
RESOLVED, that the Certificate of Designations of the Corporation governing
the Preferred Stock be amended by changing Sections 2 and 3 thereof so
that, as amended, said Sections shall be and read as follows:
"2. PAR VALUE. The par value for each share of Class B Preferred Stock
shall be $0.01."
"3. RANK. All Shares of Preferred Stock shall rank prior to all of the
Corporation's Common Stock, $0.01 par value, (the "Common Stock"), now
or hereafter issued, both as to payment of dividends and as to
distributions of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary of involuntary."
<PAGE>
SECOND: That thereafter, pursuant to resolutions of its Board of
Directors, an annual meeting of the Stockholders of the Corporation was duly
called and held on May 25, 1995, upon notice in accordance with Section 222 of
the General Corporation Law of the State of Delaware at which meeting the
necessary number of shares as required by statute were voted in favor of the
amendments.
THIRD: That the aforesaid amendments were duly adopted in accordance
with the applicable provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said PRISM SOFTWARE CORPORATION has caused this
certificate to be signed by E. Ted Daniels, its President, and attested by its
Secretary, as of the 5th day of June, 1995
PRISM SOFTWARE CORPORATION
By: /s/ E. Ted Daniels
-----------------------------------
E. Ted Daniels
President
Attest:
By: /s/ Allard C. Villere
-----------------------------------
Allard C. Villere
Secretary
THIS LEASE is made between Lessor and Lessee named below as of the later of the
dates set forth under their respective signatures.
BASIC LEASE PROVISIONS
----------------------
ADDENDUM TO PRIOR LEASE DATED 9-1-92
------------------------------------
1. BUILDING NAME: Birtcher Office Building
PREMISES ADDRESS: 23676-96 Birtcher Dr., Lake Forest, Ca.
2. RENTAL AREA: 6,737 Square Feet
3. BASIC ANNUAL RENT: Year 1 & 2 - $1.13 sq. ft. - $91,356
Year 3 & 4 - $1.18 sq. ft. - $95,400
Year 5 - $1.23 sq. ft. - $99,444
4. MONTHLY RENTAL INSTALLMENTS: Months 1 thru 24 - $7,613
Months 25 thru 48 - $7,950
Months 49 thru 60 - $8,287
5. TERM: Five years and 0 months
6. LEASE COMMENCEMENT DATE: April 15, 1999
7. Furnishings to remain. Thirty (30) day notice should Lessor decide to
remove any furnishing.
8. Utilities in the new space to be divided between Lessor and Lessee on
the basis of space utilized.
Lessor's Space 2,689 Lessee's Space 6,737
----------- --------
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Addendum to
Lease, consisting of the foregoing Basic Lease Provisions and Articles 1 through
18 which follow, as of the later of the dates infra.
DATED: 4/15/99 DATED: 4/15/99
--------------------- ---------------------
LESSOR: LESSEE:
MORTON W. HERRMANN PRISM SOFTWARE CORPORATION
23676 Birtcher Drive 23696 Birtcher Drive
Lake Forest, CA 92630 Lake Forest, CA 92630
(714) 581-9737
By: /s/ Morton W. Herrmann By: /s/ Ted Daniels
------------------------------- ----------------------------
Morton W. Herrmann Ted Daniels, President
<PAGE>
April 15, 1999
To: Mort Herrmann
From: Ted Daniels
Re: Lease
Mort,
As per our original discussion in reference to the attached addendum's. Prism
Software Corporation is ready to sign the five year lease on the Birtcher
property with the option (in writing) to terminate the lease in two years with a
six month advance notice in writing to you.
I am not aware of any arrangements that you might be making in reference to
refinancing this property. However, I would suggest that you fully disclose the
terms of this current lease, including the right to early termination, to your
lender if you have not already done so.
Ted Daniels
President/CEO
Prism Software Corporation
Agreed to and Accepted by /s/ Mort Herrmann
----------------------------
Mort Herrmann, Lessor
/s/ Ted Daniels
----------------------------
Ted Daniels for Prism Software, Lessee
The following Resolutions and Amendments concerning the Employee Contract of Mr.
E. Ted Daniels, President and Chief Executive Officer of Prism Software
Corporation ("Prism"), were approved by the Board of Directors of Prism through
October 15, 1998:
Description Date
----------- ----
Original Employment Agreement September 30, 1994
Board Meeting to Ratify Employment Agreement October 3, 1994
The Board approved the execution of an Amended &
Restated Employment Agreement and non-qualified Stock
Option Agreement for Mr. Daniels (filed as Exhibits 10.7
and 10.8 to the Registrant's Registration Statement on
Form SB-2 filed with the SEC on December 31, 1996). April 21, 1995
Special Meeting of the Board to approve that Mr. Daniels'
options become fully vested and immediately exercisable
and that all options granted under this plan are issued
pursuant to Rule 701 of the Securities Act. December 7, 1995
The Board waived the payment by Mr. Daniels of the
exercise price with respect to 1,150,430 shares issuable
upon exercise of such options under his contract. May 20, 1996
The Board approved that the exercise price of the options
granted to Mr. Daniels under his contract be reduced to
$0.04 per share. May 5, 1997
The Board approved Mr. Daniels' Amended and Restated
Employment Agreement, including a 10% annual cost-of-
living raise, retroactive from the date of his original
contract. The Board also approved that all options
granted to Mr. Daniels' under such contract be
exercisable at no cost and that Mr. Daniels' contract be
extended to September 30, 2000. December 4, 1997
The Board approved the extension of Mr. Daniels'
Employment Agreement to September 14, 2002. October 15, 1998
TIME NOTE
---------
EL TORO, CALIFORNIA
$22,000.00 9 AUGUST, 1991
FOR VALUE RECEIVED, the undersigned promises to pay, in installments herein
state, to the order of GEORGE E. WILLIAMS, the principal sum of Twenty two
thousand and 00/000 Dollars ($22,000.00) together with interest thereon at the
rate of ten percent (10%) per annum (computed on the basis of a 360-day year)
from 1 Sept. 1991, payable monthly on the 1st day of each month, beginning on
the 1st day of January 1992 at the following rate:
January thru June 1992 -- $500.00 per month
July 1992 thru December 1993 --- $1,000.00 per month
Lump sum payment of balance on or before 31 December 1993
Should a payment not be made within 15 days of the due date, a late charge of
Twenty-five Dollars ($25.00) shall be due and payable in addition to the payment
amount.
Each payment shall be credited first on interest then due and the remainder on
principal; and interest shall thereupon cease upon the principal so credited.
Should default be made in payment of any installment when due the whole sum of
principal and interest shall become immediately due at the option of the holder
of this note. Interest after default shall continue at the rate stated above.
Principal and interest payable in lawful money of the United States. Title to
this note shall not be transferred without the expressed agreement of
undersigned executor. If action be instituted on this note, the undersigned
promises to pay such sum as the Court may fix as attorney's fees.
MAKER:
WILKES PUBLISHING CORPORATION
BY; /s/ ARTHUR L. WILKES
----------------------------
Arthur L. Wilkes
President
PROMISSORY NOTE
$40,000.00 Mission Viejo, California
December 9, 1991
For value received, the undersigned hereby promises to pay to Personal
Computer Products, Inc., a Delaware corporation, or order ( the "Holder" ) at
10865 Rancho Bernardo Road, San Diego, California, the principal amount of Forty
Thousand Dollars ($40,000.00), plus interest accrued thereon.
This Promissory Note shall bear 10 percent simple interest per annum,
whether prior to or after maturity. Interest shall accrue from and after January
1, 1992.
Accrued interest shall be payable on the first day of each calendar
month, beginning April 1992. Principal payments of Five Thousand Dollars
($5,000.00) each shall be payable on the first day of each calendar month,
beginning April 1992.
Upon the happening of any of the following events, Holder may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Promissory Note, together with all interest thereon, plus any other
amounts payable at the time of such declaration pursuant to this Promissory
Note. Such events are the following: (1) failure to make any installment
payment, if any, as it falls due; (2) the maker of this Promissory Note
("Maker") shall admit in writing its inability to pay its debts as they become
due, shall make a general assignment for the benefit of creditors or shall file
any petition or action for relief under any bankruptcy, reorganization,
insolvency or moratorium law, or any other law or laws for the relief of, or
relating to, debtors; or (3) an involuntary petition shall be filed against
Maker under any bankruptcy, reorganization, insolvency or moratorium law, or any
other law or laws for the relief of, or relating to, debtors unless such
petition shall be dismissed or vacated within sixty (60) days of the date
thereof.
This Promissory Note may be prepaid, in whole or in part, at any time
without penalty. Moreover, if Maker prepays this Promissory Note in full on or
before June 30, 1992, all interest payments previously made shall be credited
directly against principal.
The acceptance by Holder of any payment hereunder which is less than
the payment in full of all amounts due and payable at the time of such payment
shall not constitute a waiver of the right to accelerate at that time or any
subsequent time or nullify any prior acceleration without the express consent of
Holder except as and to the extent otherwise provided by law.
The Maker waives diligence, presentment, protest and demand and also
notice of protest, demand, dishonor and nonpayment of this Promissory Note, and
expressly agrees that this Promissory Note, or any payment hereunder, may be
extended from time to time and consent to the acceptance of security, if any, or
the release of security, if any, from this Promissory Note, all without in any
way affecting the liability of the Maker.
<PAGE>
The right to plead any and all statutes of limitations as a defense to
any demand on this Promissory Note, or any guaranty hereof, or any agreement to
the same, or any instrument securing this Promissory Note, or any and all
obligations or liabilities arising out of or in connection with this Promissory
Note, is expressly waived by Maker to the fullest extent permitted by law.
No extension of the time for the payment of this Promissory Note, or
any installment hereof, made by agreement by the Holder hereof with any person
now or hereafter liable for the payment of this Promissory Note shall affect the
original liability under the terms of this Promissory Note by maker even if it
is not a party to such agreement.
If Holder should institute collection efforts, of any nature
whatsoever, to attempt to collect any and all amounts due hereunder upon the
default of Maker, Maker shall be liable to pay to Holder immediately and without
demand all reasonable costs and expenses of collection incurred by Holder,
including without limitation reasonable attorneys fees, whether or not suit or
other action or proceeding be instituted and specifically including but not
limited to collection efforts that may be made through a bankruptcy court.
The provisions of this Promissory Note are intended by Maker to be
severable and divisible and the invalidity or unenforceability of a provision or
term herein shall not invalidate or render unenforceable the remainder of this
Promissory Note or any part thereof.
This Promissory Note shall be governed by and construed and interpreted
in accordance with the internal laws of the State of California.
WILKES PUBLISHING CORPORATION
By: /s/ Arthur Wilkes
----------------------------
--------------------------------
President
By:
----------------------------
---------------------------------
Secretary
PROMISSORY NOTE
$63,031.01 Date: APRIL 15, 1993
PRISM SOFTWARE CORPORATION (the "Promisor") promises to pay to the order of
JAMES OR JUDITH BONE (the "Payee"), at MISSION VIEJO, CALIFORNIA, (or at such
other place as the Payee may direct in writing) the sum of $63,031.01 with
interest from JANUARY 1, 1993, on the unpaid principal at the rate of 10.00 per
cent per annum. Unpaid principal after the Due Date (Nov. 1, 1993) shall accrue
interest at the rate of 10.00 per cent per annum until paid.
A payment of $20,000 will be made on May 31, 1993. Additional monthly payments
of $10,000 per month will be made on the last day of each month until paid.
Any unpaid principal and accrued interest shall be payable in full on NOVEMBER
1, 1993 (the "Due Date"). All payments on the note shall be applied first in
payment of accrued interest and any remainder in payment of principal.
The Promisor waives presentment for payment, protest, and notice of protest and
nonpayment of this Note.
If the Note is not paid by the Due Date, the Promisor promises to pay all costs
of collection, including reasonable attorney fees, whether or not a lawsuit is
commenced as part of the collection process.
The Promisor reserves the right to prepay this Note in whole or in part prior to
the Due Date with no prepayment penalty.
If any of the following events of default occur, this note shall become due
immediately, without demand or notice: 1) failure of the Promisor to pay the
principal and any accrued interest in full on or before the Due Date of the note
or within 15 days of the due date of any installment payment due thereunder; 2)
filing of a voluntary bankruptcy by the Promisor or an involuntary bankruptcy
against the Promisor; 3) application for the appointment of a receiver for,
making of a general assignment for the benefit of creditors by, or insolvency of
Promisor.
No renewal or extension of this Note, delay in enforcing any right of Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
This Note shall be construed in accordance with the laws of the State of
CALIFORNIA.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operational.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States.
Executed this 15th of APRIL, 1993 at _______________.
PRISM SOFTWARE CORPORATION
By: /s/ Arthur Wilkes
-------------------------------
ARTHUR WILKES
PRISM SOFTWARE CORPORATION
(A Delaware Corporation)
---------------------------
$35,000.00 PRINCIPAL AMOUNT
DUE March 1, 1995
Lake Forest, California
$35,000.00 February 17, 1994
- ----------
1. NOTE.
1.1 Prism Software Corporation, a Delaware corporation (the "Company"
or the "Borrower"), hereby promises to pay to the order of Shirley McGarvey (the
"Holder"), the amount of $35,000 as per the schedule in Addendum I, by March 1,
1995 ("Due Date") and to pay simple interest at ten percent (10%) per annum on
the outstanding principal. Payments shall be made to the Holder in lawful money
of the United States at 3150 Soft Breeze Way, Desert Shores, Las Vegas, NV 89128
or at such other place as the Holder may specify in writing.
1.2 In the event the Company does not make, when due, the payment of
principal or interest required to be made hereunder, in accordance with the
enclosed Addendum, the Company will pay, on written demand, interest on the
amount of any overdue payment of principal or interest for the period following
the Due Date of such payment, at a rate of ten percent (10%) per annum.
2. DEFAULT
In the event of an occurrence of any event of default specified below,
the principal and all accrued interest on the Note shall become immediately due
and payable without notice, except as specified below. The occurrence of any of
the following events shall constitute an event of default under this Note.
2.1 The Company fails to make any payment hereunder when due,
which failure has not been cured within forty-five (45) days following such
failure.
2.2 If the Borrower shall file a petition to take advantage of
any insolvency act; make an assignment for the benefit of its creditors;
commence a proceeding for the appointment of a receiver, trustee, liquidator or
conservator of itself of a whole or any substantial part of its property; file a
petition or answer seeking reorganization or arrangement or similar relief under
the federal bankruptcy laws or any other applicable law or statute of the United
States of America or any state; or
2.3 If a court of competent jurisdiction shall enter an order,
judgment or decree appointing a custodian, receiver, trustee, liquidator or
conservator of the Borrower or of the whole or any substantial part of its
properties, or approve a petition filed against the Borrower seeking
reorganization or arrangement or similar relief under the federal bankruptcy
laws of any other applicable law or statue of the United State of America or any
state; or if, under the provisions of any other law for the relief or aid of
debtors, a court of competent jurisdiction shall assume custody or control of
the Borrower or of the whole or any substantial part of its properties; or if
there is commenced against the Borrower any proceeding for any of the foregoing
relief and such proceeding or petition remains undismissed for a period of
thirty (30) days; or if the Borrower by any act indicates its consent to or
approval of any such proceeding or petition; or
2.4 If (I) any judgment, remaining unpaid, unstayed or
undismissed for a period of ninety (90) days is rendered against the Borrower
which by itself or together with all other such judgments rendered against the
Borrower remaining unpaid, unstayed or undismissed for a period of ninety (90)
days, is in excess of $300,000, or (ii) there is any attachment or execution
against the Borrower's properties remaining unstayed or undismissed for a period
of ninety (90) days which by itself or together with all other attachments and
executions against the Borrower's properties remaining unstayed or undismissed
for a period of ninety (90) days is for an amount in excess of $300,000.
<PAGE>
3, NOTICES
Any notice herein required or permitted to be given shall be in writing
and may be personally served, sent by United States Mail, certified, or by
overnight delivery service. Both the Holder and the Company may change the
address for service by written notice to the other as herein provided.
4. COSTS AND EXPENSES
The Borrower shall reimburse the Holder for all costs and expenses
incurred by the Holder in connection with the preparation, execution and closing
of this Note and shall pay the reasonable fees and disbursements of counsel to
the Holder in connection with the enforcement of the Holder's rights hereunder.
5. AMENDMENTS
No amendment, modification or waiver of any provision of this Note nor
consent to any departure by the Holder therefrom shall be effective unless the
same shall be in writing and signed by the Holder and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
6. SERVERABILITY
The provisions of this Note are severable, and if any provision shall
be held invalid or unenforceable in whole or in part in any jurisdiction, t
hen
such invalidity or unenforceability shall not in any manner affect such
provision in any other jurisdiction or any other provision of this Note in any
jurisdiction.
7. WAIVER OF NOTICE
The Borrower, subject to ten (10) business days written notice by the
Holder, hereby waives presentment, demand for payment, notice of protest and all
other demands in connection with the delivery, acceptance, performance, default
or enforcement of this Note.
8. GOVERNING LAW
This Note has been executed in and shall be governed by the laws of the
State of California.
9. EXCHANGES AND REPLACEMENT OF NOTE
Upon surrender of this Note to the Borrower, the Borrower shall execute
and deliver, at its expense, one or more new Notes of such denominations and in
such names, as requested by the holder of the surrendered Note. Upon receipt of
evidence satisfactory to the Company of the Loss, theft, mutilation, or
destruction of any Note, the Borrower will make and deliver a new Note, of like
tenor, at the request of the holder of such Note.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Note to be signed by
its authorized officers as of the 17th day of February, 1994.
ATTEST: PRISM SOFTWARE CORPORATION
By: /s/ Dee Shelor By: /s/ Michael Sederoff
---------------------------- --------------------------------
Dee Shelor Michael Sederoff
Assistant Secretary Executive Vice President and
Chief Financial Officer
Agreed and Acknowledged
/s/ Shirley McGarvey
- --------------------------------
Shirley McGarvey
<PAGE>
ADDENDUM 1
----------
SHIRLEY MCGARVEY - NOTE FOR CONSULTING FEES
- -------------------------------------------
Annual Interest Rate 10.00%
Monthly Interest Rate 0.83%
<TABLE>
<CAPTION>
PAYMENT BEGINNING REDUCTION ENDING
# DATE BALANCE PAYMENT INTEREST OF PRINCIPAL BALANCE
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
2/1/94 $35,000.00 $35,000.00
3/1/94 $35,000.00 $291.67 $35,000.00
1 4/1/94 $35,000.00 $3,583.34 $291.67 $3,000.00 $32,000.00
2 5/1/94 $32,000.00 $3,266.67 $266.67 $3,000.00 $29,000.00
3 6/1/94 $29,000.00 $3,241.67 $241.67 $3,000.00 $26,000.00
4 7/1/94 $26,000.00 $3,216.67 $216.67 $3,000.00 $23,000.00
5 8/1/94 $23,000.00 $3,191.67 $191.67 $3,000.00 $20,000.00
6 9/1/94 $20,000.00 $3,166.67 $166.67 $3,000.00 $17,000.00
7 10/1/94 $17,000.00 $3,141.67 $141.67 $3,000.00 $14,000.00
8 11/1/94 $14,000.00 $3,116.67 $116.67 $3,000.00 $11,000.00
9 12/1/94 $11,000.00 $3,091.67 $91.67 $3,000.00 $8,000.00
10 1/1/95 $8,000.00 $3,066.67 $66.67 $3,000.00 $5,000.00
11 2/1/95 $5,000.00 $3,041.67 $41.67 $3,000.00 $2,000.00
12 3/1/95 $2,000.00 $2,016.67 $16.67 $2,000.00 $0.00
Totals $37,141.71 $2,141.71 $35,000.00
=============================================
</TABLE>
PROMISSORY NOTE
---------------
$70,168.29 December 31, 1994
FOR VALUE RECEIVED, the undersigned, Prism Software Corporation, a
Delaware corporation ("Maker"), promises to pay to James Bone ("Payee"), the
principal sum of Seventy Thousand, One Hundred Sixty-Eight and 29/100 Dollars
($70,168.29) (the "Principal Amount"), together with simple interest accruing on
the unpaid portion of the Principal Amount from the date hereof until maturity
at the annual rate of nine percent (9%), on the terms and subject to the
following conditions:
1. TERMS. This Note is being issued and delivered by maker to Payee in
full and final satisfaction of all of Maker's obligations to Payee under and
pursuant to (i) that certain promissory note dated February 1, 1994 in the
principal amount of Forty-Two Thousand, Eight Hundred Fifty-Seven and 14/100
Dollars ($42,857.14), executed by Maker in favor of Payee, and (ii) that certain
promissory note dated February 1, 1994 in the principal amount of Twenty-One
Thousand, Four Hundred Twenty-Eight and 57/100 Dollars ($21,428.57), executed by
Maker in favor of Payee (collectively, the "Former Notes"). By Payee's
acceptance of this Note, Payee agrees that, as of the date hereof, (i) Maker and
Payee will automatically and forever be released from any and all rights,
obligations, liabilities, actions and claims, whether know or unknown, accrued
or hereafter arising under or in connection with the Former Notes, and (ii) as
soon as practicable following the execution and delivery of this Note by maker
to Payee, Payee shall deliver to the Company the originally executed
agreement(s) evidencing the Former Notes appropriately marked as paid in full
and canceled as of the date hereof.
2. PAYMENTS. The entire Principal Amount, together with all accrued
interest hereunder, shall be payable from Maker to Payee on March 31, 1996. All
payments due and payable from Maker to Payee under this Note shall be made in
lawful currency of the United States of America at 23372 Madero, Suite E,
Mission Viejo, California 92691, or such other place as Payee shall designate in
writing.
3. PREPAYMENT. Maker may prepay, at any time or from time to time, any
portion or all of the amount due hereunder, without penalty, provided that such
prepayment shall be applied first to accrued but unpaid interest and the balance
to the Principal Amount.
4. EVENT OF DEFAULT. An "Event of Default" under this Note shall mean
Maker's failure to comply with any payment obligation or covenant contained in
Section 2, above, within forty-five (45) days after notice of such failure has
been delivered to Maker.
5. OPTIONS. In connection with the issuance of the Former Notes Maker
granted Payee options to purchase an aggregate of 131,396 shares of Maker's
Common Stock (the "Options") pursuant to separate option agreements. The
execution and delivery of this replacement note shall not effect Maker's
obligations or Payee's rights with respect to the Options or under the option
agreements evidencing such Options.
<PAGE>
6. NO OTHER OBLIGATION. Payee represents and warrants to the Maker
that, except pursuant to the Former Notes and the Options, Maker has no other
obligations or liabilities to Payee arising out of or in connection with the
transactions that gave rise to Maker's issuance of the Former Notes and the
Options.
7. NOTICES. All notices, demands or other communications which are
required or are permitted to be given hereunder shall be in writing and shall be
deemed to have been sufficiently given upon: (i) delivery, if served personally
on the party to whom notice is to be given; or (ii) on the date of receipt,
refusal or non-delivery indicated on the receipt if mailed to the party to whom
notice is to be given by first class mail, registered or certified, postage
prepaid, or by messenger or air courier, in all cases, correctly addressed to
the addresses of the parties as follows:
If to Payee: James Bone
23372 Madero, Suite E
Mission Viejo, CA 92691
If to Maker: Prism Software Corporation
23696 Birtcher
Lake Forest, CA 92630
Attention: E. Ted Daniels
Chief Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section 6 and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
8. HIGHEST RATE PERMITTED. Anything in this Note to the contrary
notwithstanding, no provision of this Note shall require the payment or permit
the collection of interest in excess of the highest rate permitted by applicable
law, and any portion of the interest otherwise payable under this Note which is
in excess of the highest rate permitted by applicable law shall be cancelled
automatically or (if heretofore paid) shall, at the option of Maker, be either
refunded to Maker or credited to the Principal Amount of this Note in accordance
with Section 3, above.
9. COSTS OF COLLECTION. Maker agrees to reimburse the holder of this
Note for all reasonable costs of collection or enforcement of this Note
(including reasonable attorney's fee) incurred by the holder.
10. MODIFICATION WAIVER. Any term of this Note may be amended and the
observance of any term hereof may be waived only with the written consent of
both Maker and Payee.
<PAGE>
11. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
12. SUCCESSORS AND ASSIGNS. The terms and conditions contained this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
13. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
IN WITNESS WHEREOF, Maker has executed this Note in favor of Payee as
of the date first set forth above.
"MAKER":
PRISM SOFTWARE CORPORATION,
a Delaware corporation
/s/ E. Ted Daniels
--------------------------------
E. Ted Daniels
Chief Executive Officer
Agreed, Accepted and Acknowledged
as of December 31, 1994
/s/ James Bone
- ------------------------------
James Bone
PROMISSORY NOTE
---------------
$15,996.25
December 31, 1994
FOR VALUE RECEIVED, the undersigned, Prism Software Corporation, a
Delaware corporation ("Maker"), promises to pay to Allard Villere ("Payee"), the
principal sum of Fifteen Thousand, Nine Hundred Ninety-Six and 25/100 Dollars
($15,996.25) (the "Principal Amount"), together with simple interest accruing on
the unpaid portion of the Principal Amount from the date hereof until maturity
at the annual rate of nine percent (9%), on the terms and subject to the
following conditions:
1. TERM. This Note is being issued and delivered by Maker to Payee
pursuant to the terms of that certain Note Conversion Agreement executed in
connection herewith and incorporated herein by this reference (the "Conversion
Agreement") in full and final satisfaction of all of Maker's obligations to
Payee related to the Advances, Outstanding Note Balance and the Notes, each as
defined in the Conversion Agreement. Capitalized terms used herein and not
otherwise defined herein shall have the meanings ascribed to such terms in the
Conversion Agreement. By Payee's acceptance of this Replacement Note and
execution of the Note Conversion Agreement, Payee agrees that, as of the date
hereof, (i) Maker and Payee will automatically and forever be released from any
and all rights, obligations, liabilities, actions and claims, whether known or
unknown, accrued or hereafter arising under or in connection with the Advances,
the Outstanding Note Balance and the Notes, and (ii) as soon as practicable
following the execution and delivery of this Note by Maker to Payee, Payee shall
deliver to the Company the originally executed agreement(s) evidencing the
Advances and the Notes appropriately marked as paid in full and canceled as of
the date hereof.
2. PAYMENTS. The entire Principal Amount, together with all accrued
interest hereunder, shall be payable from Maker to Payee on August 31, 1996. All
payments due and payable from Maker to payee under this Note shall be made in
lawful currency of the United States of America at 22038 Arrowhead Lane, Lake
Forest, California 92630, or such other place as Payee shall designate in
writing.
3. PREPAYMENT. Maker may prepay, at any time or from time to time, any
portion or all of the amount due hereunder, without penalty, provided that such
prepayment shall be applied first to accrued but unpaid interest and the balance
to the Principal Amount.
4. EVENT OF DEFAULT. An "Event of Default" under this Note shall mean
Maker's failure to comply with any payment obligation or covenant contained in
Section 2. Above, within forty-five (45) days after notice of such failure has
been delivered to Maker.
<PAGE>
5. NOTICES. All notices, demands or other communication which are
required or are permitted to be given hereunder shall be in writing and shall be
deemed to have been sufficiently given upon: (i) delivery, if served personally
on the party to whom notice is to be given; or (ii) on the date of receipt,
refusal or non-delivery indicated on the receipt if mailed to the party to whom
notice is to be given by first class mail, registered or certified, postage
prepaid, or by messenger or air courier, in all cases, correctly addressed to
the addresses of the parties as follows:
If to Payee: Allard Villere
22038 Arrowhead Lane
Lake Forest, CA 92630
If to Maker: Prism Software Corporation
23696 Birtcher
Lake Forest, CA 92630
Attention: E. Ted Daniels
Chief Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section 6 and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
6. HIGHEST RATE PERMITTED. Anything in this Note to the contrary
notwithstanding, no provision of this Note shall require the payment or permit
the collection of interest in excess of the highest rate permitted by applicable
law, and any portion of the interest otherwise payable under this Note which is
in excess of the highest rate permitted by applicable law shall be cancelled
automatically or (if heretofore paid) shall, at the option of Maker, be either
refunded to Maker or credited to the Principal Amount of this Note in accordance
with Section 3, above.
7. MODIFICATION WAIVER. Any term of this Note may be amended and the
observance of any term hereof may be waived only with the written consent of
both Maker and Payee.
8. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
9. SUCCESSORS AND ASSIGNS. The terms and conditions contained this Note
shall apply to and bind the heirs, representatives, successors, administrators
and assigns of the parties hereto.
10. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
IN WITNESS WHEREOF, Maker has executed this Note in favor of Payee as
of the date first set forth above.
"MAKER":
PRISM SOFTWARE CORPORATION,
a Delaware corporation
/s/ E. Ted Daniels
----------------------------
E. Ted Daniels
Chief Executive Officer
Agreed, Accepted and Acknowledged
as of December 31, 1994
/s/ Allard Villere
- ---------------------------------
Allard Villere
October 20, 1997
Mr. E. Ted Daniels
President
Prism Software Corporation
23696 Birtcher
Lake Forest, CA 92630
Dear Ted:
I am sending you this letter to confirm our recent conversation with
respect to the $40,000 Prism convertible debentures currently held by Northstar
Capital Partners. These debentures have been in default since January 1, 1996.
We will agree to restructure the debentures by moving the maturity to December
31, 1999. Additionally, the conversion price will be reduced from $.25 per share
to $.10 per share. The debentures can be converted at any time at the option of
the holder. Currently 160,000 of the shares are registered. The company will
agree to include the additional 240,000 shares in its next registration
statement or by December 1, 1999 which ever occurs earlier.
The interest payable on the convertible debentures will continue at an
interest rate of 8%. Unpaid interest shall compound on a quarterly basis at a
rate of 10% per annum, calculated quarterly. All principal and accrued interest
will become payable on December 31, 1999. The holder of the debentures, at their
option, may elect to convert accrued interest into additional shares at a
conversion price of $.10. The election to convert any unpaid and accrued
interest will be independent of any election to convert the underlying
debentures. The conversion of the underlying debentures will not necessarily
trigger an automatic conversion of the underlying interest.
We would appreciate it if you would confirm your acceptance of this
understanding by signing and returning to us one fully executed copy of this
agreement.
Sincerely
/s/ James A. Martin
--------------------------------
Martin Management, Inc. G.P.
James A. Martin, III, President
Agreed and accepted. /s/ Ted Daniels
--------------------------------
Ted Daniels, President
October 20, 1997
Mr. E. Ted Daniels
President
Prism Software Corporation
23696 Birtcher
Lake Forest, CA 92630
Dear Ted:
I am sending you this letter to confirm our recent conversation with
respect to the $60,000 Prism convertible debentures currently held by Peachtree
Capital Partners. These debentures have been in default since January 1, 1996.
We will agree to restructure the debentures by moving the maturity to December
31, 1999. Additionally, the conversion price will be reduced from $.25 per share
to $.10 per share. The debentures can be converted at any time at the option of
the holder. Currently 240,000 of the shares are registered. The company will
agree to include the additional 360,000 shares in its next registration
statement or by December 1, 1999 which ever occurs earlier.
The interest payable on the convertible debentures will continue at an
interest rate of 8%. Unpaid interest shall compound on a quarterly basis at a
rate of 10% per annum, calculated quarterly. All principal and accrued interest
will become payable on December 31, 1999. The holder of the debentures, at their
option, may elect to convert accrued interest into additional shares at a
conversion price of $.10. The election to convert any unpaid and accrued
interest will be independent of any election to convert the underlying
debentures. The conversion of the underlying debentures will not necessarily
trigger an automatic conversion of the underlying interest.
We would appreciate it if you would confirm your acceptance of this
understanding by signing and returning to us one fully executed copy of this
agreement.
Sincerely
/s/ James A. Martin
-----------------------------------
Martin Management, Inc. G.P.
James A. Martin, III, President
Agreed and accepted. /s/ Ted Daniels
-----------------------------------
Ted Daniels, President
THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS
OF ANY STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, AND OTHER
FILINGS UNDER ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY IN FORM AND SUBSTANCE TO PRISM
SOFTWARE CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION AND OTHER FILINGS
ARE NOT REQUIRED UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS AND
THAT THE TRANSACTION COMPLIES WITH THE RULES AND REGULATIONS IN EFFECT
HEREUNDER
PROMISSORY NOTE
---------------
$48,000 December 31,1997
FOR VALUE RECEIVED, the undersigned, PRISM SOFTWARE CORPORATION, a
Delaware corporation (the "Company"), promises to pay to CAPITAL INVESTMENT
PARTNERS ("Lender"), the principal sum of FORTY EIGHT THOUSAND DOLLARS ($48,000)
(the "Principal Amount"), together with simple interest accruing on the unpaid
portion of the Principal Amount from the date hereof until maturity at the
annual rate of eight percent (8%) on the terms and subject to the following
conditions:
1. THE PRINCIPAL AMOUNT. At various times, as reflected in the record
of the Company and the Lender and as set forth below, the Lender
advanced to the Company a total of Forty-Eight Thousand Dollars
($48,000):
Advance Date Amount
------------ ------
March 20, 1997 $15,000
April 4, 1997 $15,000
October 31, 1997 $18,000
2. PAYMENT OF PRINCIPAL AND INTEREST. The entire Principal Amount,
together with all accrued interest hereunder, shall be payable from the Company
to the Lender on December 31, 1999. All payments due and payable from The
Company to the Lender under this Note shall be made in lawful currency of the
United States of America
3. EXECUTION OF A NEW NOTE. Notwithstanding anything to the contrary
herein contained, in the event that on or before December 31, 1999, the Company
and the Lender enter into a new promissory Note (the "New Note"), the Principal
Amount and all accrued but unpaid interest thereon outstanding upon execution of
the New Note will be automatically rolled into such New Note and this note will
automatically be canceled without further action by the parties hereto. Upon
execution of the New Note, the New Note shall supersede in its entirety this
Note.
4. PREPAYMENT. The Company may prepay, at any time or from time to
time, any portion or all of the amount due hereunder, without penalty, provided
that such prepayment shall be applied to accrued but unpaid interest and the
balance to the Principal Amount.
<PAGE>
5. NOTICES. All notices, demands, adjustments or other communications
which are required or are permitted to be given hereunder shall be in writing
and shall be deemed to have been sufficiently given upon: (i) delivery, if
served personally on the party to whom notice is to be given; or (ii) on the
date of receipt, refusal or non-delivery indicated on the receipt if mailed to
the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by messenger or air courier, in all cases,
correctly addressed to the addresses of the parties as follows:
IF TO LENDER: CAPITAL INVESTMENT PARTNERS
3340 Peach Tree NE, Ste 1940
Atlanta , GA 30326
Attention: James Martin
IF TO THE COMPANY: PRISM SOFTWARE CORPORATION
23696 Birtcher
Lake Forest, Ca 92630
Attention: Edward Daniels, Chief Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
6. CONVERSION. The Lender may at any time prior to payment in full of
the principal amount outstanding and all accrued but unpaid interest thereon
(the "Unpaid Balance") convert this Note, in whole or in part, into fully paid
and non-assessable shares of Common Stock of the Company. The number of shares
into which this Note may be converted shall be determined by dividing the Unpaid
Balance outstanding as of the time of the contemplated conversion by the
Conversion Price (as defined below) in effect at the time of such conversion (as
determined in good faith by the Board of Directors or, if the shares of Common
Stock of the Company are listed on a national securities exchange or on NASDAQ,
by reference to the last available closing price or sale price, as applicable,
prior to the time of the contemplated conversion.) The initial "Conversion
Price" shall be equal to Five Cents ($0.05) and the initial number of shares of
Common Stock issuable upon conversion of this Note shall be Nine Hundred, Sixty
Thousand (960,000) shares of Common Stock. Before the Lender shall be entitled
to convert all or any portion of the Unpaid Balance into shares of Common Stock,
it must give prior written notice to the Company at 23696 Birtcher Drive, Lake
Forest, CA 92630, of its election to convert same, which notice shall also
include the amount of the Unpaid Balance to be so converted, and the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. As promptly as practicable after the conversion of this Note, the
Company will issue and deliver to the Lender or its designee (s) a certificate
or certificates for the full number of shares of Common Stock issuable upon
conversion (which certificate or certificates shall bear appropriate legends
with respect to restrictions on transfer as prescribed by applicable federal and
state securities laws.) Any portion of the amount outstanding under this Note
converted pursuant to the provisions of this section, shall be deemed retired,
repaid and fully satisfied.
7. MODIFICATION WAIVER. Any term of this Note may be amended and the
observance of any term hereof may be waived only with the written consent of
both the Company and the Lender.
8. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
9. SUCCESSORS AND ASSIGNS. The terms and conditions contained in this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
10. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note in favor of the
Lender as of the date first set forth above.
COMPANY
- -------
PRISM SOFTWARE CORPORATION
a Delaware corporation.
/s/ E. Ted Daniels
- ---------------------------------
E. Ted Daniels
Chief Executive Officer
LENDER
- ------
Agreed, Accepted and Acknowledged
By /s/ James Martin Dated 12-31-97
---------------------------- -----------
James Martin for Capital Investment Partners
THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS
OF ANY STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, AND OTHER
FILINGS UNDER ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY IN FORM AND SUBSTANCE TO PRISM
SOFTWARE CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION AND OTHER FILINGS
ARE NOT REQUIRED UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS AND
THAT THE TRANSACTION COMPLIES WITH THE RULES AND REGULATIONS IN EFFECT
HEREUNDER
PROMISSORY NOTE
---------------
$50,000 December 31,1997
FOR VALUE RECEIVED, the undersigned, PRISM SOFTWARE CORPORATION, a
Delaware corporation (the "Company"), promises to pay to NORTHSTAR CAPITAL
PARTNERS ("Lender"), the principal sum of FIFTY THOUSAND DOLLARS ($50,000) (the
"Principal Amount"), together with simple interest accruing on the unpaid
portion of the Principal Amount from the date hereof until maturity at the
annual rate of eight per cent (8%) on the terms and subject to the following
conditions:
1. THE PRINCIPAL AMOUNT. At various times, as reflected in the record
of the Company and the Lender and as set forth below, the Lender
advanced to the Company a total of Fifty- Thousand Dollars
($50,000):
Advance Date Amount
------------ ------
January 15,1997 $25,000
March 3, 1997 $25,000
2.. PAYMENT OF PRINCIPAL AND INTEREST. The entire Principal Amount,
together with all accrued interest hereunder, shall be payable from the Company
to the Lender on December 31, 1999. All payments due and payable from The
Company to the Lender under this Note shall be made in lawful currency of the
United States of America
3. EXECUTION OF A NEW NOTE. Notwithstanding anything to the contrary
herein contained, in the event that on or before December 31, 1999, the Company
and the Lender enter into a new promissory Note (the "New Note"), the Principal
Amount and all accrued but unpaid interest thereon outstanding upon execution of
the New Note will be automatically rolled into such New Note and this note will
automatically be canceled without further action by the parties hereto. Upon
execution of the New Note, the New Note shall supersede in its entirety this
Note.
4. PREPAYMENT. The Company may prepay, at any time or from time to
time, any portion or all of the amount due hereunder, without penalty, provided
that such prepayment shall be applied to accrued but unpaid interest and the
balance to the Principal Amount.
5. NOTICES. All notices, demands, adjustments or other communications
which are required or are permitted to be given hereunder shall be in writing
and shall be deemed to have been sufficiently given upon: (i) delivery, if
served personally on the party to whom notice is to be given; or (ii) on the
<PAGE>
date of receipt, refusal or non-delivery indicated on the receipt if mailed to
the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by messenger or air courier, in all cases,
correctly addressed to the addresses of the parties as follows:
IF TO LENDER: NORTHSTAR CAPITAL PARTNERS
3340 Peach Tree NE, Ste 1940
Atlanta , GA 30326
Attention: James Martin
IF TO THE COMPANY: PRISM SOFTWARE CORPORATION
23696 Birtcher
Lake Forest, Ca 92630
Attention: Edward Daniels, Chief Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
6. CONVERSION. The Lender may at any time prior to payment in full of
the principal amount outstanding and all accrued but unpaid interest thereon
(the "Unpaid Balance") convert this Note, in whole or in part, into fully paid
and non-assessable shares of Common Stock of the Company. The number of shares
into which this Note may be converted shall be determined by dividing the Unpaid
Balance outstanding as of the time of the contemplated conversion by the
Conversion Price (as defined below) in effect at the time of such conversion (as
determined in good faith by the Board of Directors or, if the shares of Common
Stock of the Company are listed on a national securities exchange or on NASDAQ,
by reference to the last available closing price or sale price, as applicable,
prior to the time of the contemplated conversion.) The initial "Conversion
Price" shall be equal to Five Cents ($0.05) and the initial number of shares of
Common Stock issuable upon conversion of this Note shall be One Million
(1,000,000) shares of Common Stock. Before the Lender shall be entitled to
convert all or any portion of the Unpaid Balance into shares of Common Stock, it
must give prior written notice to the Company at 23696 Birtcher Drive, Lake
Forest, CA 92630, of its election to convert same, which notice shall also
include the amount of the Unpaid Balance to be so converted, and the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. As promptly as practicable after the conversion of this Note, the
Company will issue and deliver to the Lender or its designee (s) a certificate
or certificates for the full number of shares of Common Stock issuable upon
conversion (which certificate or certificates shall bear appropriate legends
with respect to restrictions on transfer as prescribed by applicable federal and
state securities laws.) Any portion of the amount outstanding under this Note
converted pursuant to the provisions of this section, shall be deemed retired,
repaid and fully satisfied.
7. MODIFICATION WAIVER. Any term of this Note may be amended and the
observance of any term hereof may be waived only with the written consent of
both the Company and the Lender.
8. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
9. SUCCESSORS AND ASSIGNS. The terms and conditions contained in this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
10. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note in favor of the
Lender as of the date first set forth above.
COMPANY
- -------
PRISM SOFTWARE CORPORATION
a Delaware corporation.
/s/ E. Ted Daniels
- -------------------------------
E. Ted Daniels
Chief Executive Officer
LENDER
- ------
Agreed, Accepted and Acknowledged
By /s/ James Martin Dated 12/31/1997
--------------------------------- ----------------
James Martin for Northstar Capital Partners
THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS
OF ANY STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING SUCH SECURITIES, AND OTHER
FILINGS UNDER ANY APPLICABLE FEDERAL OR STATE SECURITIES LAWS OR AN OPINION OF
COUNSEL, WHICH OPINION IS SATISFACTORY IN FORM AND SUBSTANCE TO PRISM
SOFTWARE CORPORATION, TO THE EFFECT THAT SUCH REGISTRATION AND OTHER FILINGS
ARE NOT REQUIRED UNDER THE ACT OR ANY APPLICABLE STATE SECURITIES LAWS AND
THAT THE TRANSACTION COMPLIES WITH THE RULES AND REGULATIONS IN EFFECT
HEREUNDER
PROMISSORY NOTE
---------------
$39,500 December 31,1997
FOR VALUE RECEIVED, the undersigned, PRISM SOFTWARE CORPORATION, a
Delaware corporation (the "Company"), promises to pay to THIRD CENTURY II
("Lender"), the principal sum of THIRTY NINE THOUSAND, FIVE HUNDRED DOLLARS
($39,500) (the "Principal Amount"), together with simple interest accruing on
the unpaid portion of the Principal Amount from the date hereof until maturity
at the annual rate of eight percent (8%) on the terms and subject to the
following conditions:
1. THE PRINCIPAL AMOUNT. At various times, as reflected in the record
of the Company and the Lender and as set forth below, the Lender
advanced to the Company a total of Thirty Nine Thousand, Five
Hundred Dollars ($39,500):
Advance Date Amount
------------ ------
April 7,1997 $21,500
November 5, 1997 $18,000
2.. PAYMENT OF PRINCIPAL AND INTEREST. The entire Principal Amount,
together with all accrued interest hereunder, shall be payable from the Company
to the Lender on December 31, 1999. All payments due and payable from The
Company to the Lender under this Note shall be made in lawful currency of the
United States of America
3. EXECUTION OF A NEW NOTE. Notwithstanding anything to the contrary
herein contained, in the event that on or before December 31, 1999, the Company
and the Lender enter into a new promissory Note (the "New Note"), the Principal
Amount and all accrued but unpaid interest thereon outstanding upon execution of
the New Note will be automatically rolled into such New Note and this note will
automatically be canceled without further action by the parties hereto. Upon
execution of the New Note, the New Note shall supersede in its entirety this
Note.
4. PREPAYMENT. The Company may prepay, at any time or from time to
time, any portion or all of the amount due hereunder, without penalty, provided
that such prepayment shall be applied to accrued but unpaid interest and the
balance to the Principal Amount.
5. NOTICES. All notices, demands, adjustments or other communications
which are required or are permitted to be given hereunder shall be in writing
and shall be deemed to have been sufficiently given upon: (i) delivery, if
served personally on the party to whom notice is to be given; or (ii) on the
<PAGE>
date of receipt, refusal or non-delivery indicated on the receipt if mailed to
the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by messenger or air courier, in all cases,
correctly addressed to the addresses of the parties as follows:
IF TO LENDER: THIRD CENTURY II
1711 Chateau Court
Fallston, MD 21047
Attention: Eric Nickerson
IF TO THE COMPANY: PRISM SOFTWARE CORPORATION
23696 Birtcher
Lake Forest, Ca 92630
Attention: Edward Daniels, Chief Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
6. CONVERSION. The Company may at any time prior to payment in full of
the principal amount outstanding and all accrued but unpaid interest thereon
(the "Unpaid Balance") convert this Note, in whole or in part, into fully paid
and non-assessable shares of Common Stock of the Company. The number of shares
into which this Note may be converted shall be determined by dividing the Unpaid
Balance outstanding as of the time of the contemplated conversion by the
Conversion Price (as defined below) in effect at the time of such conversion (as
determined in good faith by the Board of Directors or, if the shares of Common
Stock of the Company are listed on a national securities exchange or on NASDAQ,
by reference to the last available closing price or sale price, as applicable,
prior to the time of the contemplated conversion.) The initial "Conversion
Price" shall be equal to Five Cents ($0.05) and the initial number of shares of
Common Stock issuable upon conversion of this Note shall be Seven Hundred Ninety
Thousand (790,000) shares of Common Stock. Before the Company shall be entitled
to convert all or any portion of the Unpaid Balance into shares of Common Stock,
it must give prior written notice to the Lender at 1711 Chateau Court, Fallston,
MD 21047, of its election to convert same, which notice shall also include the
amount of the Unpaid Balance to be so converted, and the name or names in which
the certificate or certificates for shares of Common Stock are to be issued. As
promptly as practicable after the conversion of this Note, the Company will
issue and deliver to the Lender or its designee (s) a certificate or
certificates for the full number of shares of Common Stock issuable upon
conversion (which certificate or certificates shall bear appropriate legends
with respect to restrictions on transfer as prescribed by applicable federal and
state securities laws.) Any portion of the amount outstanding under this Note
converted pursuant to the provisions of this section, shall be deemed retired,
repaid and fully satisfied.
7. MODIFICATION WAIVER. Any term of this Note may be amended and the
observance of any term hereof may be waived only with the written consent of
both the Company and the Lender.
8. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
9. SUCCESSORS AND ASSIGNS. The terms and conditions contained in this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
10. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
<PAGE>
IN WITNESS WHEREOF, the Company has executed this Note in favor of the
Lender as of the date first set forth above.
COMPANY
- -------
PRISM SOFTWARE CORPORATION
a Delaware corporation.
/s/ E. Ted Daniels
- --------------------------------
E. Ted Daniels
Chief Executive Officer
LENDER
- ------
Agreed, Accepted and Acknowledged
By /s/ Eric Nickerson Dated 8 May 98
----------------------------------------- ------------
Eric Nickerson for Third Century II
THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES, AND OTHER FILINGS UNDER ANY APPLICABLE
FEDERAL OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, WHICH OPINION IS
SATISFACTORY IN FORM AND SUBSTANCE TO PRISM SOFTWARE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION AND OTHER FILINGS ARE NOT REQUIRED UNDER THE ACT OR ANY
APPLICABLE STATE SECURITIES LAWS AND THAT THE TRANSACTION COMPLIES WITH THE
RULES AND REGULATIONS IN EFFECT HEREUNDER
PROMISSORY NOTE
---------------
AMOUNT: $ DATE:
-------------------- ---------------
FOR VALUE RECEIVED, the undersigned, PRISM SOFTWARE CORPORATION, a
Delaware corporation (the "Company"), promises to pay to _________________ (the
"Lender"), the principal sum of ___________________________ ($____________ ),
(the "Principal Amount"), together with interest accruing on the unpaid portion
of the Principal Amount from the date hereof until maturity, at the annual rate
of TEN PERCENT (10%) simple interest on the terms and subject to the following
conditions:
1. PAYMENT OF PRINCIPAL AND INTEREST. The entire Principal Amount shall
be payable from the Company to the Lender on ___________________________.
Interest-only payments shall be made on a quarterly basis by the Company to the
Lender. The Company agrees to notify the Lender in writing of its intent and
ability to pay this Note upon its maturity. The Company may prepay any or all
amounts due under this Note at any time without penalty, provided, however, that
the Company delivers written notice of its intention to prepay at least thirty
(30) calendar days prior to the date of such prepayment, and cooperate with the
Lender in the Lender's exercise of Lender's convertibility rights as set forth
below, if Lender elects to exercise such rights. The Lender shall be given
fifteen (15) days after the receipt of such notice to elect conversion. All
payments due and payable from The Company to the Lender under this Note shall be
made in lawful currency of the United States of America at _____________________
__________________________________ or such other place as the Lender may from
time to time designate in writing.
2. CONVERSION OF NOTE. The Lender shall have the right, at its option,
at any time, to convert, subject to the terms and provisions of this section,
all or any unpaid portion of the amount of this Note, both principal and
interest, into such number of fully paid and non-assessable shares of the
Company's Common Stock ("Common Stock") at a conversion price of $0.05 per
share; provided, however, that the conversion price upon any default of the
repayment of principal of or interest on this Note shall be reduced to $0.01
per share.
(a) NOTICE TO COMPANY. In order to convert all or any portion of
the amount outstanding under this Note, such notice shall
specify the amount to be converted and the name(s) in which
the Lender wishes the certificates for shares of Common Stock
to be registered, together with the address or addresses of
the person or persons so named.
(b) DELIVERY OF CERTIFICATE. As promptly as practicable after the
written notice hereinabove provided, the Company shall deliver
or caused to be delivered to the Lender, or the Lender's
designees, certificates representing the number of fully paid
and non-assessable shares of Common Stock into which this Note
is entitled to be converted, together with a cash adjustment
in respect of any fraction of a share to which Lender shall be
entitled, and, if less than the entire face amount of this
Note is to be converted, a new Note for the balance of this
Note not so converted. So long as any portion of this Note
remains unpaid, the Company shall not close its Common Stock
transfer books. The issuance of certificates for shares
<PAGE>
of Common Stock upon a conversion shall be made without charge
to the Lender for any tax in respect of the issuance of such
certificates (other than any tax if the shares of Common Stock
are to be registered in a name different from that of the
registered holder of this Note.)
(c) FRACTIONAL SHARES. No fractional share of Common Stock or
scrip representing fractional shares of Common Stock shall be
issued upon any conversion of this Note, but, in lieu thereof,
there shall be paid any amount in cash equal to the amount of
the number shares of Common Stock into which such fraction of
a share of Common Stock would be otherwise convertible
according to the terms of the Common Stock, with any resulting
fractions of Common Stock being paid in cash.
(d) RESERVATION OF SHARES. The Company shall at all times reserve
and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the
conversion of this Note, the full number of whole shares of
Common Stock then deliverable upon the conversion of all of
this Note. The Company shall take at all times such corporate
action as shall be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares
of Common Stock upon the conversion of this Note in accordance
with the provision of this section.
(e) RETIREMENT OF NOTES. Any portion of the amount outstanding
under this Note converted pursuant to the provision of this
section shall be deemed retired, repaid and fully satisfied.
(f) MERGER. In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in
which the Company is the surviving corporation, or in case of
any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety,
or in case of any statutory exchange of securities with
another corporation, there will be no adjustment of the
conversion price, but each Lender of the Notes then
outstanding will have the right thereafter to convert such
Notes into the kind and amount of securities, cash or other
property which he would have owned or have been entitled to
receive immediately after such consolidation, merger,
statutory exchange, sales or conveyance had such Notes been
converted immediately prior to the effective date of such
events. In the case of a cash merger of the Company into
another corporation or any other cash transaction of the type
mentioned above, the effect of these provisions would be that
the conversion features of the notes would thereafter be
limited to converting the Notes at the conversion price in
effect at such time into the same amount of cash per Share
that such Lender would have received had such Lender converted
the Notes into Common Stock immediately prior to the effective
date of such cash merger or transaction.
3. NOTICES. All notices, demands, adjustments or other communications
which are required or are permitted to be given hereunder shall be in writing
and shall be deemed to have been sufficiently given upon: (i) delivery, if
served personally on the party to whom notice is to be given; or (ii) on the
date of receipt, refusal or non-delivery indicated on the receipt if mailed to
the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by messenger or air courier, in all cases,
correctly addressed to the addresses of the parties as follows:
IF TO LENDER: _________________________
_________________________________
_________________________________
<PAGE>
IF TO THE COMPANY: PRISM SOFTWARE CORPORATION
23696 Birtcher
Lake Forest, Ca 92630
Attention: Edward Daniels, Chief Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
4. INVESTMENT INTENT. The Lender is acquiring this Note and will
acquire the Common Stock issuable hereunder ("Securities") solely for its own
account and not directly or indirectly for the account of any other person
whatsoever for investment and not with a view to or for sale in connection with
any distribution of the Securities and the Lender does not have any reason to
anticipate any changes in its circumstances or other particular occasion
understanding or arrangement with any other person to sell, transfer or pledge
to any person all or any part of the Securities and the Lender has no present
plan to enter into any of the same.
5 SECURITIES HAVE NOT BEEN REGISTERED. The Lender acknowledges that
none of the Securities have been registered under the Act or any applicable
state securities laws, being issued pursuant to an exemption therefrom and will
bear or incorporate by reference the legend set forth at the top of page one of
this Note. The Lender further acknowledges that no federal or state agency has
passed upon or made any recommendations or endorsements of investment in the
Securities.
6. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
7. SUCCESSORS AND ASSIGNS. The terms and conditions contained in this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
8.. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
IN WITNESS WHEREOF, the Company has executed this Note in favor of the
Lender as of the date first set forth above.
COMPANY
- -------
PRISM SOFTWARE CORPORATION LENDER
a Delaware corporation. Agreed, Accepted and Acknowledged
___________________________________ By_______________________________
E. Ted Daniels Lender
Chief Executive Officer
Dated_____________
<PAGE>
THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES, AND OTHER FILINGS UNDER ANY APPLICABLE
FEDERAL OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, WHICH OPINION IS
SATISFACTORY IN FORM AND SUBSTANCE TO PRISM SOFTWARE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION AND OTHER FILINGS ARE NOT REQUIRED UNDER THE ACT OR ANY
APPLICABLE STATE SECURITIES LAWS AND THAT THE TRANSACTION COMPLIES WITH THE
RULES AND REGULATIONS IN EFFECT HEREUNDER
PROMISSORY NOTE
---------------
AMOUNT: $_____________ DATE: ___________
FOR VALUE RECEIVED, the undersigned, PRISM SOFTWARE CORPORATION, a
Delaware corporation (the "Company"), promises to pay to _________________
("Lender"), the principal sum of ____________ ($________ ) (the "Principal
Amount"), together with simple interest accruing on the unpaid portion of the
Principal Amount from the date hereof until maturity at the annual rate of TEN
PERCENT (10%) on the terms and subject to the following conditions:
PAYMENT OF PRINCIPAL AND INTEREST. The entire Principal
Amount, together with all accrued unpaid interest hereunder, shall be
payable from the Company to the Lender on ___________ . Interest-only
payments shall be made on ___________,___________,__________ and
__________ by the Company to the Lender.
(a) The Company agrees to notify the Lender in writing of
its intent and ability to pay at maturity. The Lender
shall be given fifteen (15) days after such notice to
elect conversion. The Company may prepay any or all
amounts due under this Note at any time without
penalty, provided, however, that the Company delivers
written notice of such intention to prepay at least
thirty (30) days prior to the date of such
prepayment, and cooperates with the Lender in the
Lenders exercise of Lender's convertibility rights as
set forth below, if Lender should exercise such
rights.
(b) With respect to any notice that the Company gives to
the Lender under section 1(a), the Lender shall have
fifteen (15) days after the receipt of such notice to
elect conversion of the given amount into shares of
the Company's Common Stock at $0.05 per share.
(c) All payments due and payable from The Company to the
Lender under this Note shall be made in lawful
currency of the United States of America at
_______________________, or such other place as the
Lender may from time to time designate in writing.
2. CONVERSION OF NOTE. The Lender shall have the right, at its option,
at any time, to convert, subject to the terms and provisions of this section,
all or any unpaid accrued portion of this Note, both principal and interest,
into such number of fully paid and non-assessable shares of the Company's Common
Stock ("Common Stock") at a conversion price of $0.05 per share; provided,
however that the conversion price upon any default of the repayment of principal
or of interest on this Note shall be reduced to $0.01 per share.
a) NOTICE TO COMPANY. In order to convert all or any
portion of the amount outstanding under this Note,
such notice shall specify the amount to be converted
and the name (s) in which the Lender wishes the
certificates for shares of Common Stock to be
registered, together with the address or addresses of
the person or persons so named.
<PAGE>
(b) DELIVERY OF CERTIFICATE. As promptly as practicable
after the written notice hereinabove provided, the
Company shall deliver or caused to be delivered to
the Lender, or the Lender's designees, certificates
representing the number of fully paid and
non-assessable shares of Common Stock into which this
Note is entitled to be converted, together with a
cash adjustment in respect of any fraction of a share
to which Lender shall be entitled, and, if less than
the entire face amount of this Note is to be
converted, a new Note for the balance of this Note
not so converted. So long as any portion of this Note
remains unpaid, the Company shall not close its
Common Stock transfer books. The issuance of
certificates for shares of Common Stock upon a
conversion shall be made without charge to the Lender
for any tax in respect of the issuance of such
certificates (other than any tax if the shares of
Common Stock are to be registered in a name different
from that of the registered holder of this Note.)
(c) FRACTIONAL SHARES. No fractional share of Common
Stock or scrip representing fractional shares of
Common Stock shall be issued upon any conversion of
this Note, but, in lieu thereof, there shall be paid
any amount in cash equal to the amount of the number
shares of Common Stock into which such fraction of a
share of Common Stock would be otherwise convertible
according to the terms of the Common Stock, with any
resulting fractions of Common Stock being paid in
cash.
(d) RESERVATION OF SHARES. The Company shall at all times
reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the
purpose of effecting the conversion of this Note, the
full number of whole shares of Common Stock then
deliverable upon the conversion of all of this Note.
The Company shall take at all times such corporate
action as shall be necessary in order that the
Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the
conversion of this Note in accordance with the
provision of this section.
(e) RETIREMENT OF NOTES. Any portion of the amount
outstanding under this Note converted pursuant to the
provision of this section shall be deemed retired,
repaid and fully satisfied.
(f) PIGGYBACK REGISTRATION. Although shares are
"restricted securities" as defined in Rule 144 under
the Securities Act of 1933, as amended, and bear a
legend indicating their restricted nature, the Lender
shall have "piggyback" registration rights with
respect to said shares in any registration statement
filed by the Company on or prior to December 31,
1999, unless such registration statement is not
suitable for the sale of such shares, for example,
and not by limitation, the registration of
transactions in connection with the Company benefit
plans., The Company shall give the Lender written
notice of the opportunity to exercise such
registration rights at least ten (10) days prior to
the effective date of such registration statement.
<PAGE>
(g) MERGER. In case of any consolidation or merger to
which the Company is a party other than a merger or
consolidation in which the Company is the surviving
corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as
an entirety or substantially as an entirety, or in
case of any statutory exchange of securities with
another corporation, there will be no adjustment of
the conversion price, but each Lender of the Notes
then outstanding will have the right thereafter to
convert such Notes into the kind and amount of
securities, cash or other property which he would
have owned or have been entitled to receive
immediately after such consolidation, merger,
statutory exchange, sales or conveyance had such
Notes been converted immediately prior to the
effective date of such events. In the case of a cash
merger of the Company into another corporation or any
other cash transaction of the type mentioned above,
the effect of these provisions would be that the
conversion features of the notes would thereafter be
limited to converting the Notes at the conversion
price in effect at such time into the same amount of
cash per Share that such Lender would have received
had such Lender converted the Notes into Common Stock
immediately prior to the effective date of such cash
merger or transaction.
3. NOTICES. All notices, demands, adjustments or other communications
which are required or are permitted to be given hereunder shall be in writing
and shall be deemed to have been sufficiently given upon: (i) delivery, if
served personally on the party to whom notice is to be given; or (ii) on the
date of receipt, refusal or non-delivery indicated on the receipt if mailed to
the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by messenger or air courier, in all cases,
correctly addressed to the addresses of the parties as follows:
IF TO LENDER: _____________________
__________________________
__________________________
__________________________
IF TO THE COMPANY: PRISM SOFTWARE CORPORATION
--------------------------
23696 Birtcher
Lake Forest, Ca 92630
Attention: Edward Daniels, Chief
Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
4. INVESTMENT INTENT. The Lender is acquiring this Note and will
acquire the Common Stock issuable hereunder ("Securities") solely for its own
account and not directly or indirectly for the account of any other person
whatsoever for investment and not with a view to or for sale in connection with
any distribution of the Securities and the Lender does not have any reason to
anticipate any changes in its circumstances or other particular occasion
understanding or arrangement with any other person to sell, transfer or pledge
to any person all or any part of the Securities and the Lender has no present
plan to enter into any of the same.
5. SECURITIES HAVE NOT BEEN REGISTERED. The Lender acknowledges that
none of the Securities have been registered under the Act or any applicable
state securities laws, being issued pursuant to an exemption therefrom and will
bear or incorporate by reference the legend set forth at the top of page one of
this Note. The Lender further acknowledges that no federal or state agency has
passed upon or made any recommendations or endorsements of investment in the
Securities.
<PAGE>
6. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
7. SUCCESSORS AND ASSIGNS. The terms and conditions contained in this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
8. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
IN WITNESS WHEREOF, the Company has executed this Note in favor of the
Lender as of the date first set forth above.
COMPANY
- -------
PRISM SOFTWARE CORPORATION
a Delaware corporation.
________________________________
E. Ted Daniels
Chief Executive Officer
LENDER
- ------
Agreed, Accepted and Acknowledged
By _____________________________
Lender
Dated __________________________
THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES, AND OTHER FILINGS UNDER ANY APPLICABLE
FEDERAL OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, WHICH OPINION IS
SATISFACTORY IN FORM AND SUBSTANCE TO PRISM SOFTWARE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION AND OTHER FILINGS ARE NOT REQUIRED UNDER THE ACT OR ANY
APPLICABLE STATE SECURITIES LAWS AND THAT THE TRANSACTION COMPLIES WITH THE
RULES AND REGULATIONS IN EFFECT HEREUNDER
PROMISSORY NOTE
---------------
AMOUNT: $_________________ DATE:_________________
FOR VALUE RECEIVED, the undersigned, PRISM SOFTWARE CORPORATION, a
Delaware corporation (the "Company"), promises to pay to _______________________
__________________________________ (the "Lender"), the principal sum of
___________________________________ ($________________ ), (the "Principal
Amount"), together with interest accruing on the unpaid portion of the Principal
Amount from the date hereof until maturity, at the annual rate of TEN PERCENT
(10%) simple interest on the terms and subject to the following conditions:
1. PAYMENT OF PRINCIPAL AND INTEREST. The entire Principal Amount shall
be payable from the Company to the Lender on ________________________________.
Interest-only payments shall be made on a quarterly basis by the Company to the
Lender. The Company also agrees to notify the Lender in writing of its intent
and ability to pay this Note upon its maturity. The Company may prepay any or
all amounts due under this Note at any time without penalty, provided, however,
that the Company delivers written notice of its intention to prepay at least
thirty (30) calendar days prior to the date of such prepayment, and cooperate
with the Lender in the Lender's exercise of Lender's convertibility rights as
set forth below, if Lender elects to exercise such rights. The Lender shall be
given fifteen (15) days after the receipt of such notice to elect conversion.
All payments due and payable from The Company to the Lender under this Note
shall be made in lawful currency of the United States of America at
___________________________________________________________________or such other
place as the Lender may from time to time designate in writing.
2. CONVERSION OF NOTE. The Lender shall have the right, at his option,
at any time, to convert, subject to the terms and provisions of this section,
all or any unpaid portion of the amount of this Note, both principal and
interest, into such number of fully paid and non-assessable shares of the
Company's Common Stock ("Common Stock") at a conversion price of $0.05 per
share. The conversion price on any defaulted portion of a required repayment of
principal or interest on this Note shall be $0.05 per share.
(a) NOTICE TO COMPANY. In order to convert all or any portion of
the amount outstanding under this Note, such notice shall
specify the amount to be converted and the name(s) in which
the Lender wishes the certificates for shares of Common Stock
to be registered, together with the address or addresses of
the person or persons so named.
(b) DELIVERY OF CERTIFICATE. As promptly as practicable after the
written notice hereinabove provided, the Company shall deliver
or caused to be delivered to the Lender, or the Lender's
designees, certificates representing the number of fully paid
and non-assessable shares of Common Stock into which this Note
is entitled to be converted, together with a cash adjustment
in respect of any fraction of a share to which Lender shall be
entitled, and, if less than the entire face amount of this
Note is to be converted, a new Note for the balance of this
Note not so converted. So long as any portion of this Note
remains unpaid, the Company shall not close its Common Stock
<PAGE>
transfer books. The issuance of certificates for shares of
Common Stock upon a conversion shall be made without charge to
the Lender for any tax in respect of the issuance of such
certificates (other than any tax if the shares of Common Stock
are to be registered in a name different from that of the
registered holder of this Note.)
(c) FRACTIONAL SHARES. No fractional share of Common Stock or
scrip representing fractional shares of Common Stock shall be
issued upon any conversion of this Note, but, in lieu thereof,
there shall be paid any amount in cash equal to the amount of
the number shares of Common Stock into which such fraction of
a share of Common Stock would be otherwise convertible
according to the terms of the Common Stock, with any resulting
fractions of Common Stock being paid in cash.
(d) RESERVATION OF SHARES. The Company shall at all times reserve
and keep available out of its authorized but unissued shares
of Common Stock, solely for the purpose of effecting the
conversion of this Note, the full number of whole shares of
Common Stock then deliverable upon the conversion of all of
this Note. The Company shall take at all times such corporate
action as shall be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares
of Common Stock upon the conversion of this Note in accordance
with the provision of this section.
(e) RETIREMENT OF NOTES. Any portion of the amount outstanding
under this Note converted pursuant to the provision of this
section shall be deemed retired, repaid and fully satisfied.
(f) MERGER. In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in
which the Company is the surviving corporation, or in case of
any sale or conveyance to another corporation of the property
of the Company as an entirety or substantially as an entirety,
or in case of any statutory exchange of securities with
another corporation, there will be no adjustment of the
conversion price, but each Lender of the Notes then
outstanding will have the right thereafter to convert such
Notes into the kind and amount of securities, cash or other
property which he would have owned or have been entitled to
receive immediately after such consolidation, merger,
statutory exchange, sales or conveyance had such Notes been
converted immediately prior to the effective date of such
events. In the case of a cash merger of the Company into
another corporation or any other cash transaction of the type
mentioned above, the effect of these provisions would be that
the conversion features of the notes would thereafter be
limited to converting the Notes at the conversion price in
effect at such time into the same amount of cash per Share
that such Lender would have received had such Lender converted
the Notes into Common Stock immediately prior to the effective
date of such cash merger or transaction.
3. NOTICES. All notices, demands, adjustments or other communications
which are required or are permitted to be given hereunder shall be in writing
and shall be deemed to have been sufficiently given upon: (i) delivery, if
served personally on the party to whom notice is to be given; or (ii) on the
date of receipt, refusal or non-delivery indicated on the receipt if mailed to
the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by messenger or air courier, in all cases,
correctly addressed to the addresses of the parties as follows:
IF TO LENDER:___________________________
___________________________
___________________________
<PAGE>
IF TO THE COMPANY: PRISM SOFTWARE CORPORATION
23696 Birtcher
Lake Forest, Ca 92630
Attention: Edward Daniels, Chief Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
4. INVESTMENT INTENT. The Lender is acquiring this Note and will
acquire the Common Stock issuable hereunder ("Securities") solely for its own
account and not directly or indirectly for the account of any other person
whatsoever for investment and not with a view to or for sale in connection with
any distribution of the Securities and the Lender does not have any reason to
anticipate any changes in its circumstances or other particular occasion
understanding or arrangement with any other person to sell, transfer or pledge
to any person all or any part of the Securities and the Lender has no present
plan to enter into any of the same.
5 SECURITIES HAVE NOT BEEN REGISTERED. The Lender acknowledges that
none of the Securities have been registered under the Act or any applicable
state securities laws, being issued pursuant to an exemption therefrom and will
bear or incorporate by reference the legend set forth at the top of page one of
this Note. The Lender further acknowledges that no federal or state agency has
passed upon or made any recommendations or endorsements of investment in the
Securities.
6. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
7. SUCCESSORS AND ASSIGNS. The terms and conditions contained in this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
8.. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
IN WITNESS WHEREOF, the Company has executed this Note in favor of the
Lender as of the date first set forth above.
COMPANY
- -------
PRISM SOFTWARE CORPORATION LENDER
a Delaware corporation. Agreed, Accepted and Acknowledged
_____________________________ By ______________________________
E. Ted Daniels Lender
Chief Executive Officer
Dated______________
<PAGE>
THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES, AND OTHER FILINGS UNDER ANY APPLICABLE
FEDERAL OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, WHICH OPINION IS
SATISFACTORY IN FORM AND SUBSTANCE TO PRISM SOFTWARE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION AND OTHER FILINGS ARE NOT REQUIRED UNDER THE ACT OR ANY
APPLICABLE STATE SECURITIES LAWS AND THAT THE TRANSACTION COMPLIES WITH THE
RULES AND REGULATIONS IN EFFECT HEREUNDER
PROMISSORY NOTE
---------------
AMOUNT: $____________ DATE: ____________
FOR VALUE RECEIVED, the undersigned, PRISM SOFTWARE CORPORATION, a
Delaware corporation (the "Company"), promises to pay to ________________
("Lender"), the principal sum of _____________($_____________ ) (the "Principal
Amount"), together with simple interest accruing on the unpaid portion of the
Principal Amount from the date hereof until maturity at the annual rate of EIGHT
PERCENT (8%) on the terms and subject to the following conditions:
1. PAYMENT OF PRINCIPAL AND INTEREST. The entire Principal Amount,
together with all accrued unpaid interest hereunder, shall be payable from the
Company to the Lender on _______________. Upon maturity the Lender shall have
the option of converting all amounts due in reference to this note, to Common
Stock of the Company.
(a) The Company agrees to notify the Lender in writing of
its intent and ability to pay at maturity. The Lender
shall be given fifteen (15) days after such notice to
elect conversion. The Company may prepay any or all
amounts due under this Note at any time without
penalty, provided, however, that the Company delivers
written notice of such intention to prepay at least
thirty (30) days prior to the date of such
prepayment, and cooperates with the Lender in the
Lenders exercise of Lender's convertibility rights as
set forth below, if Lender should exercise such
rights.
(b) With respect to any notice that the Company gives to
the Lender under section 1(a), the Lender shall have
fifteen (15) days after the receipt of such notice to
elect conversion of the given amount into shares of
the Company's Common Stock at $0.05 per share.
(c) All payments due and payable from The Company to the
Lender under this Note shall be made in lawful
currency of the United States of America at
________________, or such other place as the Lender
may from time to time designate in writing.
2. CONVERSION OF NOTE. The Lender shall have the right, upon maturity,
to convert, subject to the terms and provisions of this section, all or any
unpaid accrued portion of this Note, both principal and interest, into such
number of fully paid and non-assessable shares of the Company's Common Stock
("Common Stock") at a conversion price of $0.05 per share.
(a) NOTICE TO COMPANY. In order to convert all or any
portion of the amount outstanding under this Note,
such notice shall specify the amount to be converted
and the name (s) in which the Lender wishes the
certificates for shares of Common Stock to be
registered, together with the address or addresses of
the person or persons so named.
<PAGE>
(b) DELIVERY OF CERTIFICATE. As promptly as practicable
after the written notice hereinabove provided, the
Company shall deliver or caused to be delivered to
the Lender, or the Lender's designees, certificates
representing the number of fully paid and
non-assessable shares of Common Stock into which this
Note is entitled to be converted, together with a
cash adjustment in respect of any fraction of a share
to which Lender shall be entitled, and, if less than
the entire face amount of this Note is to be
converted, a new Note for the balance of this Note
not so converted. So long as any portion of this Note
remains unpaid, the Company shall not close its
Common Stock transfer books. The issuance of
certificates for shares of Common Stock upon a
conversion shall be made without charge to the Lender
for any tax in respect of the issuance of such
certificates (other than any tax if the shares of
Common Stock are to be registered in a name different
from that of the registered holder of this Note.)
(c) FRACTIONAL SHARES. No fractional share of Common
Stock or scrip representing fractional shares of
Common Stock shall be issued upon any conversion of
this Note, but, in lieu thereof, there shall be paid
any amount in cash equal to the amount of the number
shares of Common Stock into which such fraction of a
share of Common Stock would be otherwise convertible
according to the terms of the Common Stock, with any
resulting fractions of Common Stock being paid in
cash.
(d) RESERVATION OF SHARES. The Company shall at all times
reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the
purpose of effecting the conversion of this Note, the
full number of whole shares of Common Stock then
deliverable upon the conversion of all of this Note.
The Company shall take at all times such corporate
action as shall be necessary in order that the
Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the
conversion of this Note in accordance with the
provision of this section.
(e) RETIREMENT OF NOTES. Any portion of the amount
outstanding under this Note converted pursuant to the
provision of this section shall be deemed retired,
repaid and fully satisfied.
(f) MERGER. In case of any consolidation or merger to
which the Company is a party other than a merger or
consolidation in which the Company is the surviving
corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as
an entirety or substantially as an entirety, or in
case of any statutory exchange of securities with
another corporation, there will be no adjustment of
the conversion price, but each Lender of the Notes
then outstanding will have the right thereafter to
convert such Notes into the kind and amount of
securities, cash or other property which he would
have owned or have been entitled to receive
immediately after such consolidation, merger,
statutory exchange, sales or conveyance had such
Notes been converted immediately prior to the
effective date of such events. In the case of a cash
merger of the Company into another corporation or any
other cash transaction of the type mentioned above,
the effect of these provisions would be that the
conversion features of the notes would thereafter be
limited to converting the Notes at the conversion
price in effect at such time into the same amount of
cash per Share that such Lender would have received
had such Lender converted the Notes into Common Stock
immediately prior to the effective date of such cash
merger or transaction.
<PAGE>
3. NOTICES. All notices, demands, adjustments or other communications
which are required or are permitted to be given hereunder shall be in writing
and shall be deemed to have been sufficiently given upon: (i) delivery, if
served personally on the party to whom notice is to be given; or (ii) on the
date of receipt, refusal or non-delivery indicated on the receipt if mailed to
the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by messenger or air courier, in all cases,
correctly addressed to the addresses of the parties as follows:
IF TO LENDER: _____________________
__________________________
__________________________
__________________________
IF TO THE COMPANY: PRISM SOFTWARE CORPORATION
--------------------------
23696 Birtcher
Lake Forest, Ca 92630
Attention: Edward Daniels, Chief
Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
4. INVESTMENT INTENT. The Lender is acquiring this Note and will
acquire the Common Stock issuable hereunder ("Securities") solely for its own
account and not directly or indirectly for the account of any other person
whatsoever for investment and not with a view to or for sale in connection with
any distribution of the Securities and the Lender does not have any reason to
anticipate any changes in its circumstances or other particular occasion
understanding or arrangement with any other person to sell, transfer or pledge
to any person all or any part of the Securities and the Lender has no present
plan to enter into any of the same.
5. SECURITIES HAVE NOT BEEN REGISTERED. The Lender acknowledges that
none of the Securities have been registered under the Act or any applicable
state securities laws, being issued pursuant to an exemption therefrom and will
bear or incorporate by reference the legend set forth at the top of page one of
this Note. The Lender further acknowledges that no federal or state agency has
passed upon or made any recommendations or endorsements of investment in the
Securities.
<PAGE>
6. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
7. SUCCESSORS AND ASSIGNS. The terms and conditions contained in this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
8. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
IN WITNESS WHEREOF, the Company has executed this Note in favor of the
Lender as of the date first set forth above.
COMPANY
- -------
PRISM SOFTWARE CORPORATION
a Delaware corporation.
________________________________
E. Ted Daniels
Chief Executive Officer
LENDER
- ------
Agreed, Accepted and Acknowledged
By _____________________________
Lender
Dated __________________________
<PAGE>
THE SECURITIES EVIDENCED BY THIS PROMISSORY NOTE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE SECURITIES LAWS OF ANY
STATE. THE SECURITIES MAY NOT BE PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT COVERING SUCH SECURITIES, AND OTHER FILINGS UNDER ANY APPLICABLE
FEDERAL OR STATE SECURITIES LAWS OR AN OPINION OF COUNSEL, WHICH OPINION IS
SATISFACTORY IN FORM AND SUBSTANCE TO PRISM SOFTWARE CORPORATION, TO THE EFFECT
THAT SUCH REGISTRATION AND OTHER FILINGS ARE NOT REQUIRED UNDER THE ACT OR ANY
APPLICABLE STATE SECURITIES LAWS AND THAT THE TRANSACTION COMPLIES WITH THE
RULES AND REGULATIONS IN EFFECT HEREUNDER
PROMISSORY NOTE
---------------
$5,000 APRIL 8, 1999
- ------ -------------
FOR VALUE RECEIVED, the undersigned, PRISM SOFTWARE CORPORATION, a
Delaware corporation (the "Company"), promises to pay to NORTHSTAR CAPITAL
PARTNERS, LP ("Lender"), the principal sum of FIVE THOUSAND DOLLARS ($5,000)
(the "Principal Amount"), together with simple interest accruing on the unpaid
portion of the Principal Amount from the date hereof until maturity at the
annual rate of EIGHT PERCENT (8%) on the terms and subject to the following
conditions:
1. PAYMENT OF PRINCIPAL AND INTEREST. The entire Principal Amount,
together with all accrued unpaid interest hereunder, shall be payable from the
Company to the Lender on APRIL 8, 2000. Upon maturity the Lender shall have the
option of converting all amounts due in reference to this note, to Common Stock
of the Company.
(a) The Company agrees to notify the Lender in writing of
its intent and ability to pay at maturity. The Lender
shall be given fifteen (15) days after such notice to
elect conversion. The Company may prepay any or all
amounts due under this Note at any time without
penalty, provided, however, that the Company delivers
written notice of such intention to prepay at least
thirty (30) days prior to the date of such
prepayment, and cooperates with the Lender in the
Lenders exercise of Lender's convertibility rights as
set forth below, if Lender should exercise such
rights.
(b) With respect to any notice that the Company gives to
the Lender under section 1(a), the Lender shall have
fifteen (15) days after the receipt of such notice to
elect conversion of the given amount into shares of
the Company's Common Stock at $0.05 per share.
(c) All payments due and payable from The Company to the
Lender under this Note shall be made in lawful
currency of the United States of America at 3340
Peachtree Rd., N.E., Ste. 1940, Atlanta, GA 30326, or
such other place as the Lender may from time to time
designate in writing.
2. CONVERSION OF NOTE. The Lender shall have the right, upon maturity,
to convert, subject to the terms and provisions of this section, all or any
unpaid accrued portion of this Note, both principal and interest, into such
number of fully paid and non-assessable shares of the Company's Common Stock
("Common Stock") at a conversion price of $0.05 per share; provided, however,
that the conversion price upon any default of the repayment of principal or of
the interest on this Note shall be reduced to $0.05 per share.
a) NOTICE TO COMPANY. In order to convert all or any
portion of the amount outstanding under this Note,
such notice shall specify the amount to be converted
and the name (s) in which the Lender wishes the
certificates for shares of Common Stock to be
registered, together with the address or addresses of
the person or persons so named.
<PAGE>
(b) DELIVERY OF CERTIFICATE. As promptly as practicable
after the written notice hereinabove provided, the
Company shall deliver or caused to be delivered to
the Lender, or the Lender's designees, certificates
representing the number of fully paid and
non-assessable shares of Common Stock into which this
Note is entitled to be converted, together with a
cash adjustment in respect of any fraction of a share
to which Lender shall be entitled, and, if less than
the entire face amount of this Note is to be
converted, a new Note for the balance of this Note
not so converted. So long as any portion of this Note
remains unpaid, the Company shall not close its
Common Stock transfer books. The issuance of
certificates for shares of Common Stock upon a
conversion shall be made without charge to the Lender
for any tax in respect of the issuance of such
certificates (other than any tax if the shares of
Common Stock are to be registered in a name different
from that of the registered holder of this Note.)
(c) FRACTIONAL SHARES. No fractional share of Common
Stock or scrip representing fractional shares of
Common Stock shall be issued upon any conversion of
this Note, but, in lieu thereof, there shall be paid
any amount in cash equal to the amount of the number
shares of Common Stock into which such fraction of a
share of Common Stock would be otherwise convertible
according to the terms of the Common Stock, with any
resulting fractions of Common Stock being paid in
cash.
(d) RESERVATION OF SHARES. The Company shall at all times
reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the
purpose of effecting the conversion of this Note, the
full number of whole shares of Common Stock then
deliverable upon the conversion of all of this Note.
The Company shall take at all times such corporate
action as shall be necessary in order that the
Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon the
conversion of this Note in accordance with the
provision of this section.
(e) RETIREMENT OF NOTES. Any portion of the amount
outstanding under this Note converted pursuant to the
provision of this section shall be deemed retired,
repaid and fully satisfied.
(f) PIGGYBACK REGISTRATION. Although shares are
"restricted securities" as defined in Rule 144 under
the Securities Act of 1933, as amended, and bear a
legend indicating their restricted nature, the Lender
shall have "piggyback" registration rights with
respect to said shares in any registration statement
filed by the Company on or prior to December 31,
1999, unless such registration statement is not
suitable for the sale of such shares, for example,
and not by limitation, the registration of
transactions in connection with the Company benefit
plans., The Company shall give the Lender written
notice of the opportunity to exercise such
registration rights at least ten (10) days prior to
the effective date of such registration statement.
<PAGE>
(g) MERGER. In case of any consolidation or merger to
which the Company is a party other than a merger or
consolidation in which the Company is the surviving
corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as
an entirety or substantially as an entirety, or in
case of any statutory exchange of securities with
another corporation, there will be no adjustment of
the conversion price, but each Lender of the Notes
then outstanding will have the right thereafter to
convert such Notes into the kind and amount of
securities, cash or other property which he would
have owned or have been entitled to receive
immediately after such consolidation, merger,
statutory exchange, sales or conveyance had such
Notes been converted immediately prior to the
effective date of such events. In the case of a cash
merger of the Company into another corporation or any
other cash transaction of the type mentioned above,
the effect of these provisions would be that the
conversion features of the notes would thereafter be
limited to converting the Notes at the conversion
price in effect at such time into the same amount of
cash per Share that such Lender would have received
had such Lender converted the Notes into Common Stock
immediately prior to the effective date of such cash
merger or transaction.
3. NOTICES. All notices, demands, adjustments or other communications
which are required or are permitted to be given hereunder shall be in writing
and shall be deemed to have been sufficiently given upon: (i) delivery, if
served personally on the party to whom notice is to be given; or (ii) on the
date of receipt, refusal or non-delivery indicated on the receipt if mailed to
the party to whom notice is to be given by first class mail, registered or
certified, postage prepaid, or by messenger or air courier, in all cases,
correctly addressed to the addresses of the parties as follows:
IF TO LENDER: NORTHSTAR CAPITAL PARTNERS, LP
------------------------------
c/o James Martin for Northstar
------------------------------
3340 Peachtree Rd., N.E., Ste. 1940
-----------------------------------
Atlanta, GA 30326
-----------------------------------
IF TO THE COMPANY: PRISM SOFTWARE CORPORATION
23696 Birtcher
Lake Forest, Ca 92630
Attention: Edward Daniels, Chief
Executive Officer
Any party may give written notice of a change of address in accordance with the
provisions of this Section and after such notice of change has been received,
any subsequent notice shall be given to such party in the manner above described
at such new address.
4. INVESTMENT INTENT. The Lender is acquiring this Note and will
acquire the Common Stock issuable hereunder ("Securities") solely for its own
account and not directly or indirectly for the account of any other person
whatsoever for investment and not with a view to or for sale in connection with
any distribution of the Securities and the Lender does not have any reason to
anticipate any changes in its circumstances or other particular occasion
understanding or arrangement with any other person to sell, transfer or pledge
to any person all or any part of the Securities and the Lender has no present
plan to enter into any of the same.
5. SECURITIES HAVE NOT BEEN REGISTERED. The Lender acknowledges that
none of the Securities have been registered under the Act or any applicable
state securities laws, being issued pursuant to an exemption therefrom and will
bear or incorporate by reference the legend set forth at the top of page one of
this Note. The Lender further acknowledges that no federal or state agency has
passed upon or made any recommendations or endorsements of investment in the
Securities.
<PAGE>
6. GOVERNING LAW. The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of California without giving
effect to principles of conflict of laws.
7. SUCCESSORS AND ASSIGNS. The terms and conditions contained in this
Note shall apply to and bind the heirs, representatives, successors,
administrators and assigns of the parties hereto.
8. ASSIGNMENT. This Note is not assignable without the prior written
consent of the other party. Any attempt at such an assignment without such
consent shall be void.
IN WITNESS WHEREOF, the Company has executed this Note in favor of the
Lender as of the date first set forth above.
COMPANY
- -------
PRISM SOFTWARE CORPORATION
a Delaware corporation.
/S/ E. TED DANIELS
- --------------------------------
E. Ted Daniels
Chief Executive Officer
LENDER
- ------
Agreed, Accepted and Acknowledged
By /S/ JAMES MARTIN
-----------------------------
James Martin for Northstar Capital Partners, LP
Dated 8/12/99
----------
OEM AGREEMENT
This OEM Agreement ("Agreement") is made and entered into effective as of May
13, 1997 by and between Artifex Software Inc., a California corporation with its
principal place of business located at San Rafael, California ("Supplier") and
Prism Software Corporation, with its principal place of business located at Lake
Forest, California ("Distributor").
Distributor intends to create and offer licenses for a group of product(s) to be
known as Prism's Print Manager Family (the "Product"), a general description of
which appears in Exhibit B hereto. The Product will incorporate certain software
licensed by Supplier (the "Software"), a general description of which appears in
Exhibit A hereto, and associated documentation (the "Documentation", as defined
in Section 2.3 hereof). Supplier wishes to grant to Distributor the right to
incorporate the Software in the Product and distribute copies of the Software as
incorporated in the Product, and Distributor wishes to acquire same.
NOW, THEREFORE, the parties hereto agree as follows:
1. General Terms and Conditions.
(a) Grant of License to Distributor. Subject to the terms and conditions
contained in this Agreement, Supplier hereby grants to Distributor and
Distributor hereby accepts for the term of this Agreement the license rights
described below. Such rights shall not be subcontracted, sublicensed, assigned
or otherwise transferred, except with the prior written consent of Supplier, or
as may be otherwise set forth in Section 16 hereof or Section D-1 of Exhibit D
hereto. Supplier grants to Distributor a non-exclusive, nontransferable, license
and right throughout the world to:
(i) modify the source code for the Software to produce such changes to the
source code as may be necessary to ensure compatibility with the Product;
(ii) reproduce copies of the object code (binary) version of the Software and
the Documentation provided (in whole or in part) as modified under (i) above
(such copies to be referred to collectively herein as "Licensed Copies"),
provided that each unit of any Product incorporating the Software (A) shall
incorporate the Software into the product in such a way that the Software shall
not be available to the user on a stand-alone or independent basis, (B) shall
comply with Section 1(e) below, and (C) shall comply with either Section 1(f)
below (in the case of demonstration copies) or Section D-2 of Exhibit D hereto
(in the case of all other copies) (such copies to be referred to collectively
herein as "Licensed Copies"), and
(iii) market and distribute the Licensed Copies directly and through
Distributor's Third Party Resellers (as defined in subsection (C) below). No
right is granted to distribute the source code for the Software.
<PAGE>
(b) Ownership of Modifications. Any modifications, adaptations or derivative
works made from the source code for the Software will be owned as set forth in
this section. For the purposes of this section, a "Bug" is a reproducible defect
in the Software that causes the Software to fail to conform to its written
specifications; a "Bug Fix" is a modification to the source code of the Software
that removes a Bug. All Bug Fixes made by Distributor shall be reported by
Distributor to Supplier and will be owned by Supplier and licensed to
Distributor subject to this Agreement. Distributor agrees to assign, and hereby
does assign and transfer, all right, title and interest in such Bug Fixes,
including all intellectual property rights therein, to Supplier. All other
modifications, adaptations, and derivative works of the source code licensed
under this Agreement made by Distributor shall be owned by Distributor.
Distributor agrees to grant, and hereby does grant, Supplier a non-exclusive,
sublicensable, non-transferable, perpetual and worldwide license to modify,
reproduce, use, market and distribute all such developments. The particular
terms of such license shall be customary for similar agreements of this type,
and may include a reasonable payment to Distributor from Supplier.
(c) Third Party Resellers. Distributor shall have the right to appoint Third
Party Reseller subject to the conditions hereafter in subsection (e) to market
and distribute the Product, provided that Distributor shall have executed a
written subdistribution agreement with each such Third Party Reseller, which
subdistribution agreement shall contain (i) provisions set forth in Section
D-3.4 of Exhibit D hereto (Records) and Sections 1(d) (Export Control), 1(e)
(End-Users; Notices), 6 (Product Warranty), 7 (Distributor Disclaimer), 9
(Proprietary Rights), 10 (Confidentiality), 12 (Effect of Termination), 14
(Governing Law), and 18.4 (Government Restricted Rights) hereof, (ii) a
provision prohibiting such Third Party Reseller from sublicensing the rights
granted to it in that agreement, and (iii) an express acknowledgement by such
Third party Resellers that if this Agreement shall terminate for any reason,
then such subdistribution agreements shall automatically terminate without
further action on the part of Distributor or Supplier. End user licenses granted
during the term shall survive any such termination. Distributor shall remain
responsible for all of its obligations under this Agreement notwithstanding any
subdistribution agreement. Distributor will use its best efforts to ensure that
all Third Party Resellers abide by the terms of the subdistribution agreements
between Distributor and such Third Party Resellers, and, upon Supplier's
request, will keep Supplier apprised of its activities to enforce such
provisions with particular Third party Resellers as they pertain to the
Software. In addition, Distributor shall ensure that Supplier will have the
right to enforce such agreements as a third party beneficiary, and Distributor
agrees that (i) Supplier may join Distributor as a named plaintiff in any suit
brought by Distributor against Third party Resellers and (ii) Distributor will
take such other actions, give such information and render such aid, as may be
reasonably necessary to allow Supplier to bring and prosecute such suits.
(d) Export Control. Distributor agrees that it and its Third Party Resellers
will comply with all relevant laws regarding export of the Software and of the
immediate product (including processes and services) produced directly by use of
the Software. Distributor will indemnify Supplier and hold it harmless from any
claim that Distributor or its Third Party Resellers have breached this section.
<PAGE>
(e) End-Users; Notices. Distributor shall ensure that each end-user of the
Product is bound by a software license agreement that includes provisions
substantially similar to those of Exhibit C hereto and that is applied to both
the Software and the Documentation. Distributor shall use its best efforts to
ensure that all Third Party Resellers also comply with this requirement.
Distributor shall reproduce, on each copy of the Product and any documentation
supplied with the Product, wherever a copyright notice including the
Distributor's own name appears, the copyright notice(s) specified in Exhibit A
hereto. Upon Supplier's request, Distributor will keep Supplier apprised of its
activities to enforce such end user license agreements with particular end users
as they pertain to the Software. In addition, Distributor shall ensure that
Supplier will have the right to enforce such agreements as a third party
beneficiary, and Distributor agrees that (i) Supplier may join Distributor as a
named plaintiff in any suit brought by Distributor against end users and (ii)
Distributor will take such other actions, give such information and render such
aid, as may be reasonably necessary to allow Supplier to bring and prosecute
such suits.
(f) Demonstration Copies. Subject to the other terms and conditions hereof,
Distributor shall have the right to provide fully functional demonstration
copies of the Product to end users at a charge covering only shipping, handling,
and media costs. The number of such demonstration copies distributed in any give
calendar year shall not exceed fifty (50) or five percent (5%) of the total
number of Licensed Copies distributed within that year, whichever is greater.
Distributor warrants that all such copies will cease to function within a fixed
period after their first use, such period not to exceed 60 days. Such copies
shall be exempt from the payment provisions of Section D-3.1(a) of Exhibit D
hereto.
2. Deliverables and Shipping.
2.1 Deliverables. Supplier shall provide to Distributor the source code for the
Software and any per-copy identifying information specified in Section D-2 of
Exhibit D hereto. The version of the Software initially provided to provided to
Distributor shall be as identified in Exhibit A hereto, with bug fixes and
enhancements as of the effective date of this Agreement. Distributor shall make
binary copies of the Software from the source code (as modified pursuant to
1(a)(i) above) for incorporation in the Product and shall package the binary
code of the Software indivisibly with the Product, in a manner that complies
with Section D-2 of Exhibit D hereto and with the copyright notice provisions of
Exhibit A hereto.
2.2 Upgrades. Provision of upgrades of the Software by Supplier to Distributor,
if any, shall be governed by Section E-1 of Exhibit E hereto.
2.3 Documentation. Supplier will provide manual text in either electronic form
or printed hard copy form including artwork if appropriate (collectively,
"Documentation") with which Distributor may create product manual(s) Supplier
reserves the right to review and suggest changes to the form, content and
packaging of such product manuals and Distributor agrees to consider all
reasonable changes requested by Supplier.
2.4 Shipping. Shipment is F.O.B. Supplier.
<PAGE>
3. Fee, Payment, Reports, and Records.
3.1 Fees. In consideration for the rights granted hereunder, Distributor agrees
to pay Supplier amounts as specified in Section D-3.1 of Exhibit D hereto.
3.2 License Fee Change. Supplier reserves the right to change its license fees
for the Software at its discretion from time to time by giving Distributor at
least ninety (90) days prior written notice of any such change. Supplier agrees
not to make any such change affecting copies of the Software distributed
hereunder for at least one year from the effective date of the Agreement.
3.3 Price Reference. Distributor agrees not to refer to the Software as free or
imply the Software is include free, or refer to other Supplier product prices in
relation to the Software or make any other similar claims, whether via
advertising or packaging or any other form of communication, printed, verbal or
otherwise, without Supplier's prior written agreement. Distributor's making of
any such claim shall be deemed a material breach of this Agreement.
3.4 Payment. Distributor shall pay Supplier as described in Section D-3.2 of
Exhibit D hereto. Amounts due shall be considered paid when Supplier is in
receipt of the due amount or upon confirmation of receipt by a bank designated
by Supplier. From and after the date of any default hereunder, until such
default is cured, a late payment fee shall accrue daily on such unpaid amounts
at the rate of one and one-half percent (1.5%) per month or the maximum rate
permitted by law, whichever is lower.
3.5 Reports. Distributor shall provide Supplier with reports as described in
Section D-3.3 of Exhibit D hereto.
3.6 Records. Distributor shall keep records as described in Section D-3.4 of
Exhibit D hereto.
4. Marketing Considerations.
4.1 Reasonable Efforts. Distributor shall be use reasonable efforts to market
and distribute the product through its sales channel(s).
4.2 Co-Marketing. From time to time during the term of this Agreement,
Distributor and Supplier may identify and implement mutually agreed upon
co-marketing programs, including advertisements in trade and other publications.
4.3 Publicity. Distributor and Supplier shall have the right to make the
following public statement regarding the present Agreement:
[Distributor] has licensed [Supplier]'s [Software] product
for use in [Distributor]'s [Product] product.
This shall be the sole exception to the provisions of Section 10 below.
<PAGE>
5. Support. Provision of support by Supplier to Distributor hereunder, if any,
shall be governed by Section E-2 of Exhibit E hereto. Supplier shall have no
support obligation to Distributor or any other party except as defined in that
section.
6. Supplier Warranty.
Supplier warrants that (i) it has the right and authority to enter into this
Agreement and to license the Software to Distributor in accordance with the term
hereof, and as of the date hereof, is not aware of any claim that the Software
infringes any rights of any third party, and (ii) the performance of the terms
of this Agreement and of Supplier's duties to Distributor hereunder will not
breach any separate agreement or arrangement by which Supplier is bound.
EXCEPT AS SET FORTH IN THIS SECTION 6, THE SOFTWARE AND DOCUMENTATION ARE
PROVIDED TO DISTRIBUTOR "AS IS" SUPPLIER DISCLAIMS ALL OTHER WARRANTIES, EXPRESS
OR IMPLIED, INCLUDING BUT NOT LIMITED TO ANY WARRANTY OF NON-INFRINGEMENT OF
THIRD PARTY RIGHTS AND THE IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
A PARTICULAR PURPOSE. IN NO EVENT SHALL SUPPLIER BE LIABLE FOR ANY INDIRECT,
CONSEQUENTIAL OR SPECIAL DAMAGES, INCLUDING LOSS OF PROFITS, INCURRED BY
DISTRIBUTOR, DISTRIBUTOR'S SUBLICENSEES, END-USERS OR THIRD PARTY RESELLERS, OR
ANY OTHER PARTY, WHETHER IN AN ACTION IN CONTRACT OR TORT OR BASED ON A
WARRANTY, EVEN IF SUPPLIER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
7. Distributor Disclaimer.
Distributor shall not make, or authorize any of its sublicensees (if permitted
hereunder) or any Third party Reseller or other person or entity to make, any
representation or warranty whatsoever with regard to the Software on behalf of
Supplier. Distributor may make such a warranty on its own behalf, but Supplier
shall have no liability with respect to such warranty. Distributor shall
indemnify and hold Supplier harmless from and against any claim based on any
warranty or representation made by or on behalf of distributor, its sublicensees
and /or Third Party Resellers.
8. Indemnification.
8.1 Proprietary Rights. Supplier will defend Distributor against a claim that
the Software as delivered to Distributor and used within the scope of this
Agreement infringes a United States copyright issued as of the date hereof or
involves misappropriation of trade secrets by Supplier ("Claim"), and Supplier
will indemnify Distributor for any damages finally awarded by a court of
competent jurisdiction based upon a Claim, provided that: (i) Distributor
notifies Supplier in writing within thirty (30) days of any Claim, (ii) Supplier
has sole control of the defense and all related settlement negotiations and
(iii) Distributor provides Supplier with the assistance, information and
authority necessary to perform the above. Reasonable out-of-pocket expenses
incurred by distributor in providing such assistance will be reimbursed by
Supplier. Supplier shall have no liability for any claim of infringement based
<PAGE>
on use of a superseded or altered version of the Software, or based on use of
any part of the Product that was not supplied to Distributor by Supplier, or
based on use of the Software in combination with any software or hardware not
supplied by Supplier if use of the Software alone would not have given rise to
the Claim. This Section states Distributor's exclusive remedy and Supplier's
entire liability for any infringement.
8.2 Other Indemnity. Distributor shall be responsible for and shall indemnify
and hold Supplier harmless from any and all losses, liability, damages or
expenses, including reasonable attorneys' fees, arising out of, or incurred, in
connection with (i) Distributor's, or any of its sublicensees' or any Third
Party Resellers' or any of Distributor's or such sublicensees' or Third Party
Resellers' end-user's marketing, distribution, use or sublicensing of the
Software, and (ii) any unauthorized representation, warranty or agreement,
express or implied, made by Distributor or any of its sublicensees or Third
Party Resellers or their respective sublicensees (if permitted hereunder) to or
with any other party with respect to the Software.
8.3 Limitation of Liability. Supplier's liability hereunder for any reason
whatsoever, including Section 8.1, shall no exceed the amount actually paid by
Distributor to Supplier.
9. Proprietary Rights.
9.1 Ownership. Distributor acknowledges that as between Distributor and
Supplier, Supplier controls all right, title, and interest in the Software and
Documentation and any other software owned or licensed by Supplier hereunder.
Except as expressly provided herein, Supplier does not grant to Distributor any
other right or license, either express or implied, in the Software,
Documentation, or any other software provided by Supplier hereunder, Distributor
shall not reverse engineer, modify, adapt, translate or create derivative works
based on the Software or knowingly permit any third party to do any of the
foregoing, except as permitted by Section 1(a)(i) hereof.
9.2 Use of Trademarks. Distributor shall not use any acronym, trademark, trade
name, or other marketing name listed in Exhibit A hereto, unless under a
separate arrangement with Supplier. Distributor shall not adopt, use or register
any acronym, trademark, trade name or other marketing name of Supplier or any
confusingly similar work or symbol as part of Distributor's own name or the name
of any of its affiliates or the name of any product it markets.
10. Confidentiality.
(a) Confidential Information. The term "Confidential Information" shall refer to
any information provided to one party by the other party marked with a
proprietary, confidential or other similar notice or orally disclosed to one
party as proprietary by the other party and followed by a writing within thirty
(30) days of such oral disclosure indicating said information was confidential.
Confidential Information shall not include information which (i) is or becomes
generally known or available through no act or failure to act by the receiving
party, (ii) is already known by the receiving party at the time of receipt as
<PAGE>
evidenced by its records; (iii) is hereafter furnished to the receiving party by
a third party, as a matter of right and without restriction on disclosure; (iv)
is disclosed by written permission of the party for whom such information is
confidential or (v) is required to be disclosed by court order or law. Except as
provided in Section 4.3 hereof, the contents of this Agreement shall be deemed
Confidential Information.
(b) Limitations on Disclosure. Each party shall keep confidential and not
disclose to any third party or use for its own benefit, except as expressly
permitted herein, or for the benefit of any third party, any Confidential
Information. Supplier shall not unreasonably withhold permission for Distributor
to disclose the contents of this Agreement to a third party in connection with a
potential acquisition or merger of Distributor, provided that any such third
party shall have previously agreed in writing to be bound by the provisions of
this Section 10.
11. Term and Termination.
11.1 Term. This Agreement and the licenses granted hereunder shall remain in
effect for so long as any proprietary rights in the Software are enforceable
under the laws of any jurisdiction, unless earlier terminated as set forth
below.
11.2 Termination by Supplier. Supplier may terminate this Agreement and the
licenses granted hereunder upon written notice (i) if Distributor fails to pay
in full any payments hereunder when due and further fails to pay such
outstanding amounts to Supplier within ten (10) days after receipt of written
notice from Supplier specifying such failure to pay in full or (ii) for any
other material breach of this Agreement by Distributor which Distributor fails
to cure within thirty (30) days following written notice from Supplier to
distributor specifying such breach.
12 Termination by Distributor. Distributor may terminate this Agreement and the
licenses granted hereunder with or without cause at any time upon thirty (30)
days' written notice to Supplier.
12. Effect of Termination.
12.1 Reversion of Rights. Except as set forth below, in the event of termination
of this Agreement for any cause, all rights granted to Distributor hereunder
automatically revert to Supplier.
12.2 Surviving Obligations. The following Sections shall survive termination of
this Agreement for any cause: 1(b), 3, 7, 9, 10, and 12-18. Termination or
expiration of this Agreement shall not affect any other rights of either party
which may have accrued up to the date of such termination or expiration.
12.3 Required Actions of Distributor. Upon termination or expiration of this
Agreement, Distributor shall: (i) cease, and cause all Third party Resellers to
cease, marketing and distributing any product incorporating the Software and
refrain thereafter from representing itself as a distributor of the Software or
using any Supplier trademark (if such use had been permitted); (ii) return to
Supplier or immediately destroy all stationery, advertising materials and other
printed material in its or any of its Third Party Resellers' possession or under
its control containing or bearing any Supplier trademark; (iii) take all
appropriate steps to remove and cancel its listing in telephone books,
directories, public records or elsewhere, which state or indicate that
Distributor or any of its Third Party Resellers is a distributor of the
Software; and (iv) return to Supplier all Confidential Information and other
materials received from Supplier and all copies thereof.
<PAGE>
12.4 Retained Copy for Support. Notwithstanding the foregoing, Distributor may
retain one copy of the Software and use such copy solely for the purpose of
providing support to end users of the Product.
12.5 Right to Distribute Stock on Hand. Notwithstanding the foregoing, upon
termination of this Agreement for any cause other than a breach by Distributor,
Distributor shall notify Supplier of the number of units of Product Distributor
has in stock at the time of such termination. Provided that Supplier receives
such notification within ten (10) days after such termination, Distributor shall
have the right to distribute such stock on hand for a period of six (6) months,
subject to the payment of license fees pursuant to Section 3 hereof and any
other amounts due hereunder. At the end of such six (6) month period, or, if
Supplier does not receive such notification within ten (10) days after
termination, or, if the Agreement was terminated due to Distributor's breach, at
the end of such ten (10) day period, Distributor shall destroy all copies of all
Products incorporating the Software and all copies of the Software within its
possession or control (except as provided in Section 12.4 hereof) and shall
promptly notify Supplier in writing of such destruction.
13. Independent Parties.
The parties are independent contractors. Neither party is an employee, agent,
co-venturer or legal representative of the other party for any purpose. Neither
party shall have the authority to enter into any contracts in the name of or on
behalf of the other party.
14. Governing Law.
This Agreement is made in accordance with and shall be governed and construed
under the laws of the State of California, excluding its choice of law rules and
excluding the 1980 United Nations Convention on Contracts for the International
Sale of Goods. In any legal action relating to this Agreement, Distributor
agrees to the exercise of jurisdiction over it by a state or federal court in
the County of Marin, California, and to such venue.
15. Notice.
All notices, including notices of address change, required or permitted to be
given under this Agreement shall be in writing and shall be deemed to have been
received (a) when received if hand delivered, (b) five (5) days after being sent
by first class U.S. mail, (c) two (2) business days after being sent by express
mail or (d) when received if sent by confirmed telecopy, in each case addressed
to the first address set forth above or such other address as the parties may
designate.
<PAGE>
16. Nonassignability; Binding on Successors.
Any attempted assignment of its rights or delegation of its obligations under
this Agreement, whether by operation of law or otherwise, by Distributor shall
be void without the prior written consent of Supplier, which shall not be
unreasonably withheld. A change of ownership of Distributor shall be deemed an
assignment. This Agreement shall be binding upon, and inure to benefit of, the
successors, executors, heirs, representatives, administrators and permitted
assigns of the parties hereto.
17. Force Majeure.
Neither party shall be liable to the other for its failure to perform any of its
obligations under this Agreement, except for payment obligations, during any
period in which such performance is delayed because rendered impracticable or
impossible due to circumstances beyond its reasonable control, including without
limitation earthquakes, governmental regulation, fire, flood, labor
difficulties, civil disorder, and all acts of God, provided that the party
experiencing the delay promptly notifies the other party of the delay.
18. Miscellaneous.
18.1 Severability. In the event any provision of this Agreement is held to be
invalid or unenforceable, such provision shall be changed and interpreted so as
to best accomplish the objectives of the original provision to the fullest
extent allowed by law and the remaining provisions of this Agreement will remain
in full force and effect.
18.2 Waiver. Any waiver (express or implied) by either party of any breach of
this Agreement shall not constitute a waiver of any other or subsequent breach.
18.3 Purchase Orders. This Agreement alone sets forth Distributor's rights with
respect to the Software. All different or additional terms or conditions in any
Distributor purchase order or similar document shall be null and void.
18.4 Government Restricted Rights. For U.S. government users, the Software and
any related documentation are deemed to be "commercial computer software" and
"commercial computer software documentation", respectively, pursuant to DFAR
Section 227.7202 and FAR Section 12.212, as applicable. Any use, modification,
reproduction, release, performing, displaying or disclosing of the Software
and/or any related documentation by the U.S. Government shall be governed solely
by the terms of this Agreement and shall be prohibited except to the extent
expressly permitted by the terms of this Agreement.
18.5 Entire Agreement, Amendment. This Agreement and the Exhibits attached
hereto constitute the final, complete and exclusive agreement between the
parties and supersede all pervious or contemporaneous agreements or
representations, written or oral, with respect to the subject matter of this
Agreement. This Agreement may not be modified or amended except in a writing
signed by a duly authorized representative of each party.
P
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be
signed and delivered by its duly authorized officer or representative as of the
date first set forth above.
SUPPLIER DISTRIBUTOR
Artifex Software Inc. Prism Software Corporation
By: /s/ Miles Jones By: /s/ Ted Daniels
------------------------ -------------------------
Name: Miles Jones Name: Ted Daniels
Title: President Title: President
Date: 5/16/97 Date: 5/13/97
Exhibit A
General Description of the Software
- -----------------------------------
The Software licensed under the present agreement includes:
- - An interpreter that is compatible with the PostScript (TM) language;
- - A library of C procedures that implement the graphics capabilities that appear
as primitive operations in the PostScript language;
- - A set of scalable outline fonts in PostScript Type 1 format, compatible in
appearance and metrics with the fonts commonly distributed under the following
names:
Bookman {Demi, Demi Italic, Light, Light Italic}
Courier {plain, Oblique, Bold, Bold Oblique}
Avant Garde {Book, Book Oblique, Demi, Demi Oblique}
Helvetica {plain, Oblique, Bold, Bold Oblique, Narrow, Narrow Oblique,
Narrow Bold, Narrow Bold Oblique}
Palatino {Roman, Italic, Bold, Bold Italic}
New Century Schoolbook {Roman, Italic, Bold, Bold Italic}
Times {Roman, Italic, Bold, Bold Italic}
Symbol
Zapf Chancery Medium Italic
Zapf Dingbats
Except as noted in the detailed documentation accompanying the Software, the
Software is intended to execute properly any source program that conforms to the
definition of the Level 2 PostScript Language as presented in the December 1990
printing of the PostScript Language Reference Manual (Second Edition) published
by Addison-Wesley.
<PAGE>
The initial version of the Software delivered to Distributor shall be version
4.03.
Trademarks
- ----------
Supplier has registered the trademark Artifex in connection with its products
and services. Supplier has trademarked the name Artifex RIPSet for the Software.
A non-commercial version of the Software is commonly known under the trade name
Ghostscript or Aladdin Ghostscript, Supplier may also use this name internally
for the Software.
Copyright Notices
- -----------------
Portions Copyright (C) 1988, 1997 Aladdin Enterprises. All rights reserved.
Portions Copyright (c) 1993 Soft Horizons. All rights reserved.
- -------------------------------------------------
PostScript is a trademark of Adobe Systems, Incorporated.
<PAGE>
Exhibit B
Description of the Product
- --------------------------
The Product(s) is named "Print Manager" and is used as a description of a family
of products. These products provide in part a PostScript conversion and print
management for Xerox printers. The product(s) take in print data streams,
including but not limited to PostScript files, and convert them to Xerox DJDE,
metacode, Xerox IMG formats, industry standard file formats such as TIFF, BMP
and CCITT or Xerox form based files.
The Software module provided by the Supplier is used to interpret the PostScript
data files and present it to the Product(s) in an image or other format that can
be converted by the Distributor into Xerox metacode, IMG, FRM or other industry
standard formats. The Product(s) as a family are differentiated by the operating
system that they run upon such as, but not limited to DOS, Windows 95 or NT,
VMS, OS2 etc. Each product in the "Print Manager" family will be a separate and
distinct "Product" as defined in the preamble of this agreement.
<PAGE>
Exhibit C
END USER NOTICES
TERMS OF END USER SUBLICENSES
All end user license agreement for the Product will contain at a minimum the
following terms:
(1) Only a personal, nontransferable, and nonexclusive right to use the Product
is granted to such end user;
(2) Artifex Software Inc. retains all title to the Software as incorporated in
the Product, and all copies thereof, and no title to the Software, or any
intellectual property in the Software, is transferred to such end user;
(3) The end user may not copy (i) the Product, except for one (1) copy for
backup or archival purposes only and only as necessary to use the Product; or
(ii) any documentation accompanying the Product. All such copies are the
proprietary information of distributor and its licensors and suppliers and are
subject to their copyrights;
(4) The end user agrees not to reverse engineer; decompile, or otherwise attempt
to derive source code from the Product;
(5) Artifex Software Inc. is an intended third party beneficiary of the end user
sublicense and is entitled to enforce it in its own name directly against the
end user;
(6) ARTIFEX SOFTWARE INC. WILL NOT BE LIABLE TO THE END USER FOR ANY GENERAL,
SPECIAL, DIRECT, INDIRECT, CONSEQUENTIAL, INCIDENTAL, OR OTHER DAMAGES ARISING
OUT OF THE LICENSE OF THE PRODUCT EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES;
(7) Upon termination of the license, the end user will return all copies of the
Product to Distributor;
(8) Use, duplication or disclosure of the Product by the U.S. Government is
subject to "Restricted Rights", as that term is defined in the Department of
Defense ("DOD") Supplement to the Federal Acquisition Regulations ("DFARS") in
paragraph 252.227-7013(c)(1) if to the DOD, or, if the Product is supplied to
any unit or agency of the U.S. Government other than DOD, the Government's
rights in the Product will be as defined in paragraph 52.227-19(c)(2) of the
Federal Acquisition Regulations ("FAR"). Use, duplication or disclosure by any
foreign government is subject to equivalent restrictions as defined in that
country's laws and/or regulations.
<PAGE>
(9) Artifex Software Inc. makes no warranties, express, implied or statutory,
regarding the Product and the Software, including without limitation the implied
warranties of merchantability and fitness for a particular purpose, or their
equivalent under the laws of any jurisdiction.
Artifex Software Inc. may be referred to as Distributor's license or supplier.
The notices in paragraph (2), (4), (6) and (9), shall be in bold, capital
letters and be conspicuous to end users.
Exhibit D
D-1. Right to Sublicense.
Distributor may not sublicense the rights granted by this Agreement.
D-2. Marking of Copies.
Subject to Distributor's payment obligations hereunder, no identification of
individual copies is required under this Agreement.
D-3. Fees, Payment, Reports, and Records.
D-3.1. Fees.
(a) Per Unit License Fee. For each unit of the Product incorporating the
Software sold by or on behalf of Distributor or its sublicensees hereunder,
Distributor shall pay to Supplier at Supplier's principal place of business
(without deduction or offset except as authorized by Supplier) the amount of (i)
ten percent (10%) of Distributor's selling price of the corresponding unit of
Product, or $200, whichever is greater, or (ii) $1,000, whichever is less. In
the case of a Product sold through a Third Party Reseller, the "selling
price(s)" shall be the unit price(s) paid to Distributor or sublicense by such
Third Party Resellers. Such prices are exclusive of, and Distributor shall pay
for, shipping, any sales, use, property, value added or similar taxes, federal,
state, or local, or other charges imposed on or with respect to the Software or
its delivery, use or possession, except taxes based upon the net income of
Supplier.
(b) Prepaid License Fees. There is no prepaid license fee due under this
Agreement.
(c) Major Version Fee. Distributor shall receive new Major Versions without
additional charge.
(d) Continued Support Fee. For each quarter of Continued Support, Distributor
shall pay Supplier the amount of $2,000. In the event that Distributor has paid
Supplier in excess of $10,000 in license fees under Section D-3.1(a) within the
previous two (2) quarters, the Continued Support Fee for the then-current
quarter shall be waived.
(e) Technology Access Fee. Distributor agrees to pay Supplier the amount of
$8,000 as a technology access fee; this amount shall be due and payable in four
payments per the following schedule:
The first payment of $1,000 is due as of the effective date of the
present Agreement.
<PAGE>
The second payment of $1,000 is due as of 30 days after the effective
date of the present Agreement.
The third payment of $3,000 is due as of 60 days after the effective
date of the present Agreement.
The fourth and final payment of $3,000 is due as of 90 days after the
effective date of the present Agreement.
D-3.2 Payment.
(a) Fee Due Date. The license fee for a given unit of the Software shall be
incurred when Distributor receives notice that the corresponding unit of the
Product has been sold, or when Distributor receives payment for the
corresponding unit of the Product, whichever is sooner.
(b) Quarterly Payment. Within 30 days after the end of each calendar quarter,
Distributor shall pay Supplier all license fees incurred during that quarter per
subsection (a) immediately above, less credit for any amounts actually paid by
Distributor within that quarter for returned units of the product unless
Supplier agrees to other terms in advance in writing.
(c) Payment Currency and Instrument. All payments hereunder shall be in U.S.
dollars, by check drawn on a U.S. bank.
D-3.3. Reports.
Payment of license fees shall be accompanied by a report which sets forth on a
month-by-month basis the total number of units of the Product distributed by
Distributor, its sublicensees, and their Third Party Resellers during such
quarter by each U.S. state or country, or as may otherwise be agreed to in
writing between Distributor and Supplier, and all amounts due under Section
D-3.1 above, along with the basis for Distributor's calculation thereof. If the
Product is sold at more than one price, or the price for the Product, and hence
the amounts due Supplier, changed during the quarter, the report shall set forth
the number of units to which each different price applies.
D-3.4. Records.
Distributor shall keep accurate books and records of all units of the Software
made and distributed hereunder. Upon 2 business days' notice, Supplier shall
have the right to audit and make extracts from such books and records, at
Supplier's expense, at most twice in each 12-month period. In the event that any
audit reveals an underpayment to Supplier of more than 5% of the license fees
payable during the period subject to audit, Distributor shall pay the cost of
the audit in addition to the amounts due.
<PAGE>
Exhibit E
(Upgrades and support)
E-1. Upgrades.
(a) Version Numbering. From time to time, Supplier may release new versions of
the Software. Each version shall be identified by three integers A.B.C or two
integers A.B (equivalent to A.B.0). The integer A identifies the "Major Version"
of the Software; the integer B identifies the "Minor Version"; the integer C
identifies the "Incremental Version". Successive Incremental Versions denote bug
fixes or minor improvements with no significant changes in specification;
successive Minor Versions denote significant new features within the framework
of an existing specification; successive Major Versions denote architectural
changes in or additions denote architectural changes in or additions to the
specification.
(b) New Versions. Supplier shall notify Distributor promptly when a new version
becomes available. At Distributor's request, Supplier shall deliver the new
version to Distributor. For new Incremental and Minor versions, Distributor will
have the same rights with respect to the new version as with respect to the
version(s) delivered previously at no additional charge. For new Major Versions,
Distributor may evaluate the new version internally for a period of 60 days at
no charge; after that time, Distributor shall either destroy or return all
copies of the new version to Supplier, or pay Supplier an amount or amounts
specified in Section D-3.1(c) of Exhibit D hereto, in exchange for which
Distributor will have the same rights with respect to the new Major Version as
with respect to the version(s) delivered previously.
E-2. Support and Engineering Services.
(a) Definition of Support. "Support" under this Agreement means Supplier using
its commercially reasonable efforts to fix documented and reproducible failures
of the Software to perform as specified in its written specifications. Supplier
shall have no other support obligation to Distributor in connection with the
Software.
(b) Intentionally omitted.
(c) Continued Support. For each calendar quarter in which Distributor wishes
Supplier to provide Support ("Continued Support"), Distributor shall pay
Supplier the Continued Support Fee specified in Section D-3.1(d) of Exhibit D
hereto. This support fee shall be payable at the end of the quarter before the
quarter in which Continued Support is desired. Supplier shall have no obligation
to provide Continued Support until it receives the Continued Support Fee.
(d) Support for Previous Major Versions. Supplier shall cease providing Support
for any Major Version of the Software one year after Supplier has released a
subsequent Major Version.
(e) Engineering Services. Supplier shall have no obligation hereunder to provide
Distributor with engineering services other than the Support set forth above.
<PAGE>
FIRST OEM AMENDMENT
This First Amendment ("Amendment") is made and entered into as of the 4th day of
June, 1998 by and between Artifex Software Inc., with its principal place of
business located at San Rafael, California ("Supplier"), and, Prism Software
with its principal place of business located at 23696 Birtcher, Lake Forest, CA
92630 ("Distributor").
The text of this Amendment shall consist of the text of the existing OEM
Agreement of May 13, 1997 between Artifex Software Inc. "Supplier" and Prism
Software "Distributor", with the following exceptions:
In Exhibit A under 'Copyright Notices' please add the following sentence:
"This software is based in part on the work of the Independent JPEG Group."
All other terms and conditions of the existing OEM Agreement shall apply to the
licensing of Ghostscript (the Software).
IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be
signed and delivered by its duly authorized officer or representative as of the
date first set forth above.
SUPPLIER DISTRIBUTOR
Artifex Software Inc..
By: /s/ Miles Jones By: /s/ Ted Daniels
------------------------ ---------------------------
Name: Miles Jones Name: Ted Daniels
Title: President Title: President
Date: 6/18/98 Date: 6/22/98
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