<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1998.
OR
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934. FOR THE TRANSITION PERIOD FROM
TO .
COMMISSION FILE NUMBER
0-21421
UOL PUBLISHING, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 54-1290319
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
8251 GREENSBORO DRIVE, SUITE 500, MCLEAN, VIRGINIA 22102
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (703) 893-7800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<S> <C>
COMMON STOCK, $0.01 PAR VALUE 3,826,357 SHARES
(Class) (Outstanding at August 14, 1998)
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues:
Instructor-led training revenues....... $ -- $ 1,428,723 $ -- $ 3,102,540
Product sales revenues................. 732,206 877,005 824,163 1,827,211
Other service revenues................. 81,108 594,960 176,292 1,160,611
Online tuition revenues................ 272,839 258,177 404,093 530,382
Virtual campus software revenues....... 750,000 834 1,125,000 43,334
Development and other revenues......... 680,623 267,772 1,188,268 364,253
----------- ----------- ----------- ------------
Net revenues............................. 2,516,776 3,427,471 3,717,816 7,028,331
Costs and expenses:
Cost of revenues....................... 283,067 2,393,360 402,442 4,976,259
Sales and marketing.................... 826,370 1,636,766 1,534,184 3,267,324
Product development.................... 1,012,228 1,796,146 2,194,952 4,512,765
General and administrative............. 353,848 648,188 736,128 2,548,701
Depreciation and amortization.......... 154,648 590,389 245,754 1,223,554
Acquired in-process research,
development and content............. 2,700,000 -- 2,700,000 --
Reorganization costs................... -- 928,870 -- 1,396,510
----------- ----------- ----------- ------------
Total costs and expenses................. 5,330,161 7,993,719 7,813,460 17,925,113
----------- ----------- ----------- ------------
Loss from operations..................... (2,813,385) (4,566,248) (4,095,644) (10,896,782)
Interest income (expense)................ 134,597 (165,018) 320,825 (294,870)
----------- ----------- ----------- ------------
Net loss................................. $(2,678,788) $(4,731,266) $(3,774,819) $(11,191,652)
=========== =========== =========== ============
Net loss per share....................... $ (0.84) $ (1.24) $ (1.18) $ (2.93)
=========== =========== =========== ============
Net loss per share -- assuming
dilution............................... $ (0.84) $ (1.24) $ (1.18) $ (2.93)
=========== =========== =========== ============
</TABLE>
See accompanying notes.
2
<PAGE> 3
UOL PUBLISHING, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1997 1998
------------ ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 2,705,490 $ 2,246,154
Accounts receivable, less allowance of approximately
$739,000 and $1,779,000 at December 31, 1997 and June
30, 1998, respectively................................. 4,413,170 3,325,929
Loans receivable from related parties..................... 133,516 164,504
Prepaid expenses and other current assets................. 481,516 265,737
------------ ------------
Total current assets........................................ 7,733,692 6,002,324
Property and equipment, net................................. 2,809,619 2,897,665
Capitalized software costs and courseware development costs,
net....................................................... 2,354,159 2,080,414
Acquired online publishing rights, net...................... 845,000 574,560
Other assets................................................ 358,208 334,881
Goodwill and other intangible assets, net................... 12,364,554 12,060,530
------------ ------------
Total assets................................................ $ 26,465,232 $ 23,950,374
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses..................... $ 6,398,488 $ 6,312,216
Notes payable -- current portion.......................... 4,551,950 4,845,644
Deferred revenues......................................... 572,390 866,127
------------ ------------
Total current liabilities................................... 11,522,828 12,023,987
Notes payable, less current portion....................... 1,531,121 685,978
------------ ------------
Total liabilities........................................... 13,053,949 12,709,965
------------ ------------
Stockholders' equity:
Series C convertible Preferred Stock, $0.01 par value per
share:
1,000,000 shares authorized; no shares issued and
outstanding at December 31, 1997; 626,293 shares
issued and outstanding at June 30, 1998.............. -- 6,263
Series D convertible Preferred Stock, $0.01 par value per
share:
1,200,000 shares authorized; no shares issued and
outstanding at December 31, 1997; 1,082,625 shares
issued and outstanding at June 30, 1998.............. -- 10,826
Common Stock, $0.01 par value per share; 36,000,000 shares
authorized; 3,785,210 and 3,825,587 shares issued and
outstanding at December 31, 1997 and June 30, 1998,
respectively........................................... 37,852 38,256
Additional paid-in capital................................ 40,901,196 52,124,466
Preferred Stock subscribed................................ -- (2,219,985)
Accumulated deficit....................................... (27,527,765) (38,719,417)
------------ ------------
Total stockholders' equity.................................. 13,411,283 11,240,409
============ ============
Total liabilities and stockholders' equity.................. $ 26,465,232 $ 23,950,374
============ ============
</TABLE>
See accompanying notes.
3
<PAGE> 4
UOL PUBLISHING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1997 1998
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................... $(3,774,819) $(11,191,652)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................. 252,108 1,549,074
Non-monetary transaction revenues......................... (315,000) --
Acquired in-process research, development and content..... 2,700,000 --
Net write-off of acquired online publishing rights........ -- 241,000
Net write-off of capitalized courseware development
costs.................................................. -- 502,669
Stock option and stock warrant compensation............... 54,350 --
Increase in allowance for doubtful accounts............... -- 1,039,991
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable............. (1,419,516) 47,250
(Increase) decrease in prepaid expenses and other
current assets........................................ (534,753) 215,779
(Increase) decrease in other assets.................... (3,816) 23,327
Increase (decrease) in accounts payable and accrued
expenses.............................................. (181,142) 301,127
Increase (decrease) in accrued interest................ -- 59,315
Increase (decrease) in deferred revenues............... 53,774 293,737
----------- ------------
Net cash used in operating activities....................... (3,168,814) (6,918,383)
INVESTING ACTIVITIES
Purchases of property and equipment......................... (619,407) (601,767)
Capitalized software and courseware development costs....... (438,387) (525,002)
Acquisitions of businesses, net of cash acquired............ (3,214,435) --
Additions to intangible assets.............................. (219,977) (355,810)
Advances under loans receivable from related parties........ -- (30,988)
----------- ------------
Net cash used in investing activities....................... (4,492,206) (1,513,567)
FINANCING ACTIVITIES
Proceeds from exercises of stock warrants and options....... -- 75,922
Proceeds from Series C convertible Preferred Stock.......... -- 5,244,824
Proceeds from Series D convertible Preferred Stock.......... -- 2,895,561
Adjustment of expenses related to the initial public
offering.................................................. 11,225 --
Proceeds from short-term debt............................... 157,500 1,594,902
Repayments of short-term borrowings......................... (83,068) (1,838,595)
----------- ------------
Net cash provided by (used in) financing activities......... 85,657 7,972,614
----------- ------------
Net increase (decrease) in cash and cash equivalents........ (7,575,363) (459,336)
Cash and cash equivalents at the beginning of the period.... 15,474,030 2,705,490
----------- ------------
Cash and cash equivalents at the end of the period.......... $ 7,898,667 $ 2,246,154
=========== ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................... $ 9,309 $ 188,165
=========== ============
</TABLE>
See accompanying notes.
4
<PAGE> 5
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for any future period, including the year ending
December 31, 1998. For further information, refer to the audited financial
statements and footnotes thereto included in the UOL Publishing, Inc. ("UOL" or
the "Company") Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
REVENUE RECOGNITION
The Company derives its revenues from the following sources -- instructor-
led training revenues, product sales revenues, other service revenues, online
tuition revenues, virtual campus ("VCampus") software revenues, and development
and other revenues.
Revenues for instructor-led training and other services are recognized as
the services are delivered.
The Company recognizes product sales revenues, online tuition revenues and
virtual campus software revenues in accordance with Statement of Position 97-2,
"Software Revenue Recognition" ("SOP 97-2"). The Company recognizes revenues
from product sales upon delivery of the product to the customer, provided no
significant obligations remain. The costs of remaining Company obligations
(which are insignificant) are accrued when the related revenues are recognized.
For online tuition fees, revenue is recognized at the time the student has
accessed the selected course and is contractually obligated to pay for the
course or the drop/add period (for academic partners) has expired. For online
tuition fees purchased in bulk and virtual campus software revenues (which are
derived from sales of VCampus licenses) the Company recognizes revenue ratably
over the period during which customers are entitled to use the courseware and
the duration of the VCampus licenses, respectively.
Development and other revenues earned under courseware conversion contracts
are recognized using the percentage-of-completion method. For these contracts,
revenues are recognized based on the ratio that total costs incurred to date
bear to the total estimated costs of the contract. Provisions for losses on
contracts are made in the period in which they are determined.
During the three months ended June 30, 1997, one customer individually
represented 16.7% of net revenues. During the three months ended June 30, 1998,
no individual customer represented more than 10% of net revenues.
CAPITALIZED SOFTWARE COSTS
Through March 31, 1997, the Company expensed its software development costs
as incurred because realizability of capitalizing such costs had not been
established. During the three months ended June 30, 1997, the Company began
capitalizing certain software development costs. Capitalization of software
costs began upon the establishment of technological feasibility, which
management deemed to have occurred upon the completion of a working model of the
Company's VCampus product. The establishment of technological
5
<PAGE> 6
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
feasibility and the ongoing assessment of recoverability of capitalized software
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technology. Amortization of such costs is based on the
greater of (a) the ratio of current gross revenues to the sum of current and
anticipated gross revenues, or (b) the straight-line method over the remaining
economic life of the VCampus, typically five years. It is possible that those
estimates of future gross revenues, the remaining economic life of the products
or both may be reduced as a result of future events. In January 1998, the
Company determined that the estimated useful economic life of the VCampus was
three years and began amortizing its VCampus product development costs over such
period.
CAPITALIZED COURSEWARE DEVELOPMENT COSTS
Through March 31, 1997, the Company expensed its courseware development
costs as incurred because realizability of capitalizing such costs had not been
established. During the three months ended June 30, 1997, the Company began
capitalizing certain courseware development costs. Capitalization of courseware
development costs began upon the establishment of technological feasibility,
which management deemed to have occurred upon the completion of a working model
of the relevant courseware. The establishment of technological feasibility and
the ongoing assessment of recoverability of capitalized courseware development
costs requires considerable judgment by management with respect to certain
external factors, including, but not limited to, technological feasibility,
anticipated future gross revenues, estimated economic life and changes in
software and hardware technology. Amortization of such costs is based on the
greater of (a) the ratio of current gross revenues to the sum of current and
anticipated gross revenues, or (b) the straight-line method over the remaining
economic life of the product, typically two to four years. It is possible that
those estimates of future gross revenues, the remaining economic life of the
products or both may be reduced as a result of future events.
In March 1998, the Company wrote off approximately $500,000 of courseware
development costs for courses within certain industry segments that the Company
does not anticipate pursuing in the immediate future or courses that have not
shown meaningful activity during a three- to six-month publication period.
ACQUIRED ONLINE PUBLISHING RIGHTS
During 1997, the Company acquired rights to publish certain courseware in
an online format. In most cases, this courseware, at the time of licensing to
the Company, was in a non-online format, i.e., CD-ROM, diskette or printed
formats. The Company capitalizes the costs to acquire this content. The Company
amortizes acquired online publishing rights based on the greater of (a) the
ratio of current gross revenues to the sum of current and anticipated gross
revenues, or (b) the straight-line method over the remaining economic life of
the product, typically two to four years. Amortization begins when the online
course becomes available for sale.
In March 1998, the Company wrote off approximately $250,000 of acquired
online publishing rights to courses belonging to certain industry segments that
the Company does not anticipate pursuing in the immediate future.
IMPAIRMENT OF LONG-LIVED ASSETS
At each balance sheet date, management determines whether any property and
equipment or any other assets have been impaired based on the criteria
established in SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and Long-Lived Assets to be Disposed of." The Company made no adjustments to its
assets during the three months ended June 30, 1998.
6
<PAGE> 7
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During the three months ended March 31, 1998, the Company wrote off
approximately $500,000 in capitalized courseware development costs and
approximately $250,000 in capitalized acquired online publishing rights. (See
Note B)
CONCENTRATION OF CREDIT RISK
The Company performs ongoing credit evaluations of its customers' financial
condition and generally does not require collateral. The Company maintains
reserves for credit losses. As of June 30, 1998, management deemed such reserves
to be adequate.
During the three months ended March 31, 1998, the Company increased its
allowance for doubtful accounts to approximately $1,814,000 in order to reserve
for certain receivables for which collection became doubtful as of the March 31,
1998 balance sheet date.
COSTS OF REVENUES
Costs of instructor-led training revenues and other service revenues
consist primarily of the salaries and other related costs for instructors and
consulting personnel, as well as rent and related costs for the training
facilities.
Costs of product sales revenue consist of the production and shipping costs
to create and distribute the diskettes and other education material (manuals,
etc.).
Costs of online tuition revenues include costs related to the amortization
of capitalized courseware development costs, royalties to content providers, and
salaries, communication and other costs associated with operating and
maintaining the Company's servers.
Costs of VCampus software revenues include software development costs
involved in configuring the VCampus model to specific parameters requested by
the customer, costs related to the amortization of capitalized software
development costs, and salaries, communication and other costs associated with
operating and maintaining the Company's servers.
Costs of development and other revenues include the salaries and other
related personnel costs for the employees who develop online courses that are
proprietary in nature to a specific customer.
ROYALTIES
The Company has royalty arrangements with certain entities that have
provided development funding. Royalties will become due and payable by the
Company upon the completion and sale of products currently under development.
Additionally, royalties will become due and payable by the Company upon the sale
of those courses in which the Company acquired the online content rights.
Royalties due could be as great as 50% of the tuition related to that course. No
significant royalty obligations have been incurred to date.
NOTE C -- ACQUISITIONS
The following transactions were accounted for using the purchase method.
Accordingly, the purchase price was allocated to the assets acquired based on
their estimated fair values, and each of the subsidiaries' operating results
have been included in the Company's financial statements since the respective
acquisition date.
IVY SOFTWARE, INC.
In March 1997, the Company acquired Ivy Software, Inc. ("Ivy"), a Virginia
corporation that develops and distributes business and accounting software for
the academic education market, for $314,000 in cash and
7
<PAGE> 8
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
potential future payments not to exceed approximately $862,000, which are based
upon integration of operations, conversion of software and operating results. In
connection with this transaction, the President and sole shareholder of Ivy
entered into a three-year consulting agreement with the Company. In conjunction
with the acquisition, the Company recorded goodwill in the amount of $300,000,
which was subsequently adjusted to $869,643 upon scheduled payments to the
former shareholder of Ivy.
COOPER & ASSOCIATES, INC. (D/B/A TELETUTOR)
In April 1997, the Company acquired Cooper & Associates, Inc., d/b/a
Teletutor ("Teletutor"), an Illinois corporation that develops, distributes and
supports computer-based training courses for the data and telecommunications
industry. The terms of the transaction included a $3,000,000 cash payment at
closing and $2,000,000 (which includes principal payments and interest) to be
paid in three ratable installments, on the first, second and third anniversary
dates of the acquisition. During the three months ended June 30, 1998, the
Company made the first scheduled payment to the former shareholders of Teletutor
in the amount of $666,667. In conjunction with this acquisition, the Company
allocated the excess of the purchase price over the fair market value of the
acquired net assets as follows: (i) $829,575 to developed content, $273,858 to
workforce, $456,875 to trademarks and names, $456,875 to customer base and
contracts and $5,138 to goodwill and (ii) $2,700,000 to acquired in-process
research, development and content.
The Company's management, in accordance with its impairment policy for
long-lived assets, determined that the Teletutor employee workforce asset had
been impaired as of December 31, 1997 due to planned workforce reductions. As a
result, the Company wrote-off the carrying amount of the asset, which was
approximately $250,000. This amount was included in reorganization and
non-recurring expenses in the statements of operations for the year ended
December 31, 1997.
HTR, INC.
In October 1997, the Company acquired HTR, Inc. ("HTR"), a Delaware
corporation primarily engaged in the business of providing technical training,
publishing and consulting services for the information technology industry. UOL
acquired HTR for common stock, warrants and options totaling 620,000 shares in
exchange for all of the outstanding equity securities of HTR. In addition, UOL
paid the former HTR stockholders $600,000 in a combination of cash and
short-term notes and assumed approximately $3,500,000 of HTR debt. The executive
officers of HTR will receive bonuses granted in conjunction with the signing of
three-year employment agreements no later than December 31, 1998. As of June 29,
1998, the executive officers of HTR agreed to convert approximately $420,000 of
their sign-on bonuses and $320,000 of acquisition related indebtedness into
134,447 shares of UOL Series D convertible Preferred Stock. In addition, UOL
created a stock option pool of 180,000 shares of Common Stock and an incentive
bonus pool with a potential payout not to exceed approximately $3,300,000 for
three years, contingent upon the financial performance of HTR. In May 1998, the
Company's Board of Directors repriced the 180,000 options from $23 to $13 per
share, in consideration for amendments to the employment agreements between the
Company and each of the HTR executive officers pursuant to which the incentive
bonus pool was reduced from a maximum of $3,300,000 to a maximum of $1,500,000
over three years. In conjunction with this acquisition, the Company allocated
the excess of the purchase price over the fair market value of the acquired net
assets as follows (i) $8,010,590 to goodwill, $700,000 to developed content,
$500,000 to workforce, $600,000 to trademarks and names, and (ii) $8,400,000 to
acquired in-process research, development and content.
NOTE D -- EQUITY TRANSACTIONS
In March 1998, the Company raised approximately $5,300,000 in a private
placement of its Series C convertible Preferred Stock and warrants (the "Series
C Private Placement"). In this transaction, the Company issued 626,293 shares of
its Series C Preferred Stock, which are convertible into approximately
8
<PAGE> 9
UOL PUBLISHING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
759,100 shares of Common Stock. The Company also issued five-year warrants to
purchase 626,293 shares of Common Stock at an exercise price of $8.46 per share
(the five-day average of closing bid prices calculated prior to the closing of
the transaction). The Series C convertible Preferred Stock has a liquidation
preference of $12.69 per share upon sale or liquidation of the Company. The
Company Stock underlying both the Series C convertible Preferred Stock and the
warrants has certain registration rights. In June 1998, the Company raised
approximately $5,200,000 in a private placement of its Series D convertible
Preferred Stock (the "Series D Private Placement"). In this transaction, the
Company issued 1,082,625 shares of its Series D convertible Preferred Stock,
which are convertible into Common Stock on a one-to-one ratio. 137,174 of such
shares and 5,194 shares of UOL Common Stock were issued in connection with the
conversion of approximately $805,000 of indebtedness mainly to certain former
shareholders of HTR. The non-cash portion of this transaction has been excluded
from the consolidated statements of cash flows.
NOTE E -- NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net
loss per share:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- --------------------------
1997 1998 1997 1998
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Numerator:
Net loss................................. $(2,678,788) $(4,731,266) $(3,774,819) $(11,191,652)
=========== =========== =========== ============
Denominator:
Denominator for basic earnings per
share -- weighted-average shares....... 3,186,167 3,822,299 3,186,167 3,816,898
=========== =========== =========== ============
Denominator for diluted earnings per
share -- adjusted weighted-average
shares................................. 3,186,167 3,822,299 3,186,167 3,816,898
=========== =========== =========== ============
Basic net loss per share................. $ (0.84) $ (1.24) $ (1.18) $ (2.93)
=========== =========== =========== ============
Diluted net loss per share............... $ (0.84) $ (1.24) $ (1.18) $ (2.93)
=========== =========== =========== ============
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Statements in this Form 10-Q that are not descriptions of historical facts
are forward-looking statements that are subject to risks and uncertainties.
Actual results could differ materially from those currently anticipated due to a
number of factors, including those set forth herein and in the Company's other
SEC filings, and including, in particular, the availability of sufficient
capital to finance the Company's business plan on terms satisfactory to the
Company, risks and uncertainties relating to dependence on strategic partners
and third party relationships, management of rapid growth, dependence on online
distribution, the risks and the Company's payment obligations relating to
acquisitions, security risks, government regulations, regulatory filings and
competition.
OVERVIEW
The Company believes that it is a leading publisher of high quality,
interactive and on-demand courseware for the corporate training and education
market. The Company offers its online courseware primarily through its
proprietary virtual campus product, or VCampus, an online courseware delivery
system and environment that facilitates development, management and
administration of training and education over the Internet and intranets.
Through its HTR, Teletutor and Ivy subsidiaries, the Company also offers
courseware through more traditional media, including on-site and classroom
training, diskette, CD-ROM and printed formats.
9
<PAGE> 10
The Company was formed in 1984 as IMSATT Corporation, a multimedia research
and development company. In 1991, the Company acquired from Control Data certain
rights to resell the CYBIS online courseware, which consisted primarily of
courses in language arts, mathematics, social studies, science, business and a
variety of technical subjects. In 1993, the Company modified its business focus
to capitalize on market opportunities for online education resulting from
technological advances relating to the Internet. Subsequently, the Company
raised additional financing and focused its development efforts on migrating its
technology to the Web in preparation for the launch of its first Web-based
course in November 1995. Under the current business model, UOL's revenues are
derived from five primary sources: instructor-led training revenues; product
sales revenues; other service revenues; online tuition revenues; and other
service revenues. Instructor-led training revenues are generated from on-site
and classroom training fees. Product sales revenues are derived from the sale of
computer-based training ("CBT") courses that are delivered through traditional
CBT format (e.g. CD-ROM). Other service revenues consist primarily of monthly
fees generated by the licensing and maintenance of the CYBIS courseware under
the Control Data subcontracts and from consulting services. Online tuition
revenues are generated primarily from online tuition derived from business and
academic customers. Development and other revenues consist primarily of fees
paid to the Company for developing and converting courseware. While prior to
1997 other service revenues have represented a substantial majority of the
Company's revenues and in 1998 instructor-led training revenues and product
sales revenues have also contributed significantly to total revenues, the
Company believes that online revenues and product sales will become the primary
sources of its revenues in the future.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30, 1997
Summary
Excluding non-recurring costs, the Company incurred a net loss of
$3,802,396 (or $0.99 per share) for the three months ended June 30, 1998 as
compared to net income of $21,212 for the three months ended June 30, 1997.
Non-recurring costs for the three months ended June 30, 1998 included $928,870
(or $0.25 per share) for costs incurred pursuant to a management reorganization
plan. Non-recurring costs for the three months ended June 30, 1997, included
$2,700,000 (or $0.85 per share) for acquired in-process research and development
costs related to the acquisition of Teletutor in April 1997. Total revenues for
the three months ended June 30, 1998 were $3,427,471 as compared to $2,516,776
for the three months ended June 30, 1997. The increase in revenues was primarily
due to the acquisitions of HTR, Teletutor, and Ivy, which was offset somewhat by
decreases in VCampus software and development and other revenues. These declines
reflect the Company's new marketing strategy to move the Company away from
VCampus software licensing towards sales of online courseware subscriptions.
Excluding the non-recurring costs described above, total costs and expenses were
$7,064,849 during the three months ended June 30, 1998 as compared to costs of
$2,630,161 for the three months ended June 30, 1997. The increase was primarily
due to the addition of HTR, Teletutor and Ivy expenses and increased operating
costs related to the expansion of operations.
Net Revenues
Net revenues increased from $2,516,776 for the three months ended June 30,
1997 to $3,427,471 for the three months ended June 30, 1998.
Revenues for the three months ended June 30, 1998 included $1,428,723 (42%
of net revenues) for instructor-led training revenues. The Company had no such
revenues prior to the acquisition of HTR in October 1997.
Product sales revenues increased from $732,206 (29% of net revenues) for
the three months ended June 30, 1997 to $877,005 (25% of net revenues) for the
three months ended June 30, 1998. The increase in product sales revenue was
primarily due to the inclusion of the results of Ivy, Teletutor and HTR for the
entire second quarter of 1998.
10
<PAGE> 11
Other service revenues increased from $81,108 (3% of net revenues) for the
three months ended June 30, 1997 to $594,960 (17% of net revenues) for the three
months ended June 30, 1998. The increase in other service revenues was primarily
due to the inclusion of the results of HTR in the three months ended June 30,
1998.
Online tuition revenues decreased from $272,839 (11% of net revenues) for
the three months ended June 30, 1997 to $258,177 (8% of net revenues) for the
three months ended June 30, 1998. The number of revenue-generating customers
increased significantly in the three months ended June 30, 1998 as compared to
the three months ended June 30, 1997. However, a one-time joint venture
accounted for more than 50% of online tuition revenues for the three month
period ended June 30, 1997. As a percentage of net revenues, online tuition
revenues decreased from 11% to 8% for the three months ended June 30, 1997 and
1998, respectively, due to the decrease in such revenues and increase in total
net revenues from period to period.
Virtual campus software revenues decreased from $750,000 (30% of net
revenues) for the three months ended June 30, 1997 to $834 for the three months
ended June 30, 1998. The decrease is due primarily to the implementation of the
Company's new marketing strategy designed to move the Company away from VCampus
software licensing towards the sale of online courseware subscriptions.
Additionally, as of January 1, 1998, the Company adopted SOP 97-2. Accordingly,
as of that date, the Company began recognizing revenue from sales of VCampus
licenses ratably over the duration of such licenses. During 1997, the Company
recognized revenues from sales of VCampus licenses when the VCampus was
delivered to the customer, in accordance with the AICPA Statement of Position
91-1, "Software Revenue Recognition" ("SOP 91-1").
Development and other revenues decreased from $680,623 (27% of net
revenues) for the three months ended June 30, 1997 to $267,772 (8% of net
revenues) for the three months ended June 30, 1998. Development and other
revenues for 1998 have been primarily related to courseware conversion contracts
between the Company and customers. Development and other revenues for the three
months ended June 30, 1997 were primarily related to an agreement with one
customer that provided funding for the development of a custom VCampus in
exchange for a share of the future net revenues derived from the operation of
such campus and warrants to purchase Common Stock of the Company.
Cost of Revenues
Total cost of revenues increased from $283,067 for the three months ended
June 30, 1997 to $2,393,360 for the three months ended June 30, 1998. The
increase in absolute dollars was primarily due to the inclusion of the results
of operations of HTR, Teletutor, and Ivy in the 1998 period. Cost of revenues as
a percentage of net revenues increased from 11% to 70% for the three months
ended June 30, 1997 and 1998, respectively, primarily due to the inclusion of
instructor-led training revenues which have higher direct costs than the other
sources of revenues.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from $826,370
(33% of net revenues) for the three months ended June 30, 1997 to $1,636,766
(48% of net revenues) for the three months ended June 30, 1998. Sales and
marketing expenses consist primarily of costs related to personnel, sales
commissions, travel, market research, advertising and marketing materials. The
increase in absolute dollars was primarily due to increased staffing and
marketing campaigns, and the inclusion of the results of operations of Ivy,
Teletutor and HTR. The increase as a percentage of net revenues was primarily
due to lower online related sales as the Company implements a new marketing
strategy focused on online courseware subscriptions.
Product Development. Product development expenses increased from
$1,012,228 (40% of net revenues) for the three months ended June 30, 1997 to
$1,796,146 (52% of net revenues) for the three months ended June 30, 1998.
Product development expenses consist primarily of certain costs associated with
the design, programming, testing, documenting and support of the Company's new
and existing courseware and software. The increase in absolute dollars was
primarily attributable to overall staffing and other cost increases aimed at
maintaining and enhancing the Company's courseware library and VCampus software.
The increase as a
11
<PAGE> 12
percentage of net revenues was primarily due to an increase in the production of
online courseware. The inclusion of the results of Teletutor and HTR also
contributed to the increase in product development costs for the three months
ended June 30, 1998.
General and Administrative. General and administrative expenses increased
from $353,848 (14% of net revenues) for the three months ended June 30, 1997 to
$648,188 (19% of net revenues) for the three months ended June 30, 1998. General
and administrative expenses consisted primarily of personnel costs, facilities
and related costs, as well as legal, accounting and other costs. The increase in
general and administrative expenses was primarily due to increased due to the
Company's overall growth including acquisitions.
Depreciation and Amortization. Depreciation and amortization expense
increased from $154,648 for the three months ended June 30, 1997 to $590,389 for
the three months ended June 30, 1998. The increase is primarily related to an
increase in amortization expense as a result of the acquisitions of Ivy,
Teletutor and HTR. The increase in depreciation is primarily attributable to
additional purchases of computer equipment and other assets to support product
development, technical operations and personnel needs.
Reorganization Costs. During the three months ended June 30, 1998, the
Company continued implementing a plan to reduce workforce and close office
facilities. Workforce reductions occurred primarily in the product development
and administrative areas. In connection with this reorganization, the Company
closed its HTR training facilities in the Los Angeles, CA and Baltimore, MD, and
a UOL sales and marketing office in McLean, VA. The In addition, the Company
plans to relocate certain sales and administrative staff to smaller facilities,
and plans to consolidate the production of certain products into one production
facility located in Texas. Total restructuring costs of $928,870 were comprised
of $751,454 in severance and other benefits and $177,416 primarily related to
the closing of office facilities. All significant costs associated with these
workforce reductions have been paid or accrued as of June 30, 1998.
Interest Income (Expense). Interest income (net) for the three months
ended June 30, 1997 was $134,597, while interest expense (net) for the three
months ended June 30, 1998 was $165,018. Interest income was derived primarily
from investing funds raised in the Company's private and public securities
offerings during 1996. Interest expense was primarily incurred in connection
with the Company's borrowings on its line of credit facility and term loan. See
"Liquidity and Capital Resources".
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997
Summary
Excluding non-recurring costs, the Company incurred a net loss of
$9,795,142 (or $2.56 per share) for the six months ended June 30, 1998 as
compared to net loss of $1,074,819 (or $0.34 per share) for the six months ended
June 30, 1997. Non-recurring costs for the six months ended June 30, 1998
included $1,396,510 (or $0.37 per share) of costs incurred pursuant to a
management reorganization plan. Non-recurring costs for the six months ended
June 30, 1997, included $2,700,000 (or $0.85 per share) for acquired in-process
research and development costs related to the acquisition of Teletutor in April
1997. Total revenues for the six months ended June 30, 1998 were $7,028,331 as
compared to $3,717,816 for the six months ended June 30, 1997. The increase in
revenues was primarily due to the acquisitions of HTR, Teletutor, and Ivy which
was offset somewhat by decreases in VCampus software, and development and other
revenues. These declines reflect the Company's new marketing strategy to move
away from VCampus software licensing towards sales of online courseware
subscriptions. Excluding the non-recurring costs described above, total costs
and expenses were $16,528,603 during the six months ended June 30, 1998 as
compared to costs of $5,113,460 for the six months ended June 30, 1997. The
increase was primarily due to the addition of HTR, Teletutor and Ivy costs, and
increased operating costs related to the expansion of operations.
Net Revenues
Net revenues increased from $3,717,816 for the six months ended June 30,
1997 to $7,028,331 for the six months ended June 30, 1998.
12
<PAGE> 13
Revenues for the six months ended June 30, 1998 included $3,102,540 (44% of
net revenues) of instructor-led training revenues. The Company had no such
revenues prior to the acquisition of HTR in October 1997.
Product sales revenues increased from $824,163 (22% of net revenues) for
the six months ended June 30, 1997 to $1,827,211 (26% of net revenues) for the
six months ended June 30, 1998. The increase in product sales revenue was
primarily due to the inclusion of the results of HTR, Teletutor, and Ivy for the
entire six month period ended June 30, 1998.
Other service revenues increased from $176,292 (5% of net revenues) for the
six months ended June 30, 1997 to $1,160,611 (16% of net revenues) for the six
months ended June 30, 1998. The increase in other service revenues was primarily
due to the inclusion of the results of HTR in the six months ended June 30,
1998.
Online tuition revenues increased from $404,093 (11% of net revenues) for
the six months ended June 30, 1997 to $530,382 (8% of net revenues) for the six
months ended June 30, 1998. The number of revenue generating customers increased
significantly for the six month period ended June 30, 1998 as compared to the
same period in the prior year. As a percentage of net revenues, online tuition
revenues decreased from 11% to 8% for the six months ended June 30, 1997 and
1998, respectively, due to the increase in total net revenues from period to
period.
Virtual campus software revenues decreased from $1,125,000 (30% of net
revenues) for the six months ended June 30, 1997, to $43,334 (1% of net
revenues) for the six months ended June 30, 1998. The decrease is due primarily
to a transition of the Company's marketing strategy from VCampus software
licensing to sales of online courseware subscriptions. In addition, as of
January 1, 1998, the Company adopted SOP 97-2, which requires the Company to
recognize revenue from sales of VCampus licenses ratably over the duration of
such licenses. During 1997, the Company recognized revenues from sales of
VCampus licenses when the VCampus was delivered to the customer, in accordance
with 91-1.
Development and other revenues decreased from $1,188,268 (32% of net
revenues) for the six months ended June 30, 1997 to $364,253 (5% of net
revenues) for the six months ended June 30, 1998. Development and other revenues
for 1998 have been primarily related to courseware conversion contracts between
the Company and customers. Development and other revenues for the six months
ended June 30, 1997 were primarily related to an agreement with one customer
that provided funding for the development of a custom VCampus in exchange for a
share of the future net revenues derived from the operation of such campus and
warrants to purchase Common Stock of the Company.
Cost of Revenues
Total cost of revenues increased from $402,442 for the six months ended
June 30, 1997 to $4,976,259 for the six months ended June 30, 1998. The increase
in absolute dollars was primarily due to the inclusion of the results of
operations of Ivy, Teletutor and HTR in the 1998 period. Cost of revenues as a
percentage of net revenues increased from 11% to 71% for the six months ended
June 30, 1997 and 1998, respectively, primarily due to the inclusion of
instructor-led training revenues, which have higher direct costs than the other
sources of revenues.
Operating Expenses
Sales and Marketing. Sales and marketing expenses increased from
$1,534,184 (41% of net revenues) for the six months ended June 30, 1997 to
$3,267,324 (47% of net revenues) for the six months ended June 30, 1998. Sales
and marketing expenses consist primarily of costs related to personnel, sales
commissions, travel, market research, advertising and marketing materials. The
increase in absolute dollars was primarily due to increased staffing and
marketing campaigns, and the inclusion of the results of operations of Ivy,
Teletutor and HTR. The increase as a percentage of net revenues was primarily
due to lower online related sales as the Company implements a new marketing
strategy focused on online courseware subscriptions.
13
<PAGE> 14
Product Development. Product development expenses increased from
$2,194,952 (59% of net revenues) for the six months ended June 30, 1997 to
$4,512,765 (64% of net revenues) for the six months ended June 30, 1998. Product
development expenses consist primarily of certain costs associated with the
design, programming, testing, documenting and support of the Company's new and
existing courseware and software. The increase in absolute dollars was primarily
attributable to overall staffing and other cost increases aimed at maintaining
and enhancing the Company's courseware library and VCampus software. The
increase as a percentage of net revenues was primarily due to an increase in the
production of online courseware. The inclusion of the results of Teletutor and
HTR also contributed to the increase in product development costs for the six
months ended June 30, 1998. A first quarter 1998 write-off of approximately
$750,000 for certain previously deferred content acquisition and development
costs also contributed to the increase in 1998.
General and Administrative. General and administrative expenses increased
from $736,128 (20% of net revenues) for the six months ended June 30, 1997 to
$2,548,701 (36% of net revenues) for the six months ended June 30, 1998. General
and administrative expenses consisted primarily of personnel costs, facilities
and related costs, as well as legal, accounting and other costs. General and
administrative costs for the six months ended June 30, 1998 also included
approximately $1,075,000 of bad debt expense for certain of the Company's
accounts receivable for which collection is considered doubtful. General and
administrative expenses also increased due to the Company's overall growth
including acquisitions.
Depreciation and Amortization. Depreciation and amortization expense
increased from $245,754 for the six months ended June 30, 1997 to $1,223,554 for
the six months ended June 30, 1998. The increase is primarily related to an
increase in amortization expenses as a result of the acquisitions of Ivy,
Teletutor and HTR. The increase in depreciation is primarily attributable to
additional purchases of computer equipment and other assets to support product
development, technical operations and personnel needs.
Reorganization Costs. During the six months ended June 30, 1998, the
Company implemented a plan to reduce workforce and close office facilities.
Workforce reductions occurred primarily in the product development and
administrative areas. In connection with this reorganization, the Company closed
its training facilities in Los Angeles, CA and Baltimore, MD, and a sales and
marketing office in McLean, VA. In addition, the Company plans to relocate
certain sales and administrative staff to smaller facilities, and plans to move
the production of certain products to its Texas facility. Total restructuring
costs of $1,396,510 were comprised of $1,219,094 in severance and other benefits
and $177,416 primarily related to the closing of office facilities. All
significant costs associated with these workforce reductions have been paid or
accrued as of June 30, 1998.
Interest Income (Expense). Interest income (net) for the six months ended
June 30, 1997 was $320,825, while interest expense (net) for the six months
ended June 30, 1998 was $294,870. Interest income was derived primarily from
investing funds raised in the Company's private and public securities offerings
during 1996. Interest expense was primarily incurred in connection with the
Company's borrowings on its line of credit facility and term loan. See
"Liquidity and Capital Resources".
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1998, the Company had $2,246,154 in cash and cash
equivalents. Since its inception, the Company has financed its operating cash
flow needs primarily through offerings of equity securities and, to a lesser
extent, borrowings, primarily from stockholders. Cash utilized in operating
activities was $6,918,383 for the six months ended June 30, 1998 and $3,168,814
for the six months ended June 30, 1997. Use of cash was primarily attributable
to the net loss recorded during the six months ended June 30, 1998.
Cash utilized in investing activities was $1,513,567 for the six months
ended June 30, 1998 and $4,492,206 for the six months ended June 30, 1997. The
use of cash for investing activities during the first six months of 1998 was
primarily attributable to purchases of equipment, software development costs
that were capitalized, and approximately $356,000 paid to the former shareholder
of Ivy pursuant to the acquisition agreement.
14
<PAGE> 15
Cash provided by financing activities was $7,972,614 for the six months
ended June 30, 1998 while cash utilized in financing activities was $85,657 for
the six months ended June 30, 1997. In March 1998, the Company raised
approximately $5,300,000 in a private placement of its Series C convertible
Preferred Stock and warrants (the "Series C Private Placement"). In this
transaction, the Company issued 626,293 shares of its Series C Preferred Stock,
which are convertible into approximately 759,100 shares of Common Stock. The
Company also issued five-year warrants to purchase 626,293 shares of Common
Stock at an exercise price of $8.46 per share (the five-day average of closing
bid prices calculated prior to the closing of the transaction). The Series C
convertible Preferred Stock has a liquidation preference of $12.69 per share
upon sale or liquidation of the Company. The Common Stock underlying both the
Series C convertible Preferred Stock and the warrants has certain registration
rights. In June 1998, the Company raised approximately $5,200,000 in a private
placement of its Series D convertible Preferred Stock (the "Series D Private
Placement"). In this transaction, the Company issued 1,082,625 shares of its
Series D convertible Preferred Stock, which are convertible into Common Stock on
a one-to-one ratio. 137,174 of such shares and 5,194 shares of UOL Common Stock
were issued in connection with the conversion of approximately $805,000 of
indebtedness mainly to certain former shareholders of HTR. The non-cash portion
of this transaction has been excluded from the consolidated statements of cash
flows. The Company drew $1,500,000 on its lending facilities and subsequently
repaid its bank lender $1,000,000 during the six months ended June 30, 1998. In
May 1998, the Company made the first out of three scheduled payments to the
former shareholders of Teletutor in the amount of $666,667. Cash from financing
activities in 1998 was primarily provided by the Series C and Series D Private
Placements.
In December 1997, the Company and its bank lender entered into (i) a
$3,000,000 secured lending facility bearing interest at the LIBOR Market Index
Rate plus 2.75%, and (ii) a $3,000,000 secured term loan bearing interest at the
LIBOR Market Index Rate plus 3.5%, with all principal and interest due in April
1999. In March 1998, the Company and its bank lender negotiated and agreed upon
revised covenants under the facility, adjusting the terms to more appropriate
expectations of the Company's financial performance. Pursuant to such revised
covenants, the Company's borrowings are limited to the lesser of $1,500,000 or a
percentage of its accounts receivable in accordance with an agreed upon schedule
(borrowing base of $1,500,000 at June 30, 1998). The interest rate was increased
to LIBOR plus 3.75%. Additionally, the repayment terms on the term loan were
adjusted as follows: $500,000 due on May 15, 1998; $1,000,000 due on July 15,
1998; and $1,500,000 due on November 15, 1998. Certain events that result in
proceeds to the Company may accelerate the amounts payable by the Company for
the term loan. The interest rate on the term loan has also been increased to
LIBOR plus 3.75%. As a result of the Company's failure to comply with certain
financial covenants, these terms were renegotiated on May 18, 1998 to accelerate
the maturity date of the borrowing facilities to July 15, 1998 and increase the
interest rates to LIBOR plus 4.00%. On July 15, 1998 the Company requested and
was granted a maturity date extension to September 1, 1998 on the remaining
$1,750,000 outstanding.
During August 1998, the Company obtained a commitment for a secured lending
facility with a new lending institution that will provide the Company with a
$2,000,000 revolving line of credit and $500,000 term loan. Under the terms of
the agreement, the Company may borrow the lesser of (i) $2,000,000 or (ii) a
percentage of its accounts receivable in accordance with an agreed upon
schedule. The revolving line of credit will bear interest at the bank prime rate
plus 2.00% while the interest rate for the term loan will be the bank prime rate
plus 2.50%. Both facilities will mature on February 15, 1999.
In addition, during August 1998 the Company obtained a commitment for a
secured term loan for $500,000 with another lending institution, which will be
subordinated to the $2,500,000 facility described above. The note will bear
interest rate at 12% annually and will be due on February 15, 1999.
The Company expects negative cash flow from operations to continue for at
least the next three months as the online revenue stream matures. During the
first six months of 1998, the Company reduced its workforce by approximately 47%
and closed four office facilities. This reorganization is expected to provide
annual savings of approximately $6,000,000. In addition, the Company has
implemented measures to curtail the rate of discretionary spending. The Company
recognizes that it may need to raise additional funding to meet its working
capital requirements and is considering all of its alternatives, including
continuing its efforts to obtain
15
<PAGE> 16
financing through additional equity or debt financing, which may not be
available on favorable terms, or at all. If the Company does not address its
funding needs, it will be materially adversely affected. The Company's future
capital requirements will depend on many factors, including, but not limited to,
acceptance of and demand for its products and services, the types of
arrangements that the Company may enter into with customers and resellers, and
the extent to which the Company invests in new technology and research and
development projects.
The Company is in the process of completing an assessment of its year 2000
issues at it pertains to its information systems and those of its suppliers and
customers. As such, the Company is not in a position to estimate the costs of
becoming Year 2000 compliant nor can it presently estimate a timeframe for
implementing required changes. Failure of these systems to become compliant
could have a material adverse effect on the Company's financial position and
results of operations.
16
<PAGE> 17
PART II -- OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
(a) No modifications.
(b) No limitations or qualifications.
(c) From April 1, 1998 to June 30, 1998, the Company has issued the
following unregistered securities:
1. 1,082,625 shares of Series D redeemable convertible Preferred Stock
to certain accredited investors.
2. 5,194 shares of Common Stock to one accredited investor.
The sales of the above securities were deemed to be exempt from
registration under the Securities Act of 1933, as amended (the "Act") in
reliance upon Section 4(2) of the Act, or Regulation D promulgated thereunder as
transactions by an issuer not involving a public offering. Recipients of the
securities in each such transaction represented their intentions to acquire such
securities for investment only and not with a view to or for sale in connection
with any distribution thereof and appropriate legends were affixed to the
instruments issued in such transactions. All recipients had adequate access to
information about the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Annual Meeting of Stockholders of the Company was held on May 26, 1998.
The following was a brief description of each matter voted upon at a meeting and
the number of affirmative votes and the number of negative votes cast with
respect to each matter.
(a) The stockholders elected the following persons as directors of the
Company: Narasimhan P. Kannan, Carl N. Tyson, Edson D. deCastro, John D. Sears,
Kamyar Kaviani, William E. Kimberly, Barry K. Fingerhut, and Steven M.H.
Wallman. The votes for and against (withheld) each nominee were as follows:
<TABLE>
<CAPTION>
VOTES VOTES
NOMINEE FOR VOTES WITHHELD ABSTAINED
------- --------- -------------- ---------
<S> <C> <C> <C>
Narasimhan P. Kannan....................................... 2,753,609 13,313 0
Carl N. Tyson.............................................. 2,753,609 13,313 0
Edson D. deCastro.......................................... 2,753,609 13,313 0
John D. Sears.............................................. 2,753,609 13,313 0
Kamyar Kaviani............................................. 2,748,447 18,745 0
William E. Kimberly........................................ 2,753,609 13,313 0
Barry K. Fingerhut......................................... 2,753,609 13,313 0
Steven M.H. Wallman........................................ 2,753,609 13,313 0
</TABLE>
(b) The stockholders approved amendments to the Company's 1996 Stock Plan
to increase the number of shares reserved for issuance thereunder by 1,000,000
shares with 1,468,015 shares voting for, 1,005,689 shares subject to broker
non-votes, 282,378 shares voting against and 10,840 shares abstained.
(c) The stockholders ratified the appointment of Ernst & Young LLP as the
independent auditors of the Company for the fiscal year ending December 31,
1998.
ITEM 5. OTHER INFORMATION
Pursuant to recently amended Rule 14a-4 promulgated under the Securities
Exchange Act of 1934, as amended, a stockholder seeking to have a proposal
considered at the Company's 1999 Annual Meeting of Stockholders must notify the
Company by March 16, 1999 or the person appointed as proxies may exercise their
discretionary voting authority on the proposal notwithstanding that the
stockholders have not been advised of the proposal in the proxy statement.
17
<PAGE> 18
ITEM 6. EXHIBITS
(a) Exhibits
10.9 1996 Stock Plan, as amended
10.29 First Union loan amendments documents dated May 18, 1998 and July 15,
1998
10.32 Series D Preferred Stock Purchase Agreement dated June 29, 1998
10.33 Amended and Restated Registration Rights Agreement, dated June 29,
1998
10.34 Certificate of Designations, Preferences and Rights of Series D
Convertible Preferred Stock dated June 26, 1998
10.35 Amended Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock dated June 25, 1998
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
(b) No Current Reports on Form 8-K were filed during the quarter ended June
30, 1998.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by each of the
undersigned thereunto duly authorized.
UOL PUBLISHING, INC.
By: /s/ NARASIMHAN P. KANNAN
------------------------------------
Narasimhan P. Kannan
Chief Executive Officer
By: /s/ JOANNE O'ROURKE HINDMAN
------------------------------------
Joanne O'Rourke Hindman
Vice President and Chief Financial
Officer
(Principal Financial and Accounting
Officer)
Date: August 14, 1998
19
<PAGE> 20
EXHIBIT INDEX
10.9 1996 Stock Plan, as amended
10.29 First Union loan amendments documents dated May 18, 1998 and July 15,
1998
10.32 Series D Preferred Stock Purchase Agreement dated June 29, 1998
10.33 Amended and Restated Registration Rights Agreement, dated June 29,
1998
10.34 Certificate of Designations, Preferences and Rights of Series D
Convertible Preferred Stock dated June 26, 1998
10.35 Amended Certificate of Designations, Preferences and Rights of Series
C Convertible Preferred Stock dated June 25, 1998
27.1 Financial Data Schedule, which is submitted electronically to the
Securities and Exchange Commission for information only and not filed.
20
<PAGE> 1
EXHIBIT 10.9
UOL PUBLISHING, INC.
1996 STOCK PLAN
Adopted: August 30, 1996
Revised: December 20, 1996
Revised: December 11, 1997
Revised: April 23, 1998
Revised: May 26, 1998
UOL PUBLISHING, INC.
<PAGE> 2
1996 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1996 Stock Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries, and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject
to the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board or any of its Committees appointed
pursuant to Section 4 of the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means the Committee appointed by the Board of
Directors in accordance with Section 4(a) of the Plan.
(e) "Common Stock" means the Common Stock of the Company.
(f) "Company" means UOL Publishing, Inc., a Delaware corporation.
(g) "Consultant" means any person, including an advisor, who is
engaged by the Company or any Parent or Subsidiary of the Company to render
services and is compensated for such services, and any director of the Company
whether compensated for such services or not.
(h) "Continuous Status as an Employee or Consultant" means the absence
of any interruption or termination of service as an Employee or Consultant.
Continuous Status as an Employee or Consultant shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or
(iv) transfers between locations of the Company or between the Company, its
Subsidiaries or their respective successors. For purposes of this Plan, a
change in status from an Employee to a consultant or from a consultant to an
Employee will not constitute a termination of employment or consulting
relationship; provided that a change from an Employee to a consultant may cause
an Incentive Stock Option to become a Nonstatutory Stock Option under the Code.
2
<PAGE> 3
(i) "Employee" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company, with the
status of employment determined based upon such minimum number of hours or
periods worked as shall be determined by the Administrator in its discretion,
subject to any requirements of the Code. The payment of a director's fee by
the Company shall not be sufficient to constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(k) "Fair Market Value" means, as of any date, the fair market value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including, without limitation, the
National Market System of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported), as quoted on such system or exchange, or the exchange with the
greatest volume of trading in Common Stock for the last market trading day
prior to the time of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common
Stock for the last market trading day prior to the time of determination, as
reported in The Wall Street Journal or such other source as the Administrator
deems reliable; or
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(l) "Incentive Stock Option" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code, or any
successor provision.
(m) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(n) "Option" means a stock option granted pursuant to the Plan.
(o) "Optioned Stock" means the Common Stock subject to an Option or a
Stock Purchase Right.
(p) "Optionee" means an Employee or Consultant who receives an Option
or a Stock Purchase Right.
3
<PAGE> 4
(q) "Parent" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code, or any successor provision.
(r) "Plan" means this 1996 Stock Plan.
(s) "Reporting Person" means an officer, director, or greater than ten
percent stockholder of the Company within the meaning of Rule 16a-2 under the
Exchange Act, who is required to file reports pursuant to Rule 16a-3 under the
Exchange Act, or any successor provision.
(t) "Restricted Stock" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 10 below.
(u) "Rule 16b-3" means Rule 16b-3 promulgated under the Exchange Act,
as the same may be amended from time to time, or any successor provision.
(v) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(w) "Stock Exchange" means any stock exchange or consolidated stock
price reporting system on which prices for the Common Stock are quoted at any
given time.
(x) "Stock Purchase Right" means the right to purchase Common Stock
pursuant to Section 10 below.
(y) "Subsidiary" means a "subsidiary corporation," whether now or
hereafter existing, as defined in Section 424(f) of the Code, or any successor
provision.
3. Stock Subject to the Plan. Subject to the provisions of Section 12 of
the Plan, the maximum aggregate number of shares that may be optioned and sold
under the Plan is 1,524,893 shares of Common Stock (as adjusted to give effect
to the 1-for-11.76812037 reverse stock split of the Company's Common Stock on
November 20, 1996). The shares may be authorized, but unissued, or reacquired
Common Stock. If an Option should expire or become unexercisable for any
reason without having been exercised in full, the unpurchased Shares that were
subject thereto shall, unless the Plan shall have been terminated, become
available for future grant under the Plan. If the Company shall repurchase
unvested shares of Restricted Stock, such repurchased Shares that were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. In addition, any shares of Common Stock which are
retained by the Company upon exercise of an Option or Stock Purchase Right in
order to satisfy the exercise or purchase price for such Option or Stock
Purchase Right or any withholding taxes due with respect to such exercise shall
be treated as not issued and shall continue to be available under the Plan.
4. Administration of the Plan.
4
<PAGE> 5
(a) Procedure. The Plan shall be administered by (A) the Board or (B)
a committee designated by the Board, which committee shall be constituted in
such a manner as to satisfy the legal requirements relating to the
administration of incentive stock option plans, if any, of applicable state and
federal corporate and securities laws, of the Code and of any applicable Stock
Exchange (collectively, the "APPLICABLE LAWS"). Once appointed, such Committee
shall continue to serve in its designated capacity until otherwise directed by
the Board. From time to time the Board may increase the size of the Committee
and appoint additional members thereof, remove members (with or without cause)
and appoint new members in substitution therefor, fill vacancies, however
caused, and remove all members of the Committee and thereafter directly
administer the Plan, all to the extent permitted by the Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any Stock Exchange, the Administrator
shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder;
(vii) to determine whether and under what circumstances an Option
may be settled in cash under Section 9(f) instead of Common Stock;
(viii) to accelerate the exercisability of any Option or Stock
Purchase Right;
(ix) to determine the terms and restrictions applicable to Stock
Purchase Rights and the Restricted Stock purchased by exercising such Stock
Purchase Rights;
5
<PAGE> 6
(x) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options or Stock Purchase Rights to
participants who are foreign nationals or employed outside of the United States
in order to recognize differences in local law, tax policies or customs;
(xi) to accelerate the vesting of any Option or Stock Purchase
Right or waive forfeiture restrictions with respect thereto; and
(xii) to make all other determinations, not inconsistent with the
terms of the Plan, deemed necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. All decisions, determinations
and interpretations of the Administrator shall be final and binding on all
holders of Options or Stock Purchase Rights.
5. Eligibility.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he or she is otherwise eligible, be granted
additional Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares subject to an Incentive Stock Option shall be determined as
of the date of the grant of such Option.
(d) The Plan shall not confer upon any Optionee any right with respect
to continuation of employment or consulting relationship with the Company, nor
shall it interfere in any way with such Optionee's right or the Company's right
to terminate his or her employment or consulting relationship at any time, with
or without cause.
6. Term of Plan. The Plan shall become effective upon the earlier to occur
of its adoption by the Board of Directors or its approval by the stockholders
of the Company as described in Section 19 of the Plan. It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 15
of the Plan.
7. Term of Option. The term of each Option shall be the term stated in the
Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date
6
<PAGE> 7
of grant thereof or such shorter term as may be provided in the Option
Agreement. However, in the case of an Option granted to an Optionee who, at
the time the Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the term of the Option shall be five (5) years from the date of
grant thereof or such shorter term as may be provided in the Option Agreement.
8. Option Exercise Price and Consideration.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option that is:
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise
price shall be no less than 100% of the Fair Market Value per Share on the date
of grant.
(ii) In the case of a Nonstatutory Stock Option that is granted
to a person who, at the time of the grant of such Option, owns stock
representing more than ten percent (10%) of the voting power of all classes of
stock of the Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on the date of
the grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares that (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six months on the date of surrender or such other period as may be
required to avoid a charge to the Company's earnings, and (y) have a Fair
Market Value on the date of surrender equal to the aggregate exercise price of
the Shares as to which such Option shall be exercised, (5) authorization for
the Company to retain from the total number of Shares as to which the Option is
exercised that number of Shares having a Fair Market Value on the date of
exercise equal to the exercise price for the total number of Shares as to which
the Option is exercised, (6) delivery of a properly executed exercise notice
together with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price and
any applicable income or employment taxes, (7) delivery of an irrevocable
subscription agreement for the Shares that irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the
date of delivery of the subscription agreement, (8) any combination
7
<PAGE> 8
of the foregoing methods of payment, or (9) such other consideration and method
of payment for the issuance of Shares to the extent permitted under Applicable
Laws. In making its determination as to the type of consideration to accept,
the Administrator shall consider if acceptance of such consideration may be
reasonably expected to benefit the Company.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, including performance criteria with respect
to the Company and/or the Optionee, and as shall be permissible under the terms
of the Plan. An Option may not be exercised for a fraction of a Share. An
Option shall be deemed to be exercised when written notice of such exercise has
been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and the Company has received full
payment for the Shares with respect to which the Option is exercised. Full
payment may, as authorized by the Board, consist of any consideration and
method of payment allowable under Section 8(b) of the Plan. Until the issuance
(as evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the stock certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
stockholder shall exist with respect to the Optioned Stock, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
stock certificate promptly upon exercise of the Option. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued, except as provided in Section 12 of the
Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares that thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Employment or Consulting Relationship. Subject to
Section 9(c), in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee with the Company, such
Optionee may, but only within three (3) months (or such other period of time
not less than thirty (30) days as is determined by the Administrator, with such
determination in the case of an Incentive Stock Option being made at the time
of grant of the Option and not exceeding three (3) months) after the date of
such termination (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), exercise his or her Option
to the extent that the Optionee was entitled to exercise it at the date of such
termination. To the extent that Optionee was not entitled to exercise the
Option at the date of such termination, or if Optionee does not exercise such
Option to the extent so entitled within the time specified herein, the Option
shall terminate. No termination shall be deemed to occur and this Section 9(b)
shall not apply if (i) the Optionee is a Consultant who becomes an Employee
within the time specified herein; or (ii) the Optionee is an Employee who
becomes a Consultant within the time specified herein.
(c) Disability of Optionee. Notwithstanding the provisions of Section
9(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status
8
<PAGE> 9
as an Employee as a result of his or her total and permanent disability (as
defined in Section 22(e)(3) of the Code, or any successor provision), the
Optionee may, but only within six (6) months (or such other period of time not
exceeding twelve (12) months as is determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time
of the grant of the option) from the date of such termination (but in no event
later than the expiration date of the term of such Option as set forth in the
Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(d) Death of Optionee. In the event of the death of an Optionee (i)
during the period of Continuous Status as an Employee or any consulting
relationship or (ii) within thirty (30) days following the termination of the
Optionee's Continuous Status as an Employee or consulting relationship, the
Option may be exercised, at any time within six (6) months (or such other
period of time not exceeding twelve (12) months as is determined by the Board,
with such determination in the case of an Incentive Stock Option being made at
the time of the grant of the option) following the date of death (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
the Optionee was entitled to exercise the Option at the date of death or, if
earlier, the date of termination of the consulting relationship or Continuous
Status as an Employee. To the extent that Optionee was not entitled to
exercise the Option at the date of death or termination, as the case may be, or
if Optionee does not exercise such Option to the extent so entitled within the
time specified herein, the Option shall terminate.
(e) Rule 16b-3. Options granted to Reporting Persons shall comply
with Rule 16b-3 and shall contain such additional conditions or restrictions as
may be required thereunder to qualify for the maximum exemption for Plan
transactions.
(f) Buyout Provisions. The Administrator may at any time offer to buy
out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
(g) Accelerated Vesting. Notwithstanding the foregoing provisions of
this Section 9, all options granted under this Plan shall automatically vest in
full upon the acquisition of the Company by a third party or a sale of all or
substantially all of the Company's assets.
10. Stock Purchase Rights.
(a) Rights to Purchase. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator
determines that it will offer Stock Purchase Rights under the Plan, it shall
advise the offeree in writing of the terms, conditions and restrictions related
to the offer, including the number of Shares that such person shall be entitled
to purchase,
9
<PAGE> 10
the price to be paid (which price shall not be less than 85% of the Fair Market
Value of the Shares as of the date of the offer), and the time within which
such person must accept such offer, which shall in no event exceed thirty (30)
days from the date upon which the Administrator made the determination to grant
the Stock Purchase Right. The offer shall be accepted by execution of a
Restricted Stock purchase agreement in the form determined by the
Administrator.
(b) Repurchase Option. Unless the Administrator determines otherwise,
the Restricted Stock purchase agreement shall grant the Company a repurchase
option exercisable upon the voluntary or involuntary termination of the
purchaser's employment or consulting relationship with the Company for any
reason (including death or disability). The purchase price for Shares
repurchased pursuant to the Restricted Stock purchase agreement shall be the
original purchase price paid by the purchaser and may be paid by cancellation
of any indebtedness of the purchaser to the Company.
(c) Other Provisions. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be
the same with respect to each purchaser.
(d) Rights as a Stockholder. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
stockholder, and shall be a stockholder when his or her purchase is entered
upon the records of the duly authorized transfer agent of the Company. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the Stock Purchase Right is exercised, except as provided
in Section 12 of the Plan.
11. Stock Withholding to Satisfy Withholding Tax Obligations. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by one or
some combination of the following methods: (a) by cash payment, or (b) out of
Optionee's current compensation, (c) if permitted by the Administrator, in its
discretion, by surrendering to the Company Shares that (i) in the case of
Shares previously acquired from the Company, have been owned by the Optionee
for more than six months on the date of surrender, and (ii) have a fair market
value on the date of surrender equal to or greater than Optionee's marginal tax
rate times the ordinary income recognized, or (d) by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option, or
the Shares to be issued in connection with the Stock Purchase Right, if any,
that number of Shares having a fair market value equal to the amount required
to be withheld. For this purpose, the fair market value of the Shares to be
withheld shall be determined on the date that the amount of tax to be withheld
is to be determined (the "TAX DATE").
10
<PAGE> 11
Any surrender by a Reporting Person of previously owned Shares to
satisfy tax withholding obligations arising upon exercise of this Option must
comply with the applicable provisions of Rule 16b-3 and shall be subject to
such additional conditions or restrictions as may be required thereunder to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of the
Administrator; and
(d) if the Optionee is a Reporting Person, the election must comply
with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an
Optionee and the Tax Date is deferred under Section 83 of the Code because no
election is filed under Section 83(b) of the Code, the Optionee shall receive
the full number of Shares with respect to which the Option or Stock Purchase
Right is exercised but such Optionee shall be unconditionally obligated to
tender back to the Company the proper number of Shares on the Tax Date.
12. Adjustments Upon Changes in Capitalization, Merger or Certain Other
Transactions.
(a) Changes in Capitalization. Subject to any required action by the
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock that have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or that have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, as well as the price per share of Common Stock covered by each
such outstanding Option or Stock Purchase Right, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of Common
Stock resulting from a stock split, reverse stock split, stock dividend,
combination, recapitalization or reclassification of the Common Stock, or any
other increase or decrease in the number of issued shares of Common Stock
effected without receipt of consideration by the Company; provided, however,
that conversion of any convertible securities of the Company shall not be
deemed to
11
<PAGE> 12
have been "effected without receipt of consideration." Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Common Stock
subject to an Option or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Board shall notify the Optionee
at least fifteen (15) days prior to such proposed action. To the extent it has
not been previously exercised, the Option or Stock Purchase Right will
terminate immediately prior to the consummation of such proposed action.
(c) Merger or Sale of Assets. In the event of a proposed sale of all
or substantially all of the Company's assets or a merger of the Company with or
into another corporation where the successor corporation issues its securities
to the Company's stockholders (excluding any transaction with a majority-owned
or wholly-owned subsidiary), each outstanding Option or Stock Purchase Right
shall be assumed or an equivalent option or right shall be substituted by such
successor corporation or a parent or subsidiary of such successor corporation
(and such assumed or substituted Option or Stock Purchase Right shall provide
that such Option or Stock Purchase Right shall vest in its entirety in the
event that the Consultant or Employee holding such Option or Stock Purchaser
Right is terminated without cause within the twelve (12) month period following
the consummation of the merger or sale of assets). If the successor
corporation does not agree to so assume an Option or Stock Purchase Right or to
so substitute an equivalent option or right, such Option or Stock Purchase
Right shall vest in its entirety and become exercisable prior to the
consummation of the merger or sale of assets. If an Option becomes fully
exercisable in lieu of assumption or substitution in the event of a merger or
sale of assets as provided in the preceding two sentences, the Board shall
notify the Optionee within a reasonable time prior to the consummation of such
transaction, and the Option shall be fully exercisable for a period of ten (10)
days from the date of such notice, and will terminate upon the expiration of
such period.
(d) Certain Distributions. In the event of any distribution to the
Company's stockholders of securities of any other entity or other assets (other
than dividends payable in cash or stock of the Company) without receipt of
consideration by the Company, the Administrator may, in its discretion,
appropriately adjust the price per share of Common Stock covered by each
outstanding Option or Stock Purchase Right to reflect the effect of such
distribution.
13. Non-Transferability of Options, Stock Purchase Rights and Restricted
Stock. To the extent required by any Applicable Law, Options and Stock
Purchase Rights may not be sold, pledged, assigned, hypothecated, transferred,
or disposed of in any manner other than by will or by the laws of descent or
distribution and may be exercised or purchased during the lifetime of the
Optionee only by the Optionee.
14. Time of Granting Options and Stock Purchase Rights. The date of
grant of an Option or Stock Purchase Right shall, for all purposes, be the date
on which the Administrator
12
<PAGE> 13
makes the determination granting such Option or Stock Purchase Right, or such
other date as is determined by the Board. Notice of the determination shall be
given to each Employee or Consultant to whom an Option or Stock Purchase Right
is so granted within a reasonable time after the date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any time amend,
alter, suspend or discontinue the Plan, but no amendment, alteration,
suspension or discontinuation shall be made that would impair the rights of any
Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with Rule 16b-3 or
with Section 422 of the Code, or any successor provision (or any other
applicable law or regulation, including the requirements of any Stock
Exchange), the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as required.
(b) Effect of Amendment or Termination. No amendment or termination
of the Plan shall adversely affect Options or Stock Purchase Rights already
granted, unless mutually agreed otherwise between the Optionee and the Board,
which agreement must be in writing and signed by the Optionee and the Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option or Stock Purchase Right unless the
exercise of such Option or Stock Purchase Right and the issuance and delivery
of such Shares pursuant thereto shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended, the
Exchange Act, the rules and regulations promulgated thereunder, and the
requirements of any Stock Exchange. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to represent
and warrant at the time of any such exercise that the Shares are being
purchased only for investment and without any present intention to sell or
distribute such Shares if, in the opinion of counsel for the Company, such a
representation is required by law.
17. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
18. Agreements. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Administrator shall approve from time to
time.
19. Stockholder Approval. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before or
after the date the Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under
13
<PAGE> 14
applicable state and federal law and the rules of any Stock Exchange. All
Options and Stock Purchase Rights issued under the Plan shall become void in
the event such approval is not obtained.
20. Lock-up Agreement. Each recipient of securities here under agrees,
in connection with the first registration with the United States Securities and
Exchange Commission under the Securities Act of 1933, as amended, of the public
sale of the Company's Common Stock, upon request of the Company or any
underwriters managing such offering, not to sell, make any short sale of, loan,
grant any option for the purchase of or otherwise dispose of any securities of
the Company (other than those included in the registration) without the prior
written consent of the Company or such underwriters, as the case may be, for
such period of time not to exceed one year from the effective date of such
registration as the Company or the underwriters, as the case may be, shall
specify. Each such recipient agrees that the Company may instruct its transfer
agent to place stop-transfer notations in its records to enforce this Section
20.
21. Nonemployee Director Grants.
(a) Procedure for Grants. All grants of options to directors who are
not also employees of the Company ("Outside Directors) under this Plan shall be
automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of shares to be
covered by options granted to Outside Directors.
(ii) Each Outside Director shall be automatically granted:
(A) an Option to purchase 10,000 Shares on April 23, 1998
and on each January 1 thereafter on which such person is elected or re-elected
a director of the Company;
(B) In addition, in the case of a new Outside Director,
the initial automatic grant shall be effective upon such director's initial
election or appointment to the Board, with the number underlying shares equal
to the product of 2,500 multiplied by the number of regularly scheduled Board
meetings remaining in that year; and
(C) Each Outside Director will automatically be granted a
fully vested option to purchase an additional 2,500 shares on each date the
director attends a meeting of a committee of the Board other than on the same
day or within one day of a Board meeting.
(iii) The terms of an option granted under shall be as follows:
(A) The term of the option shall be ten (10) years.
14
<PAGE> 15
(B) The option shall be exercisable only while the
Outside Director remains a director of the Company, except
(I) Termination of Continuous Status as a
Director. In the event an optionee's continuous status as a director
terminates (other than upon the optionee's death or total and permanent
disability), the optionee may exercise his or her option, but only within 90
days from the date of such termination, and only to the extent that the
optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of its 10-year term). To the extent that the
optionee does not exercise such option within the time specified herein, the
option shall terminate.
(II) Disability of Optionee. In the event
optionee's continuous status as a director terminates as a result of total and
permanent disability, the optionee may exercise his or her option, but only
within six months from the date of such termination, and only to the extent
that the optionee was entitled to exercise it at the date of such termination
(but in no event later than the expiration of its 10-year term). To the extent
that the optionee does not exercise such option within the time specified
herein, the option shall terminate.
(III) Death of Optionee. In the event of an
optionee's death, the optionee's estate or a person who acquired the right to
exercise the option by bequest or inheritance may exercise the option, but only
within six months following the date of death, and only to the extent that the
optionee was entitled to exercise it at the date of death (but in no event
later than the expiration of its 10-year term). To the extent that the
optionee's estate or a person who acquired the right to exercise such option
does not exercise such option within the time specified herein, the option
shall terminate.
(C) The exercise price per share shall be the fair market
value per share on the date of grant of the option.
(D) Subject to continued status as a director, the shares
subject to an option granted under this Section shall be subject to a vesting
schedule whereby the shares shall be released as follows: 2,500 shares shall
vest on each date the director attends a Board meeting in person during that
year.
(iv) In the event that any option granted hereunder would cause
the number of shares subject to outstanding options plus the number of shares
previously purchased under options to exceed the amount set forth in Section 4
hereof, then the remaining shares available for option grant shall be granted
under options to the Outside Directors on a pro rata basis. No further grants
shall be made until such time, if any, as additional shares become available
for grant under the Plan through action of the shareholders to increase the
number of Shares which may be issued under the Plan or through cancellation or
expiration of options previously granted hereunder.
15
<PAGE> 16
(b) No Right to Continue as a Director. The Plan shall not confer
upon any optionee any right with respect to continuation of service as a
director or nomination to serve as a director, nor shall it interfere in any
way with any rights which the director or the Company may have to terminate his
or her directorship at any time.
(c) Other Terms. In all other respects, options granted under this
Section shall be governed by the terms and provisions of the Plan, unless
otherwise required to meet the requirements of Rule 16b-3, as amended from time
to time.
16
<PAGE> 1
EXHIBIT 10.29
SECOND LOAN MODIFICATION AGREEMENT
This SECOND LOAN MODIFICATION AGREEMENT ("Agreement") is dated and
effective as of May 18, 1998, by and among UOL PUBLISHING, INC., COGNITIVE
TRAINING ASSOCIATES, INC., IVY SOFTWARE, INC., COOPER & ASSOCIATES, INC., HTR,
INC., and UOL LEASING, INC. (collectively, the "Borrowers" and individually a
"Borrower"), NARASIMHAN P. KANNAN (the "Guarantor"), and FIRST UNION NATIONAL
BANK ("First Union").
RECITALS
1. The Borrowers are indebted to First Union under a
Promissory Note dated December 15, 1997 in the face amount of $3,000,000
evidencing a line of credit to the Borrowers for working capital (the "Line of
Credit").
2. The Borrowers are also indebted to First Union under
a Promissory Note dated December 15, 1997 in the face amount of $3,000,000,
evidencing a term loan to the Borrowers (the "Term Loan").
3. On December 15, 1997, First Union and the Borrowers
entered into a Loan Agreement setting forth certain obligations of the
Borrowers in connection with the Line of Credit and the Term Loan.
4. On December 15, 1997, the Borrowers executed in favor
of First Union a Security Agreement by which the Borrowers granted to First
Union a security interest in their accounts, inventory, equipment and general
intangibles (the "Collateral") to secure payment of, among other things, the
Term Loan and the Line of Credit.
<PAGE> 2
5. First Union filed financing statements to perfect its
security interest in the Collateral.
6. The Borrowers, the Guarantor and First Union modified
the terms of the above-described loan documents, effective March 31, 1998,
pursuant to a Loan Modification Agreement and related documents, including a
First Allonge to Promissory Note (Line of Credit), a First Allonge to
Promissory Note (Term Loan), an Unconditional Guaranty of Payment, a First
Amendment to Loan Agreement, and a First Amendment to Security Agreement.
7. As of May 18, 1998, there was due on the Line of
Credit principal of $1,500,000, and accrued interest.
8. As of May 18, 1998, there was due on the Term Loan
principal of $2,500,000 and accrued interest.
9. The Borrowers are in default under the Line of Credit
and the Term Loan by reason of, among other things, their violation of certain
financial covenants set forth in the Loan Agreement, as amended.
10. The Borrowers and First Union are executing this
Agreement and the other documents called for in this Agreement to cure their
default under their loan facilities with First Union.
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1. Recitals. The recitals set forth above are a
material part of this Agreement. The Borrowers acknowledge and affirm the
truth and accuracy of the recitals set forth above.
2. Confirmation and Ratification of Documents. The
Borrowers agree that all of the loan documents described in the recitals
(collectively, the "Loan Documents") are in full force and effect, and that
they shall remain in full force and effect unless and until modified
-2-
<PAGE> 3
or amended in writing in accordance with their terms. The Borrowers agree that
First Union's security interest in the Collateral shall remain in full force
and effect to secure payment of the Line of Credit and the Term Loan, and
performance of other obligations. The Borrowers ratify and confirm their
respective obligations under the Loan Documents, and agree that the execution
and delivery of this Agreement shall not in any way diminish or invalidate any
of their respective debts or obligations under the Loan Documents. All parties
consent to the execution and delivery of this Agreement and to all of the
provisions of this Agreement to the extent that such provisions may modify the
terms and provisions of any of the Loan Documents.
3. Payments and Delivery of Documents upon Execution of
Agreement. Upon execution of this Agreement:
(a) Subject to Section 4(n) below, the Borrowers
shall pay to First Union all costs and expenses (including but not limited to
actual attorneys' fees) incurred by First Union in connection with this
Agreement;
(b) The Borrowers shall pay to First Union
modification fee of $15,000;
(c) The Borrowers and First Union shall execute
an Amended and Restated Commercial Promissory Note in the form attached as
Exhibit No. 1, which shall amend and restate the promissory notes for both the
Line of Credit and the Term Loan;
(d) Narasimhan P. Kannan shall execute the
Amended and Restated Unconditional Guaranty of Payment in the form attached as
Exhibit No. 2, guaranteeing the full payment and performance of the Borrowers'
Obligations (as defined in the Promissory Notes described above) to First
Union;
(e) The Borrowers and First Union shall execute
the Second Amendment to Loan Agreement in the form attached as Exhibit No. 3;
and
(f) Each Borrower shall deliver to First Union a
General Certificate, with the following attachments: (i) a corporate resolution
authorizing the Borrower to execute all
-3-
<PAGE> 4
documents required to be executed by the Borrower in connection with this
transaction; (ii) copies of the Articles of Incorporation and any amendments;
(iii) copies of the by-laws, and (iv) an incumbency certificate.
4. Representations and Warranties of the Borrowers. To
induce First Union to enter into this Agreement, the Borrowers represent,
confirm and warrant to First Union as follows:
(a) Validity.
This Agreement constitutes the legal, valid and
binding obligations of the Borrowers and is enforceable in accordance with its
terms.
(b) Good Standing.
The Borrowers are corporations duly organized,
legally existing and in good standing under the laws of their respective states
of incorporation, have the power to own their property and to carry on their
businesses and are duly qualified to do business and are in good standing in
their respective states of incorporation.
(c) Authority.
The Borrowers have full power and authority to enter
into this Agreement, to execute and deliver all documents and instruments
required hereunder and thereunder, and to incur and perform the obligations
provided for herein and therein, all of which have been duly authorized by all
necessary corporate action, and no consent or approval of any person,
including, without limitation, its members and any governmental authority,
which has not been obtained, is required as a condition to the validity or
enforceability hereof or thereof.
(d) Financial Condition.
Each Borrower is not insolvent (as defined in Section
101(32) of the United States Bankruptcy Code), unable to pay its debts as they
mature or engaged in business for which its property is an unreasonably small
capital. Each Borrower is not and has not been
-4-
<PAGE> 5
the subject of any bankruptcy, reorganization, insolvency, readjustment of
debt, trusteeship, receivership, dissolution or liquidation law, statute or
proceeding.
(e) Taxes.
Each Borrower has paid or caused to be paid all
federal, state, local and foreign taxes to the extent that such taxes have
become due and has filed or caused to be filed all federal, state, local and
foreign tax returns which are required to be filed by the Borrower.
(f) Compliance with Other Instruments.
Each Borrower is not in violation of any existing
governmental order, rule or regulation applicable to it, or of any agreement or
other instrument to which it is a party or by which it or its assets are bound.
Neither the execution and delivery of this Agreement nor the consummation of
the transactions contemplated by this Agreement, nor compliance with the terms
and provisions of this Agreement, has constituted or resulted in or will
constitute or result in a breach of any of the terms, covenants, conditions or
provisions of, or will constitute a default under, any deed of trust,
instrument, document, agreement or contract of any kind to which any Borrower
is a party or by which any Borrower may be bound or subject.
(g) Title to Collateral and Existing Liens on Collateral.
Each Borrower has good and marketable title to the
Collateral that secures its liability to First Union and the Collateral is not
subject to any existing liens or encumbrances except those held by First Union.
-5-
<PAGE> 6
(h) No Claims, etc.
The Borrowers do not have any claims, defenses or
setoffs with respect to the Loan Documents, or with respect to the debt
evidenced or secured thereby or with respect to the collection or enforcement
of any of the same (and to the extent that any such claim, setoff or defense
exists, they are each waived and relinquished in their entirety).
(i) Disclosure.
To the best of the knowledge of the Borrowers, all
documents, certificates or statements furnished to First Union by or on behalf
of any Borrower in connection with the Loan Documents or this Agreement are
true, correct and complete and do not contain any untrue statement of material
fact.
(j) Benefit.
Each Borrower has derived direct or indirect benefit
from this Agreement and the transactions contemplated hereby.
(k) Interpretation.
Each party acknowledges (i) that it has participated
in the negotiation of this Agreement, and that no provision of this Agreement
shall be construed against or interpreted to the disadvantage of any party
hereto by any court or other governmental or judicial authority by reason of
such party having or being deemed to have structured, dictated or drafted such
provision; (ii) that it at all times has had access to an attorney in the
negotiation of the terms of and in the preparation and execution of this
Agreement, and that it has had the opportunity to review, analyze, and discuss
with its counsel this Agreement, and the underlying factual matters relevant to
this Agreement, for a sufficient period of time before the execution and
delivery hereof; (iii) that all of the terms of this Agreement were negotiated
at arm's-length; (iv) that this Agreement was prepared and executed without
fraud, duress, undue influence, or coercion of any kind exerted by any of the
parties upon the others; and (v) that the execution and delivery of this
Agreement is the free and voluntary act of each party.
-6-
<PAGE> 7
(l) No Representations by First Union.
First Union has made no representations or
commitments, oral or written, or undertaken any obligations other than as
expressly set forth in this Agreement.
(m) No Default.
Upon execution of this Agreement and all documents
listed and described in Section 3 of this Agreement, the Borrowers, to the best
of their knowledge, will not be in default under the Loan Documents.
(n) Expenses.
Whether or not any of the transactions contemplated
hereby shall be consummated, Borrowers agree to pay to First Union, upon
written demand by First Union from time to time, the amount of all expenses,
including attorneys' fees and expenses, paid or incurred by First Union in
connection with the preparation, or the amendment, modification, extension,
renewal, refinancing, supplementation, replacement, waiver, release or
termination, of this Agreement or any other Loan Documents or any terms or
conditions hereof or thereof or any rights or interests of First Union,
Borrowers or any other person relating to any of the foregoing, or otherwise in
connection with the extension of credit hereunder. Borrowers agree to pay all
expenses in connection with the filing or recordation of all financing
statements and other documents as may be required by First Union at the time
of, or subsequent to, the execution of this Agreement, including, without
limitation, all documentary stamps, recordation and transfer taxes, filing fees
and other costs and taxes incident to recordation of any document in connection
herewith, and, if any such expenses shall be paid or incurred by First Union,
to pay to First Union upon written demand the amount of such expenses.
Borrowers also agree to pay to First Union, upon written demand by First Union,
from time to time, interest on the outstanding amount of all expenses paid by
First Union referred to in this Subsection 4(n), from the date of First Union's
demand for payment of such expenses until the same are paid in full, at the
highest rate and
-7-
<PAGE> 8
calculated in the manner provided in the Amended and Restated Commercial
Promissory Note described in Section 3 above.
5. Representations and Warranties of Guarantor. The
Guarantor confirms his agreement to guarantee all of the Borrowers' Obligations
to First Union and consents to the execution and performance by the Borrowers
of all terms and conditions of this Agreement and the documents to be executed
in connection with this Agreement.
6. Additional Waivers by Borrowers.
Each Borrower hereby waives, to the extent the same
may be waived under applicable law:
(a) notice of acceptance by First Union of this
Agreement;
(b) all claims, causes of action and rights of
Borrower against First Union on account of actions taken or not taken by First
Union in the exercise of First Union's rights or remedies hereunder or under
any other Loan Documents, or under law, provided that the same did not arise
from First Union's gross negligence or willful misconduct;
(c) all claims and causes of action of Borrower
against First Union for punitive, exemplary or other non-compensatory damages;
(d) all rights of redemption of Borrower with
respect to any of the Collateral;
(e) if First Union seeks to repossess any or all
of the Collateral by judicial proceedings, any bonds or demands for possession
which otherwise may be required;
(f) all rights of Borrower to have marshalled the
Collateral or any other security for any of the Obligations;
(g) presentment, protest, notice of protest and
notice of nonpayment with respect to all of the Obligations;
(h) settlement, compromise or release of the
obligations of any other person primarily or secondarily liable upon or
obligated with respect to any of the Obligations;
-8-
<PAGE> 9
(i) substitution, impairment, exchange or release
of any direct or indirect security for any of the Obligations; and
(j) any duty or obligation of First Union to
disclose to Borrower any information concerning any other customer or client,
or prospective customer or client, of First Union.
Each Borrower agrees that First Union may exercise any or all of its
rights and/or remedies hereunder, under the other Loan Documents and under law
without resorting to, without regard to, and regardless of the adequacy of, any
security or other sources of liability with respect to any of the Obligations.
7. Release. The Borrowers and the Guarantor each hereby
release and forever waive and relinquish all claims, demands, obligations,
liabilities and causes of action of whatsoever kind or nature, whether known or
unknown, which it or he has, may have, or might have or assert now or in the
future against First Union and its directors, officers, employees, attorneys,
agents, successors, predecessors and assigns and any affiliates, subsidiaries
or related entities of First Union and their directors, officers, employees,
attorneys, agents, successors, predecessors and assigns, directly or
indirectly, arising out of, based upon, or in any manner connected with any
transaction, event, circumstance, action, failure to act, or occurrence of any
sort or type, whether known or unknown, which occurred, existed, was taken,
permitted, or begun before the execution of this Agreement.
8. Further Assurances and Corrective Instruments. Each
Borrower will execute, acknowledge and deliver, from time to time, such
supplements hereto and such further instruments and documents as First Union
may require in its discretion to evidence any obligation of the Borrower to
First Union, to protect, perfect and enforce First Union's interest in any
collateral security for such obligations or to facilitate the carrying out of
the intentions of the parties to this Agreement.
-9-
<PAGE> 10
9. Consent to Assignment of Loans and Disclosure of
Documents. Each Borrower consents to the sale and assignment by First Union of
any or all of First Union's interest in the loans evidenced by the Loan
Documents at any time in First Union's sole and absolute discretion. Within
fifteen (15) days after any such sale or assignment, First Union shall provide
the applicable Borrower with notice of the name of the individual or entity
purchasing the loan. In conjunction with any such assignment, each Borrower
consents to the disclosure of any and all books, records, files, loan
agreements, notes, deeds of trust, guaranties, financing statements,
assignments of leases, statements, ledger cards, signature cards, corporate
and/or partnership documents, financial statements, leases, appraisals,
environmental audits, hazard and liability insurance policies, title insurance
policies, loan payment histories, income tax returns, credit analyses, notes,
correspondence, internal memoranda, checks, deposit account records and other
documents relating to any Loan Document to prospective assignees.
10. Power of Attorney. Each Borrower makes, constitutes
and appoints First Union and any agent of First Union designated by First Union
as its true and lawful attorney-in-fact with full power and authority to
endorse, execute and sign for it and in its name all documents and writings
which it is required to execute and deliver to First Union under this
Agreement, any document executed in connection with this Agreement or the Loan
Documents, which First Union deems necessary or appropriate to perfect,
preserve, protect, or enforce First Union's security interest or rights under
this Agreement or the Loan Documents.
11. Miscellaneous.
(a) Future Restructure.
The Borrowers agree that (i) First Union has no
obligation whatsoever to discuss, negotiate, or to agree to any restructuring
of the Line of Credit or the Term Loan, or any modification, amendment,
restructuring or reinstatement of the Loan Documents, as amended by this
Agreement and the documents executed in connection with this Agreement, or,
except as expressly provided in this Agreement and the documents executed in
connection with this
-10-
<PAGE> 11
Agreement, to forbear from exercising its rights and remedies under the Loan
Documents, as amended by this Agreement and the documents executed in
connection with this Agreement and (ii) if there are any future discussions
among First Union and the Borrowers concerning any such restructuring,
modification, amendment, or reinstatement, then no restructuring, modification,
amendment, reinstatement, compromise, settlement, agreement, or understanding
with respect to the Line of Credit or the Term Loan, the Loan Documents, as
amended by this Agreement and the documents executed in connection with this
Agreement, the Collateral or any aspect thereof shall constitute a legally
binding agreement or contract or have any force or effect whatsoever unless and
until reduced to writing and signed by the authorized representatives of the
Borrowers, and that none of the Borrowers shall assert or claim in any legal
proceedings or otherwise that any such agreement exists except in accordance
with the terms of this subsection.
(b) Waivers by First Union.
Neither any failure nor any delay on the part of
First Union in exercising any right, power or remedy under this Agreement, the
Loan Documents, or under applicable law shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercises thereof or the exercise of any other right, power or remedy. No
waiver or forbearance by First Union as to any Borrower shall waive or release
any rights or claims which First Union may now have or hereafter have against
any other person, firm or individual. First Union reserves all rights except
to the extent expressly provided herein.
(c) Modifications.
No modification or waiver of any provision of this
Agreement or the Loan Documents, and no consent by First Union to any
departure by any Borrower therefrom shall in any event be effective unless the
modification, waiver or consent shall be in writing. Any such waiver or
consent shall be effective only in the specific instance or for the purpose for
which given. No notice to or demand upon any Borrower in any case shall
entitle any Borrower to any other or further notice or demand in the same,
similar or other circumstances.
-11-
<PAGE> 12
(d) No Release or Discharge.
Nothing set forth in this Agreement is intended to or
shall act to nullify, discharge or release any obligation of any Borrower or to
waive or release any collateral given to First Union, nor shall this Agreement
be deemed or considered to operate as a novation of any of the Loan Documents
or any obligation thereunder. Except to the extent of any express conflict
with this Agreement, each and all of the terms and conditions of the Loan
Documents shall remain in full force and effect. Nothing in this Agreement
shall be construed to release or discharge the parties from any of their
obligations to First Union arising out of the Loan Documents and the parties
reaffirm their indebtedness to First Union under the Loan Documents.
(e) No Intent to Supersede.
Nothing contained in this Agreement is intended to
supersede the terms and conditions of the Loan Documents, except to the extent
that the terms and conditions of this Agreement and the documents to be
executed contemporaneously with this Agreement are inconsistent with the terms
and conditions of the Loan Documents.
(f) Applicable Law.
The performance, construction and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of Virginia.
(g) Survival; Successors and Assigns.
All covenants, agreements, representations and
warranties made herein and in the Loan Documents shall continue in full force
and effect. Whenever in this Agreement any of the parties is referred to, such
reference shall be deemed to include the successors and assigns of such party.
All covenants, agreements, representations and warranties by or on behalf of
any Borrower which are contained in this Agreement and the Loan Documents shall
inure to the benefit of First Union and its successors and assigns. No
Borrower may assign this Agreement or any of its rights hereunder.
(h) Severability.
-12-
<PAGE> 13
If any term, provision or condition, or any part
thereof, of this Agreement or of the Loan Documents shall for any reason be
found or held to be invalid or unenforceable by any court or governmental
agency of competent jurisdiction, such invalidity or unenforceability shall not
affect the remainder of such term, provision or condition or any other term,
provision or condition, and this Agreement and the Loan Document shall survive
and be construed as if such invalid or unenforceable term, provision or
condition had not been contained therein.
(i) Merger and Integration.
This Agreement, the Loan Documents and any documents
or instruments to be delivered in accordance with this Agreement contain the
entire agreement of the parties hereto with respect to the matters covered and
the transactions contemplated hereby, and no other agreement, statement or
promise made by any party hereto, or any employee, officer, agent or attorney
of any party hereto, shall be valid or binding.
(j) Headings.
The headings and subheadings contained in the titling
of this Agreement are intended to be used for convenience only and shall not be
used or deemed to limit or diminish any of the provisions hereof.
(k) Gender, Singular.
All references made (a) in the neuter, masculine or
feminine gender shall be deemed to have been made in all such genders, and (b)
in the singular or plural number shall be deemed to have been made,
respectively, in the plural or singular number as well.
(l) Time of Essence.
Time is of the essence of this Agreement.
12. Notices.
Any notices required or permitted by this Agreement
or the Loan Documents shall be in writing and shall be deemed delivered if hand
delivered or delivered by
-13-
<PAGE> 14
certified mail, postage prepaid, return receipt requested, or by telecopy or
telegraph as follows, unless such address is changed by written notice
hereunder:
If to the Borrowers:
UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
Cognitive Training Associates, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
Ivy Software, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
Cooper & Associates, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
HTR, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
-14-
<PAGE> 15
UOL Leasing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
If to the Guarantor:
Narasimhan P. Kannan
c/o UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
If to First Union National Bank :
Stephen H. MacNabb
Senior Vice President
First Union National Bank
1970 Chain Bridge Road
McLean, Virginia 22102
with a copy to:
David S. Musgrave, Esquire
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
13. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement.
14. Waiver of Jury Trial. THE BORROWERS WAIVE ALL RIGHT TO TRIAL
BY JURY OF ALL CLAIMS, DEFENSES, COUNTERCLAIMS AND SUITS OF ANY KIND ARISING
FROM OR RELATING TO THIS AGREEMENT AND THE OBLIGATIONS EVIDENCED HEREBY. THE
BORROWERS ACKNOWLEDGE THAT THEY MAKE THIS WAIVER VOLUNTARILY AND KNOWINGLY
AFTER CONSULTATION WITH COUNSEL OF THEIR CHOICE. THE BORROWERS AGREE THAT ALL
SUCH CLAIMS,
-15-
<PAGE> 16
DEFENSES, COUNTERCLAIMS AND SUITS SHALL BE TRIED BEFORE A JUDGE OF COMPETENT
JURISDICTION, WITHOUT A JURY.
15. Binding Effect. This Agreement shall have no effect at law or
equity unless and until First Union has executed this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed, this Agreement under seal as of the date first written above.
WITNESS: UOL PUBLISHING, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COGNITIVE TRAINING ASSOC., INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
IVY SOFTWARE, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COOPER & ASSOCIATES, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
-16-
<PAGE> 17
HTR, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
UOL LEASING, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
(SEAL)
- ---------------------------------- -----------------------------
NARASIMHAN P. KANNAN
FIRST UNION NATIONAL BANK
By: (SEAL)
- ---------------------------------- -----------------------------
Stephen H. MacNabb
Senior Vice President
-17-
<PAGE> 18
AMENDED AND RESTATED
COMMERCIAL PROMISSORY NOTE
$4,000,000.00 May 18, 1998
UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
Cognitive Training Associates, Inc.
310 West Jefferson Street
Waxahachie, Texas 75165
Ivy Software, Inc.
2246 Ivy Road, Suite 14
Charlottesville, Virginia 22903
Cooper & Associates, Inc.
650 Islington Street
Portsmouth, New Hampshire 03801
HTR, Inc.
6110 Executive Boulevard, Suite 900
Rockville, Maryland 20852
UOL Leasing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
(Individually and collectively "Borrower")
First Union National Bank
1970 Chain Bridge Road
McLean, Virginia 22102
(Hereinafter referred to as the "Bank")
IMPORTANT NOTICE
THIS NOTE CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES A
WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A BORROWER AND ALLOWS BANK TO OBTAIN
A JUDGMENT AGAINST YOU WITHOUT FURTHER NOTICE.
<PAGE> 19
RECITALS
1. The Borrower is indebted to the Bank under a
Promissory Note dated December 15, 1997 in the face amount of $3,000,000
evidencing a line of credit to the Borrower for working capital (the "Line of
Credit").
2. The Borrower is also indebted to the Bank under a
Promissory Note dated December 15, 1997 in the face amount of $3,000,000,
evidencing a term loan to the Borrower (the "Term Loan").
3. On December 15, 1997, the Bank and the Borrower
entered into a Loan Agreement setting forth certain obligations of the Borrower
in connection with the Line of Credit and the Term Loan.
4. On December 15, 1997, the Borrower executed in favor
of the Bank a Security Agreement by which the Borrower granted to the Bank a
security interest in their accounts, inventory, equipment and general
intangibles (the "Collateral") to secure payment of, among other things, the
Term Loan and the Line of Credit.
5. The Bank filed financing statements to perfect its
security interest in the Collateral.
6. The Borrower and the Bank modified the terms of the
above-described Loan documents, effective March 31, 1998, pursuant to a Loan
Modification Agreement and related documents, including a First Allonge to
Promissory Note (Line of Credit), a First Allonge to Promissory Note (Term
Loan), an Unconditional Guaranty of Payment, a First Amendment to Loan
Agreement, and a First Amendment to Security Agreement.
7. As of May 18, 1998, there was due on the Line of
Credit principal of $1,500,000, and accrued interest.
8. As of May 18, 1998, there was due on the Term Loan
principal of $2,500,000 and accrued interest.
9. The Borrower is in default under the Line of Credit
and the Term Loan by reason of, among other things, its violation of certain
financial covenants set forth in the Loan Agreement, as amended.
10. The Borrower is executing and delivering this Amended
and Restated Commercial Promissory Note as required under the Second Loan
Modification Agreement dated May 18, 1998, among the Borrower, the Bank, and
Narasimhan P. Kannan.
NOW, THEREFORE, in consideration of the foregoing, the Borrower
promises to pay to the order of Bank, in lawful money of the United States of
America, at its office indicated above or wherever else Bank may specify, the
sum of Four Million Dollars ($4,000,000.00) or such sum as may be advanced and
outstanding from time to time with interest on the unpaid principal
-2-
<PAGE> 20
balance at the rate and on the terms provided in this Amended and Restated
Commercial Promissory Note (including all renewals, extensions or modifications
hereof, this "Note").
INTEREST RATE DEFINITION.
LIBOR MARKET INDEX RATE. The LIBOR Market Index Rate plus 400 basis points as
that rate may change from time to time in accordance with changes in the LIBOR
Market Index Rate ("Interest Rate"). "LIBOR Market Index Rate," for any day,
is the rate for 1 month U.S. dollar deposits as reported on Telerate page 3750
as of 11:00 a.m., London Time, on such day, or if such day is not a London
business day, then the immediately preceding London business day (or if not so
reported, then as determined by Bank from another recognized source or
interbank quotation).
INTEREST RATE TO BE APPLIED.
INTEREST RATE. Subject to the provisions hereof, the unpaid principal balance
of this Note shall bear interest from the date hereof at the Interest Rate.
DEFAULT RATE. In addition to all other rights contained in this Note, if a
default in the payment of the Obligations occurs, all outstanding Obligations
shall bear interest at the Interest Rate plus 3% (Default Rate"). The Default
Rate shall also apply from demand until the Obligations or any judgment thereon
are paid in full.
INTEREST AND FEE(S) COMPUTATION. (ACTUAL/360). Interest and fees, if any,
shall be computed on the basis of a 360-day year for the actual number of days
in the applicable period ("Actual/360 Computation"). The Actual/360
Computation determines the annual effective yield by taking the stated
(nominal) rate for a year's period and then dividing said rate by 360 to
determine the daily periodic rate to be applied for each day in the applicable
period. Application of the Actual/360 Computation produces an annualized
effective rate exceeding that of the nominal rate.
REPAYMENT TERMS. Commencing on May 31, 1998, and continuing monthly thereafter
on the last day of each month, the Borrower shall make interest-only payments
on this Note, until fully paid. The interest payment due on May 31, 1998 shall
include the interest due on the Line of Credit and the Term Loan as of May 18,
1998, and interest due as calculated in accordance with the terms of this Note.
On or before the earlier to occur of June 15, 1998 or receipt of any additional
capital funds (debt, equity, or hybrid), the Borrower shall make a principal
payment on this Note of $2,500,000. This Note shall be due and payable in
full, including all principal and accrued interest, on July 15, 1998.
APPLICATION OF PAYMENTS. Monies received by Bank from any source for
application toward payment of the Obligations shall be applied to accrued
interest and then to principal.
-3-
<PAGE> 21
Upon the occurrence of a default in the payment of the Obligations or a Default
(as defined in the other Loan Documents) under any other Loan Document, monies
may be applied to the Obligations in any manner or order deemed appropriate by
Bank.
If any payment received by Bank under this Note or other Loan Documents is
rescinded, avoided or for any reason returned by Bank because of any adverse
claim or threatened action, the returned payment shall remain payable as an
obligation of all persons liable under this Note or other Loan Documents as
though such payment had not been made.
FACILITY FEE. Borrower shall pay Bank a facility fee of 1.75% of the amount of
each principal payment due under this Note, which facility fee shall be payable
contemporaneously with the delivery by the Borrower of the principal payment.
AUTOMATIC DEBIT OF CHECKING ACCOUNT FOR LOAN PAYMENT. Borrower authorizes Bank
to debit its demand deposit account number of 20500000231212 or any other
account with Bank (routing number 056007604) designated in writing by Borrower,
for any payments due under this Note. Borrower further certifies that Borrower
is the sole owner of any such accounts.
LOAN DOCUMENTS AND OBLIGATIONS. The term "Loan Documents" used in this Note
and other Loan Documents refers to all documents executed in connection with
the loan(s) evidenced by this Note and any prior notes which evidence all or
any portion of the loan(s) evidenced by this Note, and may include, without
limitation, a commitment letter that survives closing, a loan agreement, this
Note, guaranty agreements, security agreements, security instruments, financing
statements, mortgage instruments, letters of credit and any renewals or
modifications, whenever any of the foregoing are executed, but does not include
swap agreements (as defined in 11 U.S.C. Section 101).
The term "Obligations" used in this Note refers to any and all debt and other
obligations under this Note, all other obligations under any other Loan
Documents, and all obligations under any swap agreements as defined in 11
U.S.C. Section 101 between Borrower and Bank whenever executed.
LATE CHARGE. If any payments are not timely made, Borrower shall also pay to
Bank a late charge equal to 5% of each payment past due for 8 or more days.
Acceptance by Bank of any late payment without an accompanying late charge
shall not be deemed a waiver of Bank's right to collect such late charge or to
collect a late charge for any subsequent late payment received.
ATTORNEYS' FEES AND OTHER COLLECTION COSTS. Borrower agrees to pay to Bank,
upon written demand by Bank from time to time, the amount of all expenses,
including attorneys' fees and expenses, paid or incurred by Bank.
-4-
<PAGE> 22
(a) after any of the Obligations are not paid when due (whether by
demand, stated maturity, acceleration or otherwise) or a Default under, or as
defined in, this Note or any of the other Loan Documents shall occur, in
exercising or enforcing or consulting with counsel concerning any of its rights
hereunder, under the other Loan Documents or under law, or;
(b) in defending any and all non-meritorious or previously waived
demands, claims, counterclaims, cross-claims, causes of action, litigation and
proceedings of every kind and nature asserted, commenced or instituted against
Bank, or any of Bank's officers, directors or employees, by Borrower, any
subsidiary or any other obligor on account of, as a result of or relating to,
any action taken or not taken by Bank in connection with the Loan Documents,
the Obligations, the Collateral or the enforcement or exercise by Bank of any
rights or remedies of Bank under this Note, under any of the other Loan
Documents or under law.
Borrower also agrees to pay to Bank, upon written demand by Bank from
time to time, interest on the outstanding amount of such expenses paid by Bank,
from the date of Bank's demand for payment of such expenses until the same are
paid in full, at the highest rate and calculated in the manner provided in the
Note.
USURY. Regardless of any other provision of this Note or other Loan Documents,
if for any reason the effective interest should exceed the maximum lawful
interest, the effective interest shall be deemed to be reduced to, and shall
be, such maximum lawful interest, and (i) the amount which would be excessive
interest shall be deemed applied to the reduction of the principal balance of
this Note and not to the payment of interest, and (ii) if the loan evidenced by
this Note has been or is thereby paid in full, the excess shall be returned to
the party paying same, such application to the principal balance of this Note
or the refunding of excess to be a complete settlement and acquittance thereof.
FINANCIAL AND OTHER INFORMATION. In addition to the financial information
which the Loan Agreement requires the Borrower to provide to the Bank, Borrower
shall deliver to Bank such information as Bank may reasonably request from time
to time, including without limitation, financial statements and information
pertaining to Borrower's financial condition. Such information shall be true,
complete, and accurate.
DEFAULT. If any of the following occurs, a default ("Default") under this Note
shall exist; NONPAYMENT; NONPERFORMANCE. The failure of timely payment or
performance of the Obligations or Default under this Note or any other Loan
Documents. FALSE WARRANTY. A warranty or representation made or deemed made
in the Loan Documents or furnished Bank in connection with the loan evidenced
by this Note proves materially false, or if of a continuing nature, becomes
materially false. CROSS DEFAULT. At Bank's option, any default in payment or
performance of any obligation under any other loans, contracts or agreements of
Borrower, any Subsidiary or Affiliate of Borrower, any general partner of or
the holder(s) of the majority ownership interests of Borrower with Bank or its
affiliates ("Affiliate" shall have the meaning as
-5-
<PAGE> 23
defined in 11 U.S.C. Section 101, except that the term "debtor" therein shall
be substituted by the term "Borrower" herein; "Subsidiary" shall mean any
corporation of which more than 50% of the issued and outstanding voting stock
is owned directly or indirectly by Borrower). CESSATION; BANKRUPTCY. The
death of, appointment of guardian for, dissolution of, termination of existence
of, loss of good standing status by, bankruptcy or insolvency proceeding by or
against the Borrower, its Subsidiaries or Affiliates, if any, or any general
partner of or the holder(s) of the majority ownership interests of Borrower, or
any party to the Loan Documents. MATERIAL CAPITAL STRUCTURE OR BUSINESS
ALTERATION. Without prior written consent of Bank which will not be
unreasonably withheld, (i) a material alteration in the kind or type of
Borrower's business or that of Borrower's Subsidiaries or Affiliates, if any;
(ii) the sale of substantially all of the business or assets of Borrower, any
of Borrower's Subsidiaries or Affiliates or guarantor or a material portion
(10% or more) of such business or assets if such a sale is outside the ordinary
course of business of Borrower, or any of Borrower's Subsidiaries or Affiliates
or any guarantor or more than 50% of the outstanding stock or voting power of
or in any such entity in a single transaction or a series of transactions;
(iii) the acquisition of substantially all of the business or assets or more
than 50% of the outstanding stock or voting power of any other entity; or (iv)
should any Borrower, or any of Borrower's Subsidiaries or Affiliates or
guarantor enter into any merger or consolidation. Notwithstanding the
foregoing in reference to Material Capital Structure or Business Alteration, it
is not an event of default if ownership changes as a result of the purchase
and/or sale of UOL Publishing, Inc.'s traded securities in the public markets.
REMEDIES. If a Default occurs under this Note or any Loan Documents, Bank may
at any time thereafter take the following actions: BANK LIEN. Foreclose its
security interest or lien against the Collateral without notice. ACCELERATION
UPON DEFAULT. Accelerate the maturity of this Note and all other Obligations,
and all of the Obligations shall be immediately due and payable. CUMULATIVE.
Exercise any rights and remedies as provided under this Note and the other Loan
Documents, or as provided by law or equity.
CONFESSION OF JUDGMENT. The Borrower hereby duly constitutes and appoints
Keith Northern, Gregory Baugher (each of whom is an officer of Bank), and Bank
through an officer duly authorized by Bank (any of the foregoing may act), as
the true and lawful attorneys-in-fact for it, in its name, place and stead, and
upon the occurrence of a Default in the payment or performance of the
Obligations due under this Note, at maturity, or upon acceleration, to confess
judgment against it, in favor of Bank, before the Clerk of the Circuit Court
for the County of Fairfax, Virginia, in accordance with 1950 Code of Virginia,
Section 8.01-431 et seq., and any successor statute, for all amounts owed with
respect to the Obligations under and pursuant to this Note including, without
limitation, all costs of collection, attorneys' fees in an amount equal to 15%
of the Obligations then outstanding (which shall be deemed reasonable
attorneys' fees for the purposes of this paragraph), and court costs, hereby
ratifying and confirming the acts of said attorney-in-fact as if done by
itself. Upon request of Bank, the Borrower will execute an amendment or other
agreement substituting attorneys-in-fact appointed to act for the Borrower
hereunder.
-6-
<PAGE> 24
LOAN AGREEMENT. This Note is subject to the provisions of the Loan Agreement,
as modified from time to time.
WAIVERS AND AMENDMENTS. No waivers, amendments or modifications of this Note
and other Loan Documents shall be valid unless in writing and signed by an
officer of Bank. No waiver by Bank of any Default (as defined in the other
Loan Documents) shall operate as a waiver of any other Default or the same
Default on a future occasion. Neither the failure nor any delay on the part of
Bank in exercising any right, power, or remedy under this Note and other Loan
Documents shall operate as a waiver thereof, nor shall a single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or remedy.
The Borrower waives presentment, protest, notice of dishonor, notice of sale
and all other notices of any kind. Further, the Borrower agrees that Bank may
extend, modify or renew this Note or make a novation of the loan evidenced by
this Note for any period and grant any releases, compromises or indulgences
with respect to any collateral securing this Note, all without notice to or
consent of the Borrower and without affecting the liability of Borrower under
this Note or other Loan Documents.
MISCELLANEOUS PROVISIONS. ASSIGNMENT. This Note and other Loan Documents
shall inure to the benefit of and be binding upon the parties and their
respective heirs, legal representatives, successors and assigns. Bank's
interests in and rights under this Note and other Loan Documents are freely
assignable, in whole or in part, by Bank. In addition, nothing in this Note or
any of the Loan Documents shall prohibit Bank from pledging or assigning this
Note or any of the Loan Documents or any interest therein to any Federal
Reserve Bank. Borrower shall not assign its rights and interest hereunder
without the prior written consent of Bank, and any attempt by Borrower to
assign without Bank's prior written consent is null and void. Any assignment
shall not release Borrower from the Obligations. APPLICABLE LAW; CONFLICT
BETWEEN DOCUMENTS. This Note and other Loan Documents shall be governed by and
construed under the laws of the state named in Bank's address shown above
without regard to that state's conflict of laws principles. If the terms of
this Note should conflict with the terms of the loan agreement or any
commitment letter that survives closing, the terms of this Note shall control.
BORROWER'S ACCOUNTS. Except as prohibited by law, Borrower grants Bank a
security interest in all of Borrower's accounts with Bank and any of its
affiliates. JURISDICTION. Borrower irrevocably agrees to non-exclusive
personal jurisdiction in the state named in Bank's address shown above.
SEVERABILITY. If any provision of this Note or of the other Loan Documents
shall be prohibited or invalid under applicable law, such provision shall be
ineffective but only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Note or other such document. NOTICES. Any notices to Borrower shall be
sufficiently given, if in writing and mailed or delivered to the Borrower's
address shown above or such other address as provided hereunder, and to Bank,
if in writing and mailed or delivered to Bank's office address shown above or
such other address as Bank may specify in writing from time to time. If
Borrower changes Borrower's address at any time before
-7-
<PAGE> 25
the date the Obligations are paid in full, Borrower agrees to promptly give
written notice of said change of address by registered or certified mail,
return receipt requested, all charges prepaid. PLURAL; CAPTIONS. All
references in the Loan Documents to Borrower, guarantor, person, document or
other nouns of reference mean both the singular and plural form, as the case
may be, and the term "person" shall mean any individual, person or entity. The
captions contained in the Loan Documents are inserted for convenience only and
shall not affect the meaning or interpretation of the Loan Documents. BINDING
CONTRACT. Borrower by execution of and Bank by acceptance of this Note agree
that each party is bound to all terms and provisions of this Note. ADVANCES.
Bank in its sole discretion may make other Advances under this Note pursuant
hereto. POSTING OF PAYMENTS. All payments received during normal banking
hours after 2:00 p.m. local time at the office of Bank first shown above shall
be deemed received at the opening of the next banking day. FEES AND TAXES.
Borrower shall promptly pay all documentary, intangible recordation and/or
similar taxes on this transaction whether assessed at closing or arising from
time to time.
ARBITRATION. Upon demand of any party hereto, whether made before or after
institution of any judicial proceeding, any dispute, claim or controversy
arising out of, connected with or relating to this Note and other Loan
Documents ("Disputes") between or among parties to this Note shall be resolved
by binding arbitration as provided herein. Institution of a judicial
proceeding by a party does not waive the right of that party to demand
arbitration hereunder. Disputes may include, without limitation, tort claims,
counterclaims, disputes as to whether a matter is subject to arbitration, or
claims arising out of or connected with the transaction reflected by this Note.
Arbitration shall be conducted under and governed by the Commercial Financial
Disputes Arbitration Rules (the "Arbitration Rules") of the American
Arbitration Association (the "AAA") and Title 9 of the U.S. Code. All
arbitration hearings shall be conducted in the city in which the office of Bank
first stated above is located. The expedited procedures set forth in Rule 51
et seq. of the Arbitration Rules shall be applicable to claims of less than
$1,000,000.00. All applicable statutes of limitation shall apply to any
Dispute. A judgment upon the award may be entered in any court having
jurisdiction. The panel from which all arbitrators are selected shall be
comprised of licensed attorneys. The single arbitrator selected for expedited
procedure shall be a retired judge from the highest court of general
jurisdiction, state or federal, of the state where the hearing will be
conducted or if such person is not available to serve, the single arbitrator
may be a licensed attorney. Notwithstanding the foregoing, this arbitration
provision does not apply to disputes under or related to swap agreements.
PRESERVATION AND LIMITATION OF REMEDIES. Notwithstanding the preceding binding
arbitration provisions, Bank and Borrower agree to preserve, without
diminution, certain remedies that any party hereto may employ or exercise
freely, independently or in connection with any arbitration proceeding or after
an arbitration action is brought. Bank and Borrower shall have the right to
proceed in any court of proper jurisdiction or by self-help to exercise or
prosecute the following remedies, as applicable: (i) all rights to foreclose
against any real or
-8-
<PAGE> 26
personal property or other security by exercising a power of sale granted under
Loan Documents or under applicable law or by judicial foreclosure and sale,
including a proceeding to confirm the sale (ii) all rights of self-help
including peaceful occupation of real property and collection of rents,
set-offs, and peaceful possession of personal property; (iii) obtaining
provisional or ancillary remedies including injunctive relief, sequestration,
garnishment, attachment, appointment of receiver and filing an involuntary
bankruptcy proceeding; and (iv) when applicable, a judgment by confession of
judgment. Preservation of these remedies does not limit the power of an
arbitrator to grant similar remedies that may be requested by a party in a
Dispute.
Borrower and Bank agree that they shall not have a remedy of punitive or
exemplary damages against the other in any Dispute and hereby waive any right
or claim to punitive or exemplary damages they have now or which may arise in
the future in connection with any Dispute whether the Dispute is resolved by
arbitration or judicially.
IN WITNESS WHEREOF, Borrower, on the __________ day of May, 1998, has caused
this Note to be executed under seal.
WITNESS: UOL PUBLISHING, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COGNITIVE TRAINING ASSOC., INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
IVY SOFTWARE, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COOPER & ASSOCIATES, INC.
-9-
<PAGE> 27
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
HTR, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
UOL LEASING, INC.
By: (SEAL)
- ---------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
-10-
<PAGE> 28
SECOND AMENDMENT TO LOAN AGREEMENT
This SECOND AMENDMENT TO LOAN AGREEMENT (this "Second Amendment") is
effective the 18th day of May, 1998, by and among FIRST UNION NATIONAL BANK
(the "Bank"), and UOL PUBLISHING, INC., COGNITIVE TRAINING ASSOCIATES, INC.,
IVY SOFTWARE, INC., COOPER & ASSOCIATES, INC., HTR, INC., and UOL LEASING, INC.
(collectively, the "Borrower" and individually a "Borrower").
RECITALS
1. The Borrower and the Bank entered into a Loan Agreement dated
December 15, 1997, in connection with the extension of credit by the Bank to
the Borrower.
2. The Borrower and the Bank executed a First Amendment to Loan
Agreement dated March 31, 1998, in connection with a modification of the terms
of Borrower's loan facilities with the Bank, and a Loan Modification Agreement
dated March 31, 1998.
3. The Borrower and the Bank have agreed to again modify the
terms of the Loan Agreement, in connection with a Second Loan Modification
Agreement executed contemporaneously with this Second Amendment (the "Second
Loan Modification Agreement").
NOW, THEREFORE, in consideration of the foregoing, the Borrower and
the Bank agree that the Loan Agreement is further amended as follows:
1. Affirmative Covenants. The section of the Loan Agreement
entitled "AFFIRMATIVE COVENANTS" is amended to delete the affirmative covenant
added by the First Amendment to Loan Agreement requiring the Borrower to use
its best efforts to raise an additional $2,700,000 in cash equity capital on or
before September 30, 1998.
2. Negative Covenants. The section of the Loan Agreement
entitled "NEGATIVE COVENANTS" is further amended to revise the following
negative covenant added by the First Amendment to Loan Agreement to read as
follows: "The Borrower shall not pay any fees, compensation or similar
payments due to Friedman, Billings, Ramsey and Co., Inc. in connection with any
equity capital raised by the Borrower in 1998, until all Obligations to the
Bank are paid in full."
<PAGE> 29
3. Financial Covenants. The section of the Loan Agreement
entitled "FINANCIAL COVENANTS" is delted in its entirety
4. Borrowing Base. The first paragraph of the section of the
Loan Agreement entitled "BORROWING BASE" is deleted in its entirety. The Bank
shall be under no obligation to make advances to the Borrower under the Line of
Credit. Effective May 18, 1998, the Line of Credit is converted to a term
loan, evidenced by the Amended and Restated Commercial Promissory Note dated
May 18, 1998 by the Borrower in favor of the Bank.
5. No Novation. All of the terms, covenants and conditions of
the Loan Agreement shall continue in full force and effect, as amended by the
First Amendment to Loan Agreement and this Second Amendment. This Second
Amendment is not intended to be, and shall not constitute, a substitution or
novation of the Loan Agreement.
6. Renewal of Covenants and Agreements. The Borrower renews its
covenant and agreement to perform, comply with and be bound by each and every
of the other terms and provisions of the Loan Agreement, as amended by the
First Amendment to Loan Agreement and this Second Amendment.
7. Successors and Assigns. Each and every of the terms and
provisions of this Second Amendment shall be binding upon and shall inure to
the benefit of the parties and their respective heirs, successors, personal
representatives and assigns.
-2-
<PAGE> 30
IN WITNESS WHEREOF, the Borrower and the Bank have caused this Second
Amendment to be executed under seal as of the date first written above.
WITNESS: UOL PUBLISHING, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COGNITIVE TRAINING ASSOC., INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
IVY SOFTWARE, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COOPER & ASSOCIATES, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
HTR, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive OFFICER
-3-
<PAGE> 31
UOL LEASING, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
FIRST UNION NATIONAL BANK
By: (SEAL)
- --------------------------------- -----------------------------
Stephen H. MacNabb
Senior Vice President
-4-
<PAGE> 32
THIRD LOAN MODIFICATION AGREEMENT
This THIRD LOAN MODIFICATION AGREEMENT ("Agreement") is dated and
effective as of July 15, 1998, by and among UOL PUBLISHING, INC., COGNITIVE
TRAINING ASSOCIATES, INC., IVY SOFTWARE, INC., COOPER & ASSOCIATES, INC., HTR,
INC., and UOL LEASING, INC. (collectively, the "Borrowers" and individually a
"Borrower"), NARASIMHAN P. KANNAN (the "Guarantor"), and FIRST UNION NATIONAL
BANK ("First Union").
RECITALS
1. The Borrowers were indebted to First Union under a
Promissory Note dated December 15, 1997 in the face amount of $3,000,000,
evidencing a line of credit to the Borrowers for working capital (the "Line of
Credit").
2. The Borrowers were also indebted to First Union under
a Promissory Note dated December 15, 1997 in the face amount of $3,000,000,
evidencing a term loan to the Borrowers (the "Term Loan").
3. On December 15, 1997, First Union and the Borrowers
entered into a Loan Agreement setting forth certain obligations of the
Borrowers in connection with the Line of Credit and the Term Loan.
4. On December 15, 1997, the Borrowers executed in favor
of First Union a Security Agreement by which the Borrowers granted to First
Union a security interest in their accounts, inventory, equipment and general
intangibles (the "Collateral") to secure payment of, among other things, the
Term Loan and the Line of Credit.
<PAGE> 33
5. First Union filed financing statements to perfect its
security interest in the Collateral.
6. The Borrowers, the Guarantor and First Union modified
the terms of the above-described loan documents, effective March 31, 1998,
pursuant to a Loan Modification Agreement and related documents, including a
First Allonge to Promissory Note (Line of Credit), a First Allonge to
Promissory Note (Term Loan), an Unconditional Guaranty of Payment, a First
Amendment to Loan Agreement, and a First Amendment to Security Agreement.
7. The Borrowers, the Guarantor and First Union further
modified the terms of the above-described loan documents, effective May 18,
1998, pursuant to a Second Loan Modification Agreement and related documents,
including an Amended and Restated Commercial Promissory Note, an Amended and
Restated Unconditional Guaranty of Payment and a Second Amendment to Loan
Agreement.
8. As of July 23, 1998, there was due on the Amended
and Restated Commercial Promissory Note principal of $2,000,000, interest of
$50,187.77, and attorneys' fees.
9. The Amended and Restated Commercial Promissory Note
matured on July 15, 1998 and has not been paid.
10. The Borrowers have requested that First Union extend
the maturity of the Amended and Restated Commercial Promissory Note and First
Union is agreeable to doing so subject to the terms, conditions and provisions
of this Agreement.
11. The term "Loan Documents" as used in this Agreement
shall mean and include the Amended and Restated Commercial Promissory Note; the
Loan Agreement, as amended, the Security Agreement, as amended; the Amended and
Restated Unconditional Guaranty of Payment and the financing statements filed
with respect to First Union's collateral.
-2-
<PAGE> 34
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are acknowledged, the parties agree as follows:
1. Recitals. The recitals set forth above are a
material part of this Agreement. The Borrowers acknowledge and affirm the
truth and accuracy of the recitals set forth above.
2. Confirmation and Ratification of Documents. The
Borrowers agree that all of the Loan Documents are in full force and effect,
and that they shall remain in full force and effect unless and until modified
or amended in writing in accordance with their terms. The Borrowers agree that
First Union's security interest in the Collateral shall remain in full force
and effect to secure payment of all sums owing by the Borrowers to First Union.
The Borrowers ratify and confirm their respective obligations under the Loan
Documents, and agree that the execution and delivery of this Agreement shall
not in any way diminish or invalidate any of their respective debts or
obligations under the Loan Documents. All parties consent to the execution and
delivery of this Agreement and to all of the provisions of this Agreement to
the extent that such provisions may modify the terms and provisions of any of
the Loan Documents.
3. Payments and Delivery of Documents upon Execution of
Agreement. Upon execution of this Agreement:
(a) Subject to Section 4(n) below, the Borrowers
shall pay to First Union all costs and expenses (including but not limited to
actual attorneys' fees) incurred by First Union in connection with this
Agreement and in connection with the Second Loan Modification Agreement;
(b) The Borrowers shall pay $35,300.34 to First
Union to bring interest current to June 30, 1998; and
(c) The Borrowers and First Union shall execute a
First Allonge to Amended and Restated Commercial Promissory Note in the form
attached as Exhibit No. 1, which shall, among other things, extend the maturity
date of the Amended and Restated Commercial Promissory Note to September 8,
1998.
-3-
<PAGE> 35
4. Representations and Warranties of the Borrowers. To
induce First Union to enter into this Agreement, the Borrowers represent,
confirm and warrant to First Union as follows:
(a) Validity.
This Agreement constitutes the legal, valid and
binding obligation of the Borrowers and is enforceable in accordance with its
terms.
(b) Good Standing.
The Borrowers are corporations duly organized,
legally existing and in good standing under the laws of their respective states
of incorporation, have the power to own their property and to carry on their
businesses and are duly qualified to do business and are in good standing in
their respective states of incorporation.
(c) Authority.
The Borrowers have full power and authority to enter
into this Agreement, to execute and deliver all documents and instruments
required hereunder and thereunder, and to incur and perform the obligations
provided for herein and therein, all of which have been duly authorized by all
necessary corporate action, and no consent or approval of any person,
including, without limitation, its members and any governmental authority,
which has not been obtained, is required as a condition to the validity or
enforceability hereof or thereof.
(d) Financial Condition.
Each Borrower is not insolvent (as defined in Section
101(32) of the United States Bankruptcy Code), unable to pay its debts as they
mature or engaged in business for which its property is an unreasonably small
capital. Each Borrower is not and has not been the subject of any bankruptcy,
reorganization, insolvency, readjustment of debt, trusteeship, receivership,
dissolution or liquidation law, statute or proceeding.
(e) Taxes.
-4-
<PAGE> 36
Each Borrower has paid or caused to be paid all
federal, state, local and foreign taxes to the extent that such taxes have
become due and has filed or caused to be filed all federal, state, local and
foreign tax returns which are required to be filed by the Borrower.
(f) Compliance with Other Instruments.
Each Borrower is not in violation of any existing
governmental order, rule or regulation applicable to it, or of any agreement or
other instrument to which it is a party or by which it or its assets are
bound. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated by this Agreement, nor compliance
with the terms and provisions of this Agreement, has constituted or resulted in
or will constitute or result in a breach of any of the terms, covenants,
conditions or provisions of, or will constitute a default under, any deed of
trust, instrument, document, agreement or contract of any kind to which any
Borrower is a party or by which any Borrower may be bound or subject.
(g) Title to Collateral and Existing Liens on Collateral.
Each Borrower has good and marketable title to the
Collateral that secures its liability to First Union and the Collateral is not
subject to any existing liens or encumbrances except those held by First Union.
(h) No Claims, etc.
The Borrowers do not have any claims, defenses or
setoffs with respect to the Loan Documents, or with respect to the debt
evidenced or secured thereby or with respect to the collection or enforcement
of any of the same (and to the extent that any such claim, setoff or defense
exists, they are each waived and relinquished in their entirety).
-5-
<PAGE> 37
(i) Disclosure.
To the best of the knowledge of the Borrowers, all
documents, certificates or statements furnished to First Union by or on behalf
of any Borrower in connection with the Loan Documents or this Agreement are
true, correct and complete and do not contain any untrue statement of material
fact.
(j) Benefit.
Each Borrower has derived direct or indirect benefit
from this Agreement and the transactions contemplated hereby.
(k) Interpretation.
Each party acknowledges (i) that it has participated
in the negotiation of this Agreement, and that no provision of this Agreement
shall be construed against or interpreted to the disadvantage of any party
hereto by any court or other governmental or judicial authority by reason of
such party having or being deemed to have structured, dictated or drafted such
provision; (ii) that it at all times has had access to an attorney in the
negotiation of the terms of and in the preparation and execution of this
Agreement, and that it has had the opportunity to review, analyze, and discuss
with its counsel this Agreement, and the underlying factual matters relevant to
this Agreement, for a sufficient period of time before the execution and
delivery hereof; (iii) that all of the terms of this Agreement were negotiated
at arm's-length; (iv) that this Agreement was prepared and executed without
fraud, duress, undue influence, or coercion of any kind exerted by any of the
parties upon the others; and (v) that the execution and delivery of this
Agreement is the free and voluntary act of each party.
(l) No Representations by First Union.
First Union has made no representations or
commitments, oral or written, or undertaken any obligations other than as
expressly set forth in this Agreement.
-6-
<PAGE> 38
(m) No Default.
Upon execution of this Agreement and all documents
listed and described in Section 3 of this Agreement, the Borrowers, to the best
of their knowledge, will not be in default under the Loan Documents.
(n) Expenses.
Whether or not any of the transactions contemplated
hereby shall be consummated, Borrowers agree to pay to First Union, upon
written demand by First Union from time to time, the amount of all expenses,
including attorneys' fees and expenses, paid or incurred by First Union in
connection with the preparation, or the amendment, modification, extension,
renewal, refinancing, supplementation, replacement, waiver, release or
termination, of this Agreement or any other Loan Documents or any terms or
conditions hereof or thereof or any rights or interests of First Union,
Borrowers or any other person relating to any of the foregoing, or otherwise in
connection with the extension of credit hereunder. Borrowers agree to pay all
expenses in connection with the filing or recordation of all financing
statements and other documents as may be required by First Union at the time
of, or subsequent to, the execution of this Agreement, including, without
limitation, all documentary stamps, recordation and transfer taxes, filing fees
and other costs and taxes incident to recordation of any document in connection
herewith, and, if any such expenses shall be paid or incurred by First Union,
to pay to First Union upon written demand the amount of such expenses.
Borrowers also agree to pay to First Union, upon written demand by First Union,
from time to time, interest on the outstanding amount of all expenses paid by
First Union referred to in this Subsection 4(n), from the date of First Union's
demand for payment of such expenses until the same are paid in full, at the
highest rate and calculated in the manner provided in the Amended and Restated
Commercial Promissory Note described in Section 3 above.
5. Representations and Warranties of Guarantor. The
Guarantor confirms his agreement to guarantee all of the Borrowers' Obligations
to First Union and consents to the
-7-
<PAGE> 39
execution and performance by the Borrowers of all terms and conditions of this
Agreement and the documents to be executed in connection with this Agreement.
6. Additional Waivers by Borrowers.
Each Borrower hereby waives, to the extent the same
may be waived under applicable law:
(a) notice of acceptance by First Union of this
Agreement;
(b) all claims, causes of action and rights of
Borrower against First Union on account of actions taken or not taken by First
Union in the exercise of First Union's rights or remedies hereunder or under
any other Loan Documents, or under law, provided that the same did not arise
from First Union's gross negligence or willful misconduct;
(c) all claims and causes of action of Borrower
against First Union for punitive, exemplary or other non-compensatory damages;
(d) all rights of redemption of Borrower with
respect to any of the Collateral;
(e) if First Union seeks to repossess any or all
of the Collateral by judicial proceedings, any bonds or demands for possession
which otherwise may be required;
(f) all rights of Borrower to have marshalled the
Collateral or any other security for any of the Obligations;
(g) presentment, protest, notice of protest and
notice of nonpayment with respect to all of the Obligations;
(h) settlement, compromise or release of the
obligations of any other person primarily or secondarily liable upon or
obligated with respect to any of the Obligations;
(i) substitution, impairment, exchange or release
of any direct or indirect security for any of the Obligations; and
-8-
<PAGE> 40
(j) any duty or obligation of First Union to
disclose to Borrower any information concerning any other customer or client,
or prospective customer or client, of First Union.
Each Borrower agrees that First Union may exercise any or all of its
rights and/or remedies hereunder, under the other Loan Documents and under law
without resorting to, without regard to, and regardless of the adequacy of, any
security or other sources of liability with respect to any of the Obligations.
7. Release. The Borrowers and the Guarantor each hereby
release and forever waive and relinquish all claims, demands, obligations,
liabilities and causes of action of whatsoever kind or nature, whether known or
unknown, which it or he has, may have, or might have or assert now or in the
future against First Union and its directors, officers, employees, attorneys,
agents, successors, predecessors and assigns and any affiliates, subsidiaries
or related entities of First Union and their directors, officers, employees,
attorneys, agents, successors, predecessors and assigns, directly or
indirectly, arising out of, based upon, or in any manner connected with any
transaction, event, circumstance, action, failure to act, or occurrence of any
sort or type, whether known or unknown, which occurred, existed, was taken,
permitted, or begun before the execution of this Agreement.
8. Further Assurances and Corrective Instruments. Each
Borrower will execute, acknowledge and deliver, from time to time, such
supplements hereto and such further instruments and documents as First Union
may require in its discretion to evidence any obligation of the Borrower to
First Union, to protect, perfect and enforce First Union's interest in any
collateral security for such obligations or to facilitate the carrying out of
the intentions of the parties to this Agreement.
9. Consent to Assignment of Loans and Disclosure of
Documents. Each Borrower consents to the sale and assignment by First Union of
any or all of First Union's interest in the loans evidenced by the Loan
Documents at any time in First Union's sole and
-9-
<PAGE> 41
absolute discretion. Within fifteen (15) days after any such sale or
assignment, First Union shall provide the applicable Borrower with notice of
the name of the individual or entity purchasing the loan. In conjunction with
any such assignment, each Borrower consents to the disclosure of any and all
books, records, files, loan agreements, notes, deeds of trust, guaranties,
financing statements, assignments of leases, statements, ledger cards,
signature cards, corporate and/or partnership documents, financial statements,
leases, appraisals, environmental audits, hazard and liability insurance
policies, title insurance policies, loan payment histories, income tax returns,
credit analyses, notes, correspondence, internal memoranda, checks, deposit
account records and other documents relating to any Loan Document to
prospective assignees.
10. Power of Attorney. Each Borrower makes, constitutes
and appoints First Union and any agent of First Union designated by First Union
as its true and lawful attorney-in-fact with full power and authority to
endorse, execute and sign for it and in its name all documents and writings
which it is required to execute and deliver to First Union under this
Agreement, any document executed in connection with this Agreement or the Loan
Documents, which First Union deems necessary or appropriate to perfect,
preserve, protect, or enforce First Union's security interest or rights under
this Agreement or the Loan Documents.
11. Miscellaneous.
(a) Future Restructure.
The Borrowers agree that (i) First Union has no
obligation whatsoever to discuss, negotiate, or to agree to any restructuring
of the Line of Credit or the Term Loan, or any modification, amendment,
restructuring or reinstatement of the Loan Documents, as amended by this
Agreement and the documents executed in connection with this Agreement, or,
except as expressly provided in this Agreement and the documents executed in
connection with this Agreement, to forbear from exercising its rights and
remedies under the Loan Documents, as amended by this Agreement and the
documents executed in connection with this Agreement and (ii) if there are any
future discussions among First Union and the Borrowers concerning any such
-10-
<PAGE> 42
restructuring, modification, amendment, or reinstatement, then no
restructuring, modification, amendment, reinstatement, compromise, settlement,
agreement, or understanding with respect to the Line of Credit or the Term
Loan, the Loan Documents, as amended by this Agreement and the documents
executed in connection with this Agreement, the Collateral or any aspect
thereof shall constitute a legally binding agreement or contract or have any
force or effect whatsoever unless and until reduced to writing and signed by
the authorized representatives of the Borrowers, and that none of the Borrowers
shall assert or claim in any legal proceedings or otherwise that any such
agreement exists except in accordance with the terms of this subsection.
(b) Waivers by First Union.
Neither any failure nor any delay on the part of
First Union in exercising any right, power or remedy under this Agreement, the
Loan Documents, or under applicable law shall operate as a waiver thereof, nor
shall a single or partial exercise thereof preclude any other or further
exercises thereof or the exercise of any other right, power or remedy. No
waiver or forbearance by First Union as to any Borrower shall waive or release
any rights or claims which First Union may now have or hereafter have against
any other person, firm or individual. First Union reserves all rights except
to the extent expressly provided herein.
(c) Modifications.
No modification or waiver of any provision of this
Agreement or the Loan Documents, and no consent by First Union to any departure
by any Borrower therefrom shall in any event be effective unless the
modification, waiver or consent shall be in writing. Any such waiver or
consent shall be effective only in the specific instance or for the purpose for
which given. No notice to or demand upon any Borrower in any case shall
entitle any Borrower to any other or further notice or demand in the same,
similar or other circumstances.
(d) No Release or Discharge.
Nothing set forth in this Agreement is intended to or
shall act to nullify, discharge or release any obligation of any Borrower or to
waive or release any collateral given to
-11-
<PAGE> 43
First Union, nor shall this Agreement be deemed or considered to operate as a
novation of any of the Loan Documents or any obligation thereunder. Except to
the extent of any express conflict with this Agreement, each and all of the
terms and conditions of the Loan Documents shall remain in full force and
effect. Nothing in this Agreement shall be construed to release or discharge
the parties from any of their obligations to First Union arising out of the
Loan Documents and the parties reaffirm their indebtedness to First Union under
the Loan Documents.
(e) No Intent to Supersede.
Nothing contained in this Agreement is intended to
supersede the terms and conditions of the Loan Documents, except to the extent
that the terms and conditions of this Agreement and the documents to be
executed contemporaneously with this Agreement are inconsistent with the terms
and conditions of the Loan Documents.
(f) Applicable Law.
The performance, construction and enforcement of this
Agreement shall be governed by the laws of the Commonwealth of Virginia.
(g) Survival; Successors and Assigns.
All covenants, agreements, representations and
warranties made herein and in the Loan Documents shall continue in full force
and effect. Whenever in this Agreement any of the parties is referred to, such
reference shall be deemed to include the successors and assigns of such party.
All covenants, agreements, representations and warranties by or on behalf of
any Borrower which are contained in this Agreement and the Loan Documents shall
inure to the benefit of First Union and its successors and assigns. No
Borrower may assign this Agreement or any of its rights hereunder.
(h) Severability.
If any term, provision or condition, or any part
thereof, of this Agreement or of the Loan Documents shall for any reason be
found or held to be invalid or unenforceable by any court or governmental
agency of competent jurisdiction, such invalidity or unenforceability
-12-
<PAGE> 44
shall not affect the remainder of such term, provision or condition or any
other term, provision or condition, and this Agreement and the Loan Document
shall survive and be construed as if such invalid or unenforceable term,
provision or condition had not been contained therein.
(i) Merger and Integration.
This Agreement, the Loan Documents and any documents
or instruments to be delivered in accordance with this Agreement contain the
entire agreement of the parties hereto with respect to the matters covered and
the transactions contemplated hereby, and no other agreement, statement or
promise made by any party hereto, or any employee, officer, agent or attorney
of any party hereto, shall be valid or binding.
(j) Headings.
The headings and subheadings contained in the titling
of this Agreement are intended to be used for convenience only and shall not be
used or deemed to limit or diminish any of the provisions hereof.
(k) Gender, Singular.
All references made (a) in the neuter, masculine or
feminine gender shall be deemed to have been made in all such genders, and (b)
in the singular or plural number shall be deemed to have been made,
respectively, in the plural or singular number as well.
(l) Time of Essence.
Time is of the essence of this Agreement.
12. Notices.
Any notices required or permitted by this Agreement
or the Loan Documents shall be in writing and shall be deemed delivered if hand
delivered or delivered by certified mail, postage prepaid, return receipt
requested, or by telecopy or telegraph as follows, unless such address is
changed by written notice hereunder:
If to the Borrowers:
-13-
<PAGE> 45
UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
Cognitive Training Associates, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
Ivy Software, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
Cooper & Associates, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
HTR, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
UOL Leasing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
ATTN: Joanne O'Rourke Hindman, CFO
-14-
<PAGE> 46
If to the Guarantor:
Narasimhan P. Kannan
c/o UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
If to First Union National Bank :
Thomas G. Cooper, Sr.
Vice President
First Union National Bank
Seventh Floor
1970 Chain Bridge Road
McLean, Virginia 22102
with a copy to:
David S. Musgrave, Esquire
Piper & Marbury L.L.P.
36 South Charles Street
Baltimore, Maryland 21201
13. Counterparts. This Agreement may be executed simultaneously
in any number of counterparts, each of which shall be deemed an original, but
all of which shall constitute one and the same agreement.
14. Waiver of Jury Trial. THE BORROWERS WAIVE ALL RIGHT TO TRIAL
BY JURY OF ALL CLAIMS, DEFENSES, COUNTERCLAIMS AND SUITS OF ANY KIND ARISING
FROM OR RELATING TO THIS AGREEMENT AND THE OBLIGATIONS EVIDENCED HEREBY. THE
BORROWERS ACKNOWLEDGE THAT THEY MAKE THIS WAIVER VOLUNTARILY AND KNOWINGLY
AFTER CONSULTATION WITH COUNSEL OF THEIR CHOICE. THE BORROWERS AGREE THAT ALL
SUCH CLAIMS, DEFENSES, COUNTERCLAIMS AND SUITS SHALL BE TRIED BEFORE A JUDGE OF
COMPETENT JURISDICTION, WITHOUT A JURY.
-15-
<PAGE> 47
15. Binding Effect. This Agreement shall have no effect at law or
equity unless and until First Union has executed this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed or caused to be
executed, this Agreement under seal as of the date first written above.
WITNESS: UOL PUBLISHING, INC.
By: (SEAL)
- -------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COGNITIVE TRAINING ASSOC., INC.
By: (SEAL)
- -------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
IVY SOFTWARE, INC.
By: (SEAL)
- -------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COOPER & ASSOCIATES, INC.
By: (SEAL)
- -------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
-16-
<PAGE> 48
HTR, INC.
By: (SEAL)
- -------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
UOL LEASING, INC.
By: (SEAL)
- -------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
(SEAL)
- -------------------------------- -----------------------------
NARASIMHAN P. KANNAN
FIRST UNION NATIONAL BANK
By: (SEAL)
- -------------------------------- -----------------------------
Gregory A. Baugher
Senior Vice President
-17-
<PAGE> 49
IMPORTANT
THIS FIRST ALLONGE TO AMENDED AND RESTATED COMMERCIAL PROMISSORY NOTE AMENDS AN
INSTRUMENT WHICH CONTAINS A CONFESSION OF JUDGMENT PROVISION WHICH CONSTITUTES
A WAIVER OF IMPORTANT RIGHTS YOU MAY HAVE AS A DEBTOR AND ALLOWS THE CREDITOR
TO OBTAIN A JUDGMENT AGAINST YOU WITHOUT ANY FURTHER NOTICE.
FIRST ALLONGE TO AMENDED AND RESTATED
COMMERCIAL PROMISSORY NOTE
This FIRST ALLONGE TO AMENDED AND RESTATED COMMERCIAL PROMISSORY NOTE
(this "First Allonge") is effective the 15th day of July, 1998, by and among
FIRST UNION NATIONAL BANK ("Lender"), and UOL PUBLISHING, INC., COGNITIVE
TRAINING ASSOCIATES, INC., IVY SOFTWARE, INC., COOPER & ASSOCIATES, INC., HTR,
INC., and UOL LEASING, INC. (collectively, the "Borrowers" and individually a
"Borrower").
RECITALS
1. The Borrowers are indebted to the Lender (the "Loan") pursuant to
an Amended and Restated Commercial Promissory Note (the "Note") dated May 18,
1998, in the original principal sum of $4,000,000.
2. The Borrowers have requested that the Lender modify the terms of
the Note, and the Lender is agreeable to doing so subject to the terms and
conditions set forth herein and in a Third Loan Modification Agreement executed
contemporaneously with this First Allonge (the "Third Loan Modification
Agreement").
<PAGE> 50
NOW, THEREFORE, in consideration of the foregoing, the Borrowers and
the Lender agree that the Note is amended as follows:
1. Repayment Terms. The last two sentences of the paragraph
titled "Repayment Terms" on page 3 of the Note are deleted in their entirety
and replaced with the following:
On or before August 14, 1998, the Borrowers shall make a
principal payment of $250,000 on this Note. This Note shall
be due and payable in full, including all principal and
accrued interest, on September 8, 1998.
2. No Novation. All of the terms, covenants and conditions of
the Note shall continue in full force and effect, as amended by this First
Allonge. This First Allonge is not intended to be, and shall not constitute, a
substitution or novation of the Note.
3. Renewal of Covenants and Agreements. The Borrowers renew
their covenants and agreements to pay the indebtedness evidenced by the Note in
accordance with the terms and provisions thereof, as amended by this First
Allonge. The Borrowers further renew their covenants and agreements to
perform, comply with and be bound by each and every of the other terms and
provisions of the Note, as amended by this First Allonge, each and every of the
terms and provisions of the other loan documents relating to the Loan (the
"Loan Documents"), as amended by the Third Loan Modification Agreement and any
other documents executed in connection with the Third Loan Modification
Agreement which relate to the Loan.
4. Representations. The Borrowers represent, warrant and agree
that the statements set forth in the Recitals of this First Allonge are true
and correct. The Borrowers further represent, warrant and agree that (i) there
are no claims, defenses or setoffs with respect to the Note, as amended by this
First Allonge or with respect to the indebtedness evidenced or secured thereby
or with respect to the collection or enforcement of any of the same; (ii) no
event of default has occurred and is continuing under the Note, as amended by
this First Allonge; (iii) the
-2-
<PAGE> 51
Lender has made no representations or commitments, oral or written, or
undertaken any obligations other than as expressly set forth in this First
Allonge or in the Third Loan Modification Agreement and (iv) each and every of
the provisions of the Note, as amended by this First Allonge, and each and
every of the provisions of the Loan Documents are, and shall remain, in full
force and effect and lawful and binding obligations of the Borrowers and
enforceable in accordance with their respective terms.
5. Successors and Assigns. Each and every of the terms and
provisions of this First Allonge shall be binding upon and shall inure to the
benefit of the parties and their respective heirs, successors, personal
representatives and assigns.
IN WITNESS WHEREOF, the Borrowers have caused this First Allonge to be
executed under seal as of the date first written above.
WITNESS: UOL PUBLISHING, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
COGNITIVE TRAINING ASSOC., INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
IVY SOFTWARE, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
-3-
<PAGE> 52
COOPER & ASSOCIATES, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
HTR, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
UOL LEASING, INC.
By: (SEAL)
- --------------------------------- -----------------------------
Narasimhan P. Kannan
Chairman and Chief Executive Officer
(SEAL)
- --------------------------------- -----------------------------
NARASIMHAN P. KANNAN
FIRST UNION NATIONAL BANK
By: (SEAL)
- --------------------------------- -----------------------------
Gregory A. Baugher
Senior Vice President
-4-
<PAGE> 1
EXHIBIT 10.32
UOL PUBLISHING, INC.
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
This Series D Preferred Stock Purchase Agreement (the "Agreement") is
entered into as of the 29th day of June 1998, by and among UOL Publishing, Inc.,
a Delaware corporation (the "Company"), and the parties listed on Exhibit A
hereto (the "Purchasers").
WHEREAS, the Company desires to enter into this Agreement with the
Purchasers to sell and issue shares of its Series D Preferred Stock (as defined
below) to the Purchasers; and
WHEREAS, the Purchasers desire to enter into this Agreement to acquire
shares of Series D Preferred Stock of the Company on the terms and conditions
set forth herein;
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties to
this Agreement mutually agree as follows:
1. AUTHORIZATION AND SALE.
1.1 AUTHORIZATION. The Company has authorized the issuance and
sale of up to an aggregate of 1,200,000 shares of its Series D Convertible
Preferred Stock, $0.01 par value per share (the "Series D Preferred Stock"),
having substantially the rights, preferences, privileges and restrictions set
forth in the Certificate of Designations, Preferences and Rights of Series D
Convertible Preferred Stock in substantially the form attached hereto as Exhibit
B (the "Certificate of Designations").
1.2 SALE. Subject to the terms and conditions hereof, each
Purchaser agrees to purchase from the Company and the Company agrees to sell and
issue to each such Purchaser that number of shares of Series D Preferred Stock
as set forth on Exhibit A hereto (the "Shares") at a purchase price equal to
$5.50, which is the average closing price for the five trading days ending June
25, 1998, for each Share.
2. CLOSINGS; DELIVERY.
2.1 CLOSINGS. The initial closing of the purchase and sale of
the Shares under this Agreement shall take place at 2:00 p.m. (Eastern time) on
June 29, 1998 at the offices of Wyrick Robbins Yates & Ponton LLP, 4101 Lake
Boone Trail, Suite 300, Raleigh, North Carolina, or at such other time and place
as the Company and the Purchaser may agree. Additional Purchasers may enter into
this Agreement with the Company's consent and additional Shares sold (up to a
maximum of 1,200,000 Shares) at additional closings (each closing hereunder, a
"Closing").
2.2 DELIVERY. At each Closing, subject to the terms and
conditions hereof, the Company will deliver to the relevant Purchaser(s)
certificates representing the Shares to be purchased by such Purchaser(s) from
the Company at such Closing, dated the date of such
<PAGE> 2
Closing, against payment of the purchase price therefor payable as of the date
of such Closing by check, wire transfer, cancellation of indebtedness or any
combination thereof.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Purchaser as follows.
3.1 ORGANIZATION AND STANDING. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to own
and operate its properties and assets and to carry on its business as now
conducted and as currently proposed to be conducted. The Company is duly
qualified and authorized to do business, and is in good standing as a foreign
corporation, in Virginia and in each other jurisdiction where the nature of its
activities and of its properties (both owned and leased) makes such
qualification necessary, except where a failure to do so would not have a
material adverse effect on the Company.
3.2 CAPITALIZATION. The authorized capital of the Company,
immediately prior to the Closing, will consist of: 1,200,000 shares of Series D
Convertible Preferred Stock, $0.01 par value per share; no shares of which are
issued and outstanding; 1,000,000 shares of Series C Convertible Preferred
Stock, $0.01 par value per share, 626,293 of which are issued and outstanding;
7,800,000 shares of undesignated Preferred Stock, $0.01 par value per share,
none of which are issued or outstanding; and 36,000,000 shares of Common Stock,
$0.01 par value per share, 3,825,587 of which were issued and outstanding as of
June 25, 1998.
All of the outstanding shares of Common Stock and Preferred Stock that
have been duly authorized and validly issued, are fully paid and nonassessable
and were issued in compliance with all applicable federal and state securities
laws. The Company has duly and validly reserved (i) the Shares for issuance as
contemplated hereby, (ii) a sufficient number of shares of Common Stock for
issuance upon conversion of the Shares, (iii) up to 759,143 shares of Common
Stock upon conversion of the Series C Preferred Stock, subject to adjustment
pursuant to the terms of the Certificate of Designations therefor, and (iv)
2,911,328 shares of Common Stock for issuance upon exercise of warrants issued
to certain stockholders of the Company and options granted to officers,
directors, employees and consultants of the Company under the Company's stock
option plan. Except for the conversion rights associated with the Series D
Preferred Stock and Series C Preferred Stock and the rights created under this
Agreement, the Series C Preferred Stock Purchase Agreement dated as of March 31,
1998 and the Registration Rights Agreement in substantially the form attached
hereto as Exhibit D (the "Rights Agreement"), and except as disclosed in the SEC
Filings (as defined below), there are no outstanding rights of first refusal,
preemptive rights or other rights, options, warrants, conversion rights or other
agreements, either directly or indirectly, for the purchase or acquisition from
the Company of any shares of its capital stock.
3.3 AUTHORIZATION. All corporate action on the part of the
Company and its directors and stockholders necessary for the authorization,
execution and delivery of this Agreement and the Rights Agreement, the
performance of all the Company's obligations hereunder and thereunder, and the
authorization, issuance, sale and delivery of the Shares and the Common Stock
issuable upon conversion thereof (the "Underlying Common Stock"), has been
2
<PAGE> 3
taken. Each of this Agreement and the Rights Agreement, when executed and
delivered by the Company and the respective other parties thereto, shall
constitute a valid and legally binding obligation of the Company enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors, rules and laws governing
specific performance, injunctive relief and other equitable remedies.
3.4 VALIDITY OF THE SHARES. The Shares and the Underlying
Common Stock, when issued pursuant to the terms of the Certificate of
Designations, will be validly issued, and fully paid and nonassessable and will
be free of any liens or encumbrances; provided, however, that the Shares and the
Underlying Common Stock may be subject to restrictions on transfer under state
and/or federal securities laws as set forth herein.
3.5 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in
violation of any provisions of its Certificate of Incorporation or its Bylaws as
amended, or of any provisions of any material agreement or any judgment, decree
or order by which it is bound or any statute, rule or regulation applicable to
the Company. Subject to the compliance with such filings as may be required to
be made with the Securities and Exchange Commission (the "SEC"), the National
Association of Securities Dealers, Inc. (the "NASD") and certain state
securities commissions, the execution, delivery and performance of this
Agreement and the Rights Agreement and the issuance and sale of the Shares
pursuant hereto, and the issuance of the Underlying Common Stock pursuant to the
Certificate of Designations, will not result in any such violation or be in
conflict with or constitute a default under any such provisions or result in the
creation of any mortgage, pledge, lien, encumbrance or charge upon any of the
properties or assets of the Company.
3.6 GOVERNMENTAL CONSENTS. All consents, approvals, orders or
authorization of, or registrations, qualifications, designations, declarations
or filings with, any federal or state governmental authority on the part of the
Company required in connection with the valid execution and delivery of this
Agreement and the Rights Agreement, the offer, sale or issuance of the Shares
and the Underlying Common Stock, or the consummation of any other transaction
contemplated hereby, have been obtained, except for notices required to be filed
with the SEC, the NASD and certain state securities commissions thereafter,
which notices will be filed on a timely basis.
3.7 ACCURACY OF REPORTS. All reports and documents (the "SEC
Filings") required to be filed by the Company prior to the date of this
Agreement under the Securities Act of 1933, as amended (the "Securities Act"),
and the Securities Exchange Act of 1934, as amended, have been duly filed, were
in substantial compliance with the requirements of their respective forms, were
complete and correct in all material respects as of the dates at which the
information was furnished, and contained (as of such dates) no untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading.
3.8 FINDERS' FEES. The Company (a) represents and warrants
that it has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (b) hereby agrees to indemnify and to hold
the Purchasers harmless of and from any liability
3
<PAGE> 4
for any commission or compensation in the nature of a finder's fee to any broker
or other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its employees
or representatives are responsible.
3.9 DISCLOSURE. No representation or warranty of the Company
contained in this Agreement contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the statements
contained herein, in light of the circumstances under which they were made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. Each Purchaser
hereby represents and warrants to the Company as follows:
4.1 POWER AND AUTHORITY. It has the requisite power and
authority to enter into this Agreement and the Rights Agreement, to purchase the
Shares and to carry out and perform its obligations under the respective terms
of this Agreement and the Rights Agreement.
4.2 DUE EXECUTION. Each of this Agreement and the Rights
Agreement has been duly authorized, executed and delivered by it, and, upon due
execution and delivery by the Company, will be a valid and binding agreement of
it, subject to laws of general application relating to bankruptcy, insolvency
and the relief of debtors, rules and laws governing specific performance,
injunctive relief and other equitable remedies.
4.3 INVESTMENT REPRESENTATIONS.
(a) This Agreement is made with such Purchaser in reliance
upon such Purchaser's representation to the Company, which by its acceptance
hereof such Purchaser hereby confirms, that the Shares to be received by it will
be acquired for investment for its own account, not as a nominee or agent, and
not with a view to the sale or distribution of any part thereof, and that it has
no present intention of selling, granting participation in, or otherwise
distributing the same, but subject nevertheless to any requirement of law that
the disposition of its property shall at all times be within its control. By
executing this Agreement, such Purchaser further represents that it does not
have any contract, undertaking, agreement, or arrangement with any person to
sell, transfer or grant participations to such person, or to any third person,
with respect to any of the Shares or Underlying Common Stock.
(b) Such Purchaser understands that the Shares and the
Underlying Common Stock have not been registered under the Securities Act on the
grounds that the sale provided for in this Agreement and the issuance of
securities hereunder is exempt from registration under the Securities Act, and
that the Company's reliance on such exemption is predicated in part upon the
Purchaser's representations and warranties set forth herein. Such Purchaser
realizes that the basis for such exemption may not be present in the event that,
notwithstanding such representations and warranties, such Purchaser has in mind
merely acquiring the Shares for a fixed or determined period in the future, or
for a market rise, or for sale if the market does not rise. Such Purchaser does
not have any such intention.
4
<PAGE> 5
(c) Such Purchaser represents that it is experienced in
evaluating companies such as the Company, is able to fend for itself in the
transactions contemplated by this Agreement, has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment. Such Purchaser further represents that it has had the opportunity to
consult with its own legal counsel with respect hereto, and has had access,
during the course of the transactions and prior to its purchase of the Shares,
to all such information as it deemed necessary or appropriate (to the extent the
Company possessed such information or could acquire it without unreasonable
effort or expense) and that it has had, during the course of the transactions
and prior to its purchase of the Shares, the opportunity to ask questions of,
and receive answers from, the Company concerning the terms and conditions of the
offering and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to it or
to which it had access.
(d) Such Purchaser understands that the Shares and the
Underlying Common Stock may not be sold, transferred or otherwise disposed of
without registration under the Securities Act or an exemption therefrom, and
that in the absence of an effective registration statement covering the Shares
or the Underlying Common Stock or an available exemption from registration under
the Securities Act, the Shares and the Underlying Common Stock must be held
indefinitely. In particular, such Purchaser is aware that the Shares and the
Underlying Common Stock may not be sold pursuant to Rule 144 promulgated under
the Securities Act unless all of the conditions of that Rule are met. Such
Purchaser represents that, in the absence of an effective registration statement
covering the Shares or the Underlying Common Stock it will sell, transfer or
otherwise dispose of the Shares or the Underlying Common Stock only in a manner
consistent with its representations set forth herein.
(e) Such Purchaser agrees that in no event will it make a
transfer or disposition of any of the Shares or the Underlying Common Stock,
other than in compliance with all applicable laws.
(f) Such Purchaser understands that each certificate
representing the Shares or the Underlying Common Stock will be endorsed with
restrictive legends as required by applicable state securities laws and
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR APPLICABLE STATE SECURITIES LAWS. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO
DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE
5
<PAGE> 6
REGISTRATION PROVISIONS OF THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS.
4.4 GOVERNMENT CONSENTS. No consent, approval or authorization
of, or designation, declaration or filing with, any state, federal or foreign
governmental authority on the part of such Purchaser because of any special
characteristic of such Purchaser is required in connection with the valid
execution and delivery of this Agreement by such Purchaser or the consummation
by such Purchaser of the transactions contemplated hereby; provided, however,
that such Purchaser makes no representations as to compliance with applicable
state securities laws.
4.5 FINDERS' FEES. Such Purchaser (a) represents and warrants
that it has retained no finder or broker in connection with the transactions
contemplated by this Agreement and (b) hereby agrees to indemnify and to hold
the Company harmless of and from any liability for any commission or
compensation in the nature of a finder's fee to any broker or other person or
firm (and the costs and expenses of defending against such liability or asserted
liability) for which such Purchaser or any of its employees or representatives
are responsible.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
5.1 EXPENSE REDUCTION. The Company shall implement the employee
reductions outlined in Schedule I delivered herewith within the timeframe as
described on such schedule and shall implement such other cost-cutting measures
as shall be reasonably necessary to meet the total operating expenses for the
year 1998 as reflected on the Company's 1998 Expense Forecast included in such
schedule.
6. CONDITIONS TO THE PURCHASERS' OBLIGATIONS AT A CLOSING. The
obligations of a Purchaser to purchase the Shares at a Closing are subject to
the fulfillment on or before such Closing of each of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 3 shall be true in all material
respects on and as of such Closing with the same force and effect as if they had
been made at such Closing.
6.2 PERFORMANCE. The Company shall have performed and complied in
all material respects with all agreements and conditions contained in this
Agreement required to be performed or complied with by it on or before such
Closing.
6.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required prior to and in connection with the lawful issuance
and sale of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of such Closing.
6.4 LEGAL INVESTMENT. At the time of such Closing, the purchase
of the Shares by the Purchaser hereunder shall be legally permitted by all
laws and regulations to which it or the Company are subject.
6
<PAGE> 7
6.5 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at such Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to the Purchaser, and the
Purchaser shall have received all such counterpart originals or certified or
other copies of such documents as it may reasonably request.
6.6 RIGHTS AGREEMENT. The Company shall have executed and
delivered the Rights Agreement.
7. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT A CLOSING. The
obligations of the Company to issue and sell Shares at a Closing are subject to
the fulfillment on or before such Closing of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Purchasers contained in Section 4 shall be true in all
material respects on and as of such Closing with the same force and effect as if
they had been made at such Closing.
7.2 PERFORMANCE. The Purchasers shall have performed and complied
in all material respects with all agreements and conditions contained in this
Agreement required to be performed or complied with by it on or before such
Closing.
7.3 QUALIFICATIONS. All authorizations, approvals or permits, if
any, of any governmental authority or regulatory body of the United States or of
any state that are required prior to and in connection with the lawful issuance
and sale of the Shares pursuant to this Agreement shall have been duly obtained
and shall be effective on and as of such Closing.
7.4 LEGAL INVESTMENT. At the time of such Closing, the purchase
of the Shares by the Purchasers hereunder shall be legally permitted by all
laws and regulations to which they or the Company are subject.
8. MISCELLANEOUS.
8.1 ENTIRE AGREEMENT; EFFECTIVENESS. This Agreement and the
documents referred to herein constitute the entire agreement among the parties,
and no party shall be liable or bound to any other party in any manner by any
warranties, representations or covenants except as specifically set forth herein
or therein. The terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
third party any rights, remedies, obligations or liabilities under or by reason
of this Agreement, except as expressly provided in this Agreement.
8.2 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents, made and to be performed entirely within the State of
Delaware.
8.3 COUNTERPARTS; FACSIMILES. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall
7
<PAGE> 8
constitute one and the same instrument. Delivery by facsimile transmission of a
signature page hereto shall constitute execution hereof.
8.4 HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
8.5 NOTICES. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid, or sent by confirmed telecopy,
addressed (a) if the Company, at:
UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
Attention: President
With a copy to:
Donald R. Reynolds, Esq.
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607-7506
or at such other address as the Company shall have furnished to a Purchaser in
writing, and (b) if to a Purchaser, at its address on the books and records of
the Company.
8.6 ATTORNEYS' FEES. Should any litigation or arbitration be
commenced between the parties hereto concerning this Agreement, the party
prevailing in such litigation or arbitration shall be entitled, in addition to
such other relief as may be granted, to a reasonable sum for attorneys' fees and
costs in such litigation or arbitration, which fees and costs shall be
determined by the court or arbitrator, as the case may be.
8.7 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by any Purchaser and
any Closing. All statements as to factual matters contained in any certificate
or other instrument delivered by or on behalf of the Company pursuant hereto or
in connection with the transactions contemplated hereby shall be deemed to be
representations and warranties made by the Company hereunder as of the date of
such certificate or instrument.
8.8 SEVERABILITY. In case any provision of this Agreement shall
be invalid, illegal or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.9 DELAYS OR OMISSIONS. No delay or omission to exercise any
right, power or remedy accruing to the Company or a Purchaser or any subsequent
holder of any Shares upon
8
<PAGE> 9
any breach, default or noncompliance of a Purchaser, any subsequent holder of
any Shares or the Company under this Agreement or the Certificate of
Designations shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or noncompliance
thereafter occurring. It is further agreed that any waiver, permit, consent or
approval of any kind or character on the part of the Company or a Purchaser of
any breach, default or noncompliance under this Agreement or under the
Certificate of Designations or any waiver on the Company's or a Purchaser's part
of any provisions or conditions of this Agreement must be in writing and shall
be effective only to the extent specifically set forth in such writing and that
all remedies, either under this Agreement or the Certificate of Designations, by
law, or otherwise afforded to the Company and the Purchasers, shall be
cumulative and not alternative.
8.10 INFORMATION CONFIDENTIAL. Each Purchaser acknowledges that
this Agreement and all attachments hereto are confidential and for such
Purchaser's use only, and it will refrain from using such information and any
Company confidential information obtained by it pursuant to this Agreement
(collectively, "Confidential Information") or reproducing, disclosing or
disseminating Confidential Information to any other person (other than its
employees, affiliates, agents or partners having a need to know the contents of
such information and its attorneys), except in connection with the enforcement
of rights under this Agreement, unless the Company has made such information
available to the public generally or it is required by a governmental body to
disclose such information.
8.11 AMENDMENTS AND WAIVERS. Except as otherwise expressly
provided herein, any term of this Agreement may be amended and the observance of
any term of this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively and either for a specified
period of time or indefinitely) with the written consent of the Company and the
Purchaser to be bound, or Purchasers holding a majority of the Shares, on an
as-converted to or exercised for Common Stock basis, and the Underlying Common
Stock. Any amendment or waiver effected in accordance with this Section shall be
binding upon the Purchasers and each transferee of the Shares and Underlying
Common Stock.
8.12 EXPENSES. The Company agrees to reimburse the Purchasers for
all reasonable costs and out-of-pocket expenses, including "due diligence"
investigation and reasonable attorneys' fees and expenses, incurred in
connection with the preparation, execution and delivery of this Agreement and
other related documentation.
NEXT PAGE IS SIGNATURE PAGE.
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Series D Preferred
Stock Purchase Agreement as of the date first above written.
COMPANY: UOL PUBLISHING, INC.
--------------------------------
Narasimham P. Kannan, Chairman
and CEO
PURCHASER: --------------------------------
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
10
<PAGE> 11
EXHIBIT A
SCHEDULE OF PURCHASERS
SERIES D PURCHASERS
<TABLE>
<CAPTION>
NUMBER OF PREFERRED
PURCHASERS SHARES ISSUED AMOUNT INVESTED
<S> <C> <C>
The Aachen Syndicate 45,454 $249,997
Dr. Arno Morenz, General Partner
Salvatorberg
D-52070 Aachen, Germany
Farzin Arsanjani 56,834 312,587
HTR, Inc.
6110 Executive Blvd.
Rockville, MD 20852
Daniel J. Callahan, IV 9,255 50,902.50
3506 Hawick Court
Kensington, MD 20895
Barry K. Fingerhut 45,454 250,000
c/o GEO Capital Corp.
767 Fifth Avenue, 45th Floor
New York, New York 10153
Hermes Investment Group, Inc. 363,636 2,000,000
c/o Dr. John Sperling
The Apollo Group
4615 East Elwood
Phoenix, Arizona 85040
Kamyar Kaviani 68,358 375,969
HTR, Inc.
6110 Executive Blvd.
Rockville, MD 20852
Irwin Lieber 18,181 99,996
c/o GEO Capital Corp.
767 Fifth Avenue, 45th Floor
New York, New York 10153
South Ferry 90,909 500,000
One State Street Plaza
29th Floor
New York, NY 10004
</TABLE>
11
<PAGE> 12
<TABLE>
<CAPTION>
NUMBER OF PREFERRED
PURCHASERS SHARES ISSUED AMOUNT INVESTED
<S> <C> <C>
Wheatley Foreign Partners, L.P. 28,474 156,607
c/o Wheatley Partners, LLC
80 Cutter Mill Road, Suite 311
Great Neck, New York 11021
Wheatley Partners, L.P. 335,162 1,843,391
80 Cutter Mill Road, Suite 311
Great Neck, New York 11021
Woodland Partners 18,181 99,996
c/o Barry Rubenstein
68 Wheatley Road
Brookville, New York 11545
WRYP 98 2,727 15,000
c/o Donald R. Reynolds, Esq.
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail
Suite 300
Raleigh, NC 27607
TOTALS 1,082,625 $ 5,954,445.50
</TABLE>
12
<PAGE> 1
EXHIBIT 10.33
UOL PUBLISHING, INC.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "Agreement")
is dated this 29th day of June 1998 by and among UOL Publishing, Inc., a
Delaware corporation (the "Company"), the Series C Holders (as defined below)
and the Series D Holders (as defined below). The Series C Holders and Series D
Holders are collectively referred to hereinafter as the "Investors," and each
individually as an "Investor."
WHEREAS, the Company and the holders of Series C Convertible Preferred
Stock, par value $.01 per share (the "Series C Stock") and certain warrants (the
"Warrants") to purchase shares of the Company's Common Stock (the "Series C
Holders") are parties to a Series C Preferred Stock and Warrant Purchase
Agreement dated March 27, 1998 (the "Series C Purchase Agreement"); and
WHEREAS, pursuant to the terms of the Series C Purchase Agreement, the
Company and the Series C Holders entered into that certain Registration Rights
Agreement dated March 31, 1998 (the "Original Rights Agreement"); and
WHEREAS, pursuant to the terms of a Series D Preferred Stock Purchase
Agreement dated as of the date hereof by and among the holders (the "Series D
Holders") of Series D Convertible Preferred Stock, par value $.01 per share (the
"Series D Stock"), the Company now desires to issue to the Series D Holders
shares of the Company's Series D Stock, which will be convertible into shares of
the Company's Common Stock (such shares of Common Stock issuable upon conversion
of the Series D Stock, together with the shares of Common Stock issuable upon
conversion of the Series C Stock and shares of Common Stock issuable upon
exercise of the Warrants being sometimes collectively referred to herein as the
"Shares"); and
WHEREAS, Section 10(h) of the Original Rights Agreement provides that such
agreement may be amended with the written consent of the Company and the holders
of not less than 50% of the Shares (as defined therein) affected thereby; and
WHEREAS, to induce certain of the Investors to purchase Series D Stock,
the Company desires to amend and restate in its entirety the Original Rights
Agreement in order to add the Series D Holders as parties and to grant
registration rights to the Series D Holders as hereinafter provided in this
Agreement.
NOW, THEREFORE, in consideration of the mutual premises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties to
this Agreement mutually agree as follows:
<PAGE> 2
1. Demand Registration Rights. At any time on or after the date
hereof, but not more than once, the holders of Shares that have not had their
registration rights hereunder lapse as set forth in Section 9 hereof (the
"Registrable Securities") representing not less than 33 1/3% of the Registrable
Securities may deliver to the Company one written demand that the Company effect
a registration under the Securities Act of at least the greater of 30% of the
Registrable Securities or Registrable Securities with an aggregate price to the
public of not less than $2,000,000.00 for the purpose of sale in the manner
specified in such demand. Such demand shall also specify the number of
Registrable Securities that such holders wish to have so registered. The Company
shall, within 10 days of receipt of such demand, give written notice to all
other holders of Registrable Securities of such demand. Any such holder may,
within 30 days of its receipt of such notice from the Company, give a written
notice (the "Inclusion Notice") to the Company specifying the number of
Registrable Securities which such holder wishes to include in such registration.
The Company shall prepare and file a registration statement on any available
form of registration statement, for the public sale of the Registrable
Securities that are identified in and in accordance with the demand and all
Inclusion Notices as soon as practicable; provided, however, that if the Company
shall furnish to the holders of Registrable Securities (the "Holders") a
certificate signed by the Chairman or President of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company for a registration statement to be filed,
then the Company's obligation to file a registration statement shall be deferred
once for a reasonable period not to exceed 180 days from the date of such
request. Upon written notice from the Company to the Holders delivered within 30
days of a demand to register Registrable Securities under this Section 1, the
Holders' right to demand registration pursuant to this Section 1 shall be
suspended during the period commencing 90 days before the date estimated in
writing by the Company to be the date of filing of a registration statement, and
ending six months following the effective date (or withdrawal date) of a
registration statement, for an underwritten public offering of the Common Stock.
All Holders proposing to distribute securities through any such
registration shall enter into an underwriting agreement with the managing or
lead managing underwriter in the form customarily used by such underwriter with
such changes thereto as the parties thereto shall agree. If any Holder
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to the Company and the managing or lead managing
underwriter. Any Registrable Securities so withdrawn from such underwriting
shall be withdrawn from such registration.
Whenever a registration is demanded pursuant to this Section 1, unless a
managing or lead managing underwriter objects thereto, the Company may include
in such registration securities for offering by the Company and any other holder
of securities, it being understood, however, that the Company's and such other
holder's right of inclusion in such registration shall be subordinate to, and
not pari passu with, the rights of the Holder who delivers such demand or
deliver to the Company Inclusion Notices under this Section 1.
If the managing underwriter thereof determines that the total number of
shares of the Common Stock to be sold in such offering shall be limited due to
market conditions or otherwise, the reduction in the total number of shares
offered shall be made by first excluding any shares of
2
<PAGE> 3
selling stockholders who are not holders of contractual rights to have such
shares registered under the Securities Act, then, if necessary, by reducing the
total number of shares to be sold by the Company, and then, if necessary, by
excluding pro rata (based on the number of Registrable Securities held) the
Registrable Securities to be sold by the Holders demanding such registration.
2. Incidental Registration. If the Company at any time proposes to
register any of its securities under the Securities Act (other than a
registration effected on either Form S-4 or Form S-8) for the purpose of selling
such securities to the public whether for its own account or for the account of
any of its security holders or both, the Company shall each such time give
written notice to the Holders of its intention so to do. Upon the written
request by Holders given within 15 days after such notice (which request shall
state the number of Registrable Securities to be disposed of), the Company will
use reasonable efforts to cause promptly all Registrable Securities of which
registration is requested to be registered or qualified under the Securities Act
or any other applicable federal or state law or regulation so as to permit the
sale or other disposition thereof in accordance with the Holders' written
request. The Company will keep effective and maintain any registration or
qualification specified in this Section 2 for such period (not exceeding 120
days) as may be reasonably necessary to effect such sale or disposition in
accordance with the Holders' written request. If the registration is to be
effected in connection with an underwritten offering,
(i) the Holders participating in such registration shall be
required to sell through the underwriter;
(ii) the Holders participating in such registration (together with
the Company) shall enter into an underwriting agreement with the managing
underwriter in the form customarily used by such underwriter; and
(iii) if the managing underwriter thereof determines that the total
number of shares of the Common Stock to be sold in such offering should be
limited due to market conditions or otherwise, the reduction in the total
number of shares offered shall be made by first excluding any shares of
selling stockholders who are not holders of contractual rights to have
such shares registered under the Securities Act, and then, if necessary,
by excluding pro rata (based on the number of securities requested to be
included in such registration) the shares to be sold by the Holders and
other securityholders of the Company with similar rights, before any
reduction is made in the total number of shares to be sold pursuant
thereto by the Company.
3. Registration Statement Information Relating to Holders. The Holders
shall promptly upon receipt of written request provide the Company or any
underwriter or counsel participating or otherwise involved in such registration
with any information relating to the Holders or the Registrable Securities that
is reasonably required to be included in the registration statement or the
prospectus, or any amendment thereof, relating to such offering or required to
cause the registration to be declared and remain effective. Such information
shall be submitted in writing, signed by the applicable Holders, or a duly
authorized representative or agent thereof, and shall state that the information
is submitted specifically for the purpose of inclusion in the
3
<PAGE> 4
registration statement, prospectus, offering circular or other document related
to the registration or qualification of the Registrable Securities pursuant to
Section 1 or 2. If the Holders shall fail at least one week prior to
effectiveness of the Registration Statement to provide such information, the
Company may exclude from such registration the Registrable Securities requested
by the Holders to be included therein.
4. Registration Procedures. If and whenever the Company is required
to effect the registration of any Shares pursuant to Section 1 or 2, the
Company will:
(a) prepare and file with the Securities and Exchange Commission
(the "Commission") a registration statement with respect to such Registrable
Securities and use reasonable efforts to cause such registration statement to
become and remain effective as provided herein; provided, however, that in
connection with any proposed registration intended to permit an offering of any
securities from time to time (i.e., a so-called "shelf registration"), the
Company shall in no event be obligated to cause any such registration to remain
effective for more than 120 days;
(b) immediately notify each Holder who has included Registrable
Securities in the registration, at any time when a prospectus relating thereto
is required to be delivered under the Securities Act, of the happening of any
event as a result of which the prospectus included in the registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing, and if it is necessary, in the opinion of counsel to the Company,
to prepare and file with the Commission such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and current and to
comply with the provisions of the Securities Act with respect to the sale or
other disposition of all shares covered by such registration statement,
including such amendments and supplements as may be necessary to reflect the
intended method of disposition from time to time of the Holders if the
registration is effected in connection with an offering which is not
underwritten, but in no event for more than (i) 120 days after the effective
date of a registration that is not underwritten or that is underwritten on a
best efforts basis, or (ii) for as long a period as is customary and is required
by the underwriter in the case of a firmly underwritten offering;
(c) furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus and any amendments and any supplements
thereto, in conformity with the requirements of the Securities Act, as the
Holders may reasonably request in order to facilitate the public sale or other
disposition of the Registrable Securities owned by the Holders;
(d) use reasonable efforts to register or qualify the Registrable
Securities covered by such registration statement under such other securities or
blue sky or other applicable laws of such jurisdictions within the United States
as the Holders shall reasonably request to enable the Holders to consummate the
public sale or other disposition in such jurisdictions of the Registrable
Securities owned by the Holders, except that the Company shall not for any such
purpose be required (i) to qualify generally to do business as a foreign
corporation in any
4
<PAGE> 5
jurisdiction in which it would not be required to so qualify but for such
registration or qualification, (ii) to subject itself to taxation in any such
jurisdiction, or (iii) to consent to general service of process in any such
jurisdiction;
(e) use its best efforts to furnish to each Holder who has
included Registrable Securities in the registration a signed counterpart,
addressed to such Holder, of (i) an opinion of counsel for the Company, dated
the date of the closing under the underwriting agreement, and (ii) a "cold
comfort" letter signed by the independent public accountants who have issued a
report on the Company's financial statements included in such registration
statement dated the date of effectiveness of the registration statement and the
date of the closing under the underwriting agreement, covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of such accountants' letters, with respect to
events subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' letters delivered to
underwriters in underwritten public offerings of securities and, in the case of
the accountants' letters, such other financial matters as such Holders may
reasonably request;
(f) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least 12 months, beginning with the first month of the first fiscal
quarter after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act;
(g) use its best efforts to list such Registrable Securities on
each securities exchange or over-the-counter market on which shares of Common
Stock are then listed, if such Registrable Securities are not already so listed
and if such listing is then permitted under the rules of such exchange and, if
shares of Common Stock are not then listed on a securities exchange or
over-the-counter market, to use its best efforts to cause such Registrable
Securities to be listed on such securities exchange or over-the-counter market
as the managing or lead managing underwriter shall reasonably request;
(h) use its best efforts to provide a transfer agent and
registrar for such Registrable Securities not later than the effective date of
such registration statement; and
(i) issue to any underwriter to which any Holder may sell such
Registrable Securities in connection with any such registration (and to any
direct or indirect transferee of any such underwriter) certificates evidencing
such Registrable Securities without restrictive legends.
If requested by the managing or lead managing underwriter for any
underwritten offering that includes any Registrable Securities, the Company will
enter into an underwriting agreement with the underwriters of such offering,
such agreement to contain such representations and warranties by the Company and
such other terms and conditions as are contained in underwriting agreements
customarily used by such managing or lead managing underwriter with such changes
as the parties thereto shall agree, including, without limitation, provisions
relating to indemnification and contribution in lieu thereof.
5
<PAGE> 6
During the effective period of any registration statement covering
Registrable Securities, the Holders will not effect sales thereof after receipt
of telegraphic or written notice from the Company to suspend sales to permit the
Company to correct or update a registration statement or prospectus until the
Holders receive written notice from the Company that the registration statement
or prospectus has been corrected or updated.
At the end of the effective period of any registration statement covering
any Registrable Securities, the Holders shall discontinue sales of shares
pursuant to such registration statement upon receipt of notice from the Company
of its intention to remove from registration the shares covered by such
registration statement which remain unsold, and the Holders shall notify the
Company of the number of shares registered which remain unsold immediately upon
receipt of such notice from the Company.
5. Expenses of Registration. Subject to the requirements of otherwise
applicable state blue sky laws, all expenses incurred in effecting registration
of any Registrable Securities pursuant to Section 1 or 2, including without
limitation, all registration, qualification and filing fees, printing expenses,
expenses of compliance with blue sky laws, reasonable fees and disbursements of
counsel for the Company, and of one counsel to represent all of the
participating securityholders requesting registration and expenses of any audits
incidental to or required by any such registration, shall be borne by the
Company, provided that the commissions and discounts of the underwriters
applicable to the Registrable Securities shall be borne by the Holders whose
Registrable Securities are being registered pursuant to such registration, pro
rata according to the value of their Registrable Securities sold under such
registration.
6. Indemnification.
(a) The Company will indemnify each Holder joining in a
registration and each underwriter and selling broker for such Holder and each
officer and director of the Holder and each person, if any, who controls any
such Holder or any such underwriter or broker within the meaning of Section 15
of the Securities Act, against all claims, losses, damages, expenses and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any preliminary prospectus or amended preliminary prospectus
or in the prospectus, offering circular or other document incident to any
registration, qualification or compliance (or in any related registration
statement, notification or the like) as such may be amended or supplemented from
time to time or any omission (or alleged omission) to state therein a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, or any
violation by the Company of the Securities Act or any rule or regulation
promulgated thereunder or any state securities laws or regulations applicable to
the Company in connection with any such registration, qualification or
compliance, and will reimburse each such Holder and each such underwriter,
broker and controlling person for any legal and any other expenses reasonably
incurred, as such expenses are incurred, in connection with investigating or
defending any such claim, loss, damage, liability or action; provided, however,
that the Company will not
6
<PAGE> 7
be liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based on any untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company in an instrument executed by such Holder or underwriter for the Holder
or any representative of such Holder or underwriter for the Holder and stated to
be specifically for use therein.
(b) Each Holder joining in a registration will indemnify the
Company and its officers and directors, each person, if any, who controls any
thereof within the meaning of Section 15 of the Securities Act and their
respective successors and any underwriter for the Company for such registration
and each other Holder against all claims, losses, damages, expenses and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any preliminary prospectus or amended prospectus or in the prospectus, offering
circular or other document incident to any registration statement, qualification
or compliance (or in any related registration statement, notification or the
like) as such may be amended or supplemented from time to time or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and will reimburse the
Company and each other person indemnified pursuant to this paragraph (b) for any
legal and any other expenses reasonably incurred, as such expenses are incurred,
in connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this paragraph (b) shall apply only
if (and only to the extent that) such statement or omission was made in reliance
upon and in conformity with written information (including, without limitation,
written negative responses to inquiries) furnished to the Company specifically
for inclusion in the prospectus, offering circular, or other document incident
to the registration statement by an instrument duly executed by such Holder or
its representatives, and as to which the Company had no actual knowledge.
Notwithstanding the foregoing, the liability of each Holder under this paragraph
(b) shall be limited to an amount equal to the aggregate proceeds received by
such Holder from the sale of its shares in such registration, unless such
liability arises out of or is based on willful conduct by such Holder.
(c) Each party entitled to indemnification hereunder (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party (at its expense) to assume the defense of any
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be satisfactory to the Indemnified Party, and the Indemnified Party may
participate in such defense at such party's expense, and provided, further, that
the omission by any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Section 6
except to the extent that the omission results from a failure of actual notice
to the Indemnifying Party by the Indemnified Party and such Indemnifying Party
is damaged solely as a result of the failure to give notice; and provided
further, however, that the Indemnifying Party shall not be entitled to assume
the defense for matters as to which there is, in the opinion of counsel to the
Indemnified Party, a conflict of interest or separate and different defenses. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to
7
<PAGE> 8
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation.
(d) The payments with respect to any indemnity required by this
Section 6 shall be made by periodic payments during the course of the
investigation or defense, as and when bills are received or expenses incurred,
upon submission of supporting invoices or other claims for payment, including
any calculations necessary to pro-rate any amounts payable pursuant to the
indemnity.
7. Contribution.
(a) If the indemnification provided for in Section 6 hereof is
unavailable to the Indemnified Parties in respect of any losses, claims,
damages, liabilities or expenses (or actions in respect thereof) referred to
therein, then each such Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party on the one hand and the
Indemnified Party on the other in connection with the statement or omission
which resulted in such losses, claims, damages, liabilities or expenses (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative fault shall be determined by reference to, among
other things, whether the untrue statement (or alleged untrue statement) of a
material fact or the omission (or alleged omission) to state a material fact
relates to information supplied by the Indemnifying Party or the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Company and
each Investor agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above. The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages, liabilities or expenses (or
actions in respect thereof) referred to above in this Section 7 or in Section 6
shall be deemed to include any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim.
(b) Notwithstanding anything to the contrary contained herein,
the obligation of each Holder to contribute pursuant to this Section 7 is
several and not joint and no Holder shall be required to contribute any amount
in excess of the amount by which the total price at which the shares of such
Holder were offered to the public exceeds the amount of any damages which such
Holder has otherwise been required to pay by reason of such untrue statement
(or alleged untrue statement) or omission (or alleged omission).
(c) No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8
<PAGE> 9
8. Rule 144 Requirements. The Company shall make whatever filings
with the Commission or otherwise and undertake to make publicly available and
available to the Holder, pursuant to Rule 144 of the Commission under the
Securities Act (or any successor rule or regulation), such information as is
necessary to enable the Holder to make sales of Registrable Securities pursuant
to that Rule. The Company shall furnish to the Holder, upon request, a written
statement executed by the Company as to the steps it has taken to comply with
the current public information requirements of Rule 144.
9. Survival and Termination of Rights. The agreements and covenants
contained in this Agreement shall be continuing and shall survive any conversion
of any shares of the Series C Stock, Series D Stock or exercise of the Warrants.
However, the rights of any particular Holder to cause the Company to register
its Registrable Securities hereunder shall terminate with respect to such
securities and such securities shall no longer be deemed to be Registrable
Securities following a public sale of such Registrable Securities under the
Securities Act or at such time as such Holder is able to dispose of all of its
Registrable Securities in one three-month period pursuant to the provisions of
Rule 144(k).
10. Miscellaneous.
(a) Entire Agreement. This Agreement and the documents referred
to herein constitute the entire agreement between the parties with respect to
the subject matter hereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
(b) Governing Law. This Agreement shall be governed by and
construed under the laws of the State of Delaware as applied to agreements among
Delaware residents made and to be performed entirely within the State of
Delaware.
(c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(d) Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
(e) Notices. Any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery or delivery by telecopier or five days after deposit with the
United States postal authorities, by first-class mail, postage prepaid,
addressed (i) if to the Company, at:
9
<PAGE> 10
UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
Attention: Chief Executive Officer
With a copy to:
Donald R. Reynolds, Esq.
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, North Carolina 27607
or at such other address as the Company shall have furnished to the Investors in
writing, and (ii) if to an Investor, at such Investor's address as is set forth
on the books and records of the Company.
(f) Severability. Any invalidity, illegality or limitation of
the enforceability with respect to any Investor of any one or more of the
provisions of this Agreement, or any part thereof, whether arising by reason of
the law of any such Investor's domicile or otherwise, shall in no way affect or
impair the validity, legality or enforceability of this Agreement with respect
to other Investors. In case any provision of this Agreement shall be invalid,
illegal or unenforceable, it shall to the extent practicable, be modified so as
to make it valid, legal and enforceable and to retain as nearly as practicable
the intent of the parties, and the validity, legality, and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
(g) Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to the Company or any Investor upon any breach,
default or noncompliance of any Investor, or the Company under this Agreement,
shall impair any such right, power or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence
therein, or of any similar breach, default or noncompliance thereafter
occurring. It is further agreed that any waiver, permit, consent or approval of
any kind or character on the part of the Company or the Investors of any breach,
default or noncompliance under this Agreement or any waiver on the Company's or
the Investors' part of any provisions or conditions of this Agreement must be in
writing and shall be effective only to the extent specifically set forth in such
writing and that all remedies, either under this Agreement, by law, or otherwise
afforded to the Company and the Investors, shall be cumulative and not
alternative.
(h) Amendments and Waivers. No term of this Agreement may be
amended, nor may the observance of any terms of this Agreement be waived (either
generally or in a particular instance and either retroactively or
prospectively), without the written consent of the Company and the holders of
not less than 50% of the Shares that are still Registrable Securities.
(i) Authorization. Each of the parties to this Agreement
represents that this Agreement has been duly authorized, executed and delivered
by such party and constitutes the
10
<PAGE> 11
legal, valid and binding obligation of such party enforceable against it in
accordance with its terms.
11
<PAGE> 12
IN WITNESS WHEREOF, the parties have executed this Amended and Restated
Registration Rights Agreement effective as of the date set forth above.
COMPANY UOL PUBLISHING, INC.
By: (SEAL)
-----------------------------
Title:
-----------------------------
INVESTORS ------------------------------------
By: (SEAL)
-----------------------------
Title:
-----------------------------
12
<PAGE> 1
EXHIBIT 10.34
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
UOL PUBLISHING, INC.
I. Creation of Series D Convertible Preferred Stock.
The undersigned officer of UOL Publishing, Inc., a Delaware
corporation (the "Corporation"), pursuant to the provisions of Section 151 of
the General Corporation Law of the State of Delaware, do hereby make this
Certificate of Designations, Preferences and Rights (the "Series D Certificate
of Designations") and do hereby state and certify that pursuant to the authority
expressly vested in the Board of Directors of the Corporation by the Certificate
of Incorporation, as amended, the Board of Directors duly adopted the following
resolutions:
RESOLVED, that, pursuant to the Certificate of Incorporation, as
amended, of the Corporation (the "Amended Certificate of Incorporation"), which
authorizes 10,000,000 shares of undesignated preferred stock, par value $0.01
per share, of which 1,000,000 shares are designated Series C Convertible
Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock")
626,293 of which are presently issued and outstanding, the Board of Directors is
authorized, within the limitations and restrictions stated in the Amended
Certificate of Incorporation, to fix by resolution or resolutions the
designation of each series of preferred stock and the powers, preferences and
relative participating, optional, or other special rights, and qualifications,
limitations, and restrictions thereof; and
RESOLVED, that the Corporation hereby fixes the designations and
preferences and relative, participating, optional, and other special rights, and
qualifications, limitations, and restrictions of the preferred stock consisting
of One Million Two Hundred Thousand (1,200,000) shares to be designated Series D
Convertible Preferred Stock, par value $0.01 per share (the "Series D Preferred
Stock"); and
RESOLVED, that the Series D Preferred Stock is hereby authorized on
the terms and with the provisions herein set forth:
II. Provisions Relating to the Preferred Stock.
1. Rank. The Series D Preferred Stock shall, with respect to
dividend rights and with respect to rights upon liquidation, winding up or
dissolution, rank pari passu to the Series C Preferred Stock and senior and
prior in right to (a) each class of Common Stock of the Corporation, (b) any
series of preferred stock either previously or hereafter created (except Series
C Preferred Stock) and (c) any other equity interests (including, without
limitation, warrants, stock appreciation rights, phantom stock rights, profit
participation rights in debt instruments or
<PAGE> 2
other rights with equity features, calls or options exercisable for or
convertible into such capital stock or equity interests) in the Corporation that
by its terms rank junior to the Series D Preferred Stock (all of such classes or
series of capital stock and other equity interests, including, without
limitation, all classes of Common Stock of the Corporation, are collectively
referred to as "Junior Securities").
2. Dividends. (a) The holders of Series D Preferred Stock shall
be entitled to receive a 5% annual dividend, compounded and paid semi-annually
each June 30th and December 31st, beginning December 31, 1998 (the "Dividend
Rate"), out of funds legally available for the purpose, payable, at the option
of the Corporation, either in cash or in Common Stock at 90% of the average
closing bid prices on the principal market or exchange therefor on the five
trading days prior to the due date of such dividend. If the Corporation elects
to pay a cash dividend for dividends accruing through December 31, 1998, such
payments shall be accrued and paid on January 1, 1999. Upon a default in payment
of such dividends, the holders of the Series D Preferred Stock shall have the
right to immediately convert the Series D Preferred Stock in accordance with the
terms of Section 6.
(b) So long as any shares of Series D Preferred Stock are
outstanding, the Corporation will not declare, pay or set apart for payment any
dividends (except dividends payable in Common Stock of the Corporation) or make
any other distribution on or redeem, purchase or otherwise acquire any Junior
Securities and will not permit any Subsidiary or other Affiliate (using funds of
the Corporation or any Subsidiary) to redeem, purchase or otherwise acquire for
value, any Junior Securities. Notwithstanding the foregoing provisions of this
Section 2(b), the Corporation or any Subsidiary may (i) make payments in respect
of fractional shares of Junior Securities and (ii) repurchase, redeem or
otherwise acquire for value any Junior Securities from any employee or former
employee of the Corporation or any Subsidiary in connection with the termination
of employment by the Corporation or any Subsidiary or by such employee or former
employee, whether by reason of death, disability, retirement or otherwise.
3. Liquidation. Upon a change in control pursuant to which the
stockholders of the Corporation immediately prior to such change in control
possess a minority of the voting power of the acquiring entity immediately
following such change in control, liquidation, dissolution or winding up of the
affairs of the Corporation, whether voluntary or involuntary (a "Liquidation
Event"), the holders of the Series D Preferred Stock shall be entitled, parri
passu with the Liquidation Preference payable to the holders of the Series C
Preferred Stock (the "Series C Liquidation Preference"), before any assets of
the Corporation shall be distributed among or paid over to the holders of Junior
Securities, to receive from the assets of the Corporation available for
distribution to stockholders, an amount per share equal to $8.25 as adjusted to
reflect any and all subdivisions (by stock split, stock dividend or otherwise)
or combinations or consolidations (by reclassification or otherwise) of the
Series D Preferred Stock occurring after the Issue Date, plus all declared but
unpaid dividends (the "Series D Liquidation Preference"). If the assets of the
Corporation legally available for distribution shall be insufficient to permit
the payment in full to the holders of the Series C Preferred Stock and the
holders of the Series D Preferred Stock of the Series C and Series D Liquidation
Preferences, then the entire assets of the Corporation legally available for
distribution shall be distributed ratably in accordance with the Series C and
Series D Liquidation Preferences among such holders. For purposes of this
Section 3, a Liquidation Event shall be deemed to be occasioned
2
<PAGE> 3
by, and to include, (i) the Corporation's sale of all or substantially all of
its assets or capital stock or (ii) any transaction or series or related
transactions (including, without limitation, any reorganization, merger or
consolidation) that will result in the holders of the outstanding voting equity
securities of the Corporation immediately prior to such transaction or series of
related transactions holding securities representing less than 40 percent of the
voting power of the surviving entity immediately following such transaction or
series of related transactions.
4. Voting. (a) Except as otherwise provided by law or by
subsection 4(b), the holders of the Series D Preferred Stock shall be entitled
to vote on all matters submitted to the stockholders for a vote together with
the holders of the Common Stock voting together as a single class, with each
holder of Common Stock entitled to one vote for each share of Common Stock held
by such holder and each holder of Series D Preferred Stock entitled to one vote
for each share of Series D Preferred Stock held by such holder at the time the
vote is taken.
(b) The holders of the Series D Preferred Stock shall vote as a
separate class on the creation of any new series of preferred stock or the
issuance of additional shares of capital stock of the Corporation that ranks
senior to or on a parity with the Series D Preferred Stock.
5. Optional Redemption.
(a) Redemption. Within 120 days after the Issue Date or within
60 days after the seventh anniversary of the Issue Date (the "Maturity Date"),
the Corporation may, at its sole option, redeem all outstanding shares of
Series D Preferred Stock not previously converted. The redemption price for
each share of Series D Preferred Stock redeemed pursuant to this Section 5 (the
"Redemption Price") shall be equal to $6.875 as adjusted to reflect any and all
subdivisions (by stock split, stock dividend or otherwise) or combinations or
consolidations (by reclassification or otherwise) of the Series D Preferred
Stock occurring after the Issue Date, plus all declared but unpaid dividends,
and the Company shall pay the Redemption Price to the holders of Series D
Preferred Stock in equal quarterly payments over a period of one year. Except
as provided in Section 5(c) below, as of the Maturity Date, all certificates
representing shares of Series D Preferred Stock shall be deemed to represent
only the right to receive the Redemption Price therefor.
(b) Surrender of Certificates. Each holder of shares of Series D
Preferred Stock to be redeemed shall surrender the certificate(s) representing
such shares to the Corporation, and thereupon the Redemption Price for such
shares as set forth in Section 5(a) shall be paid to the order of the person
whose name appears on such certificate(s) and each surrendered certificate shall
be cancelled and retired.
(c) Insufficient Funds for Redemption. If the funds of the
Corporation legally available for redemption of the Series D Preferred Stock are
insufficient to redeem the number of shares of Series D Preferred Stock to be so
redeemed, the holders of shares of Series D Preferred Stock shall share ratably
in any funds legally available for redemption of such shares according to the
respective amounts that would be payable with respect to the number of shares
owned by them if the shares to be so redeemed were redeemed in full. The shares
of Series D Preferred Stock not redeemed shall remain outstanding and entitled
to all rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for
3
<PAGE> 4
the redemption of such shares of Series D Preferred Stock, such funds will be
used, at the end of the next succeeding fiscal quarter, to redeem the balance of
such shares, or such portion therefor for which funds are then legally
available, on the basis set forth above. In the event that funds are not legally
available for the payment in full of the aggregate Redemption Price for the
actual number of shares of Series D Preferred Stock to be so redeemed, then the
Corporation shall be obligated to make such partial redemption so that the
number of shares of Series D Preferred Stock held by each holder shall be
reduced in any amount that shall bear the same ratio to the actual number of
shares of Series D Preferred Stock to be redeemed as the number of shares of
Series D Preferred Stock then held by such holder bears to the aggregate number
of shares of Series D Preferred Stock required to be redeemed.
6. Conversion of Series D Preferred Stock into Common Stock.
(a) Conversion Procedure.
(i) The holders of Series D Preferred Stock shall have no
conversion rights in the event and to the extent that conversion would violate
Rule 4460(i)(1) of the National Association of Securities Dealers, Inc. until,
if applicable, the Corporation obtains the approval specified therein. In the
event that a requested conversion would violate such Rule, the Corporation shall
obtain such approval within 180 days of such request for conversion; if the
Corporation fails to obtain such approval in such time, the Dividend Rate shall
increase 1.25% per quarter, beginning on the 1st day after the 180-day period,
until such approval is obtained.
(ii) Subject to subsection (i) above, from time to time
after the 120th day after the Issue Date and prior to the Maturity Date, any
holder of Series D Preferred Stock may convert all or any portion of the Series
D Preferred Stock held by such holder into a number of shares of Conversion
Stock computed by multiplying the number of shares to be converted by the
purchase price thereof and dividing the result by the Conversion Price (as
defined below) then in effect.
(iii) Each conversion of Series D Preferred Stock shall be
deemed to have been effected as of the close of business on the date on which
notice of election of such conversion is delivered to the Corporation by such
holder. Until the certificates representing the shares of Series D Preferred
Stock which are being converted have been surrendered and new certificates
representing shares of the Conversion Stock shall have been issued by the
Corporation, such certificate(s) evidencing the shares of Series D Preferred
Stock being converted shall be evidence of the issuance of such shares of
Conversion Stock. At such time as such conversion has been effected, the rights
of the holder of such Series D Preferred Stock as such holder shall cease and
the Person or Persons in whose name or names any certificate or certificates for
shares of Conversion Stock are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Conversion Stock
represented thereby.
(iv) Notwithstanding any other provision hereof, if a
conversion of shares is to be made in connection with a Public Offering, the
conversion of such shares may, at the election of the holder thereof, be
conditioned upon the consummation of the Public Offering,
4
<PAGE> 5
in which case such conversion shall not be deemed to be effective until the
consummation of the Public Offering.
(v) As soon as practicable after a conversion has been
effected in accordance with clause (ii) above, the Corporation shall deliver to
the converting holder: (A) a certificate or certificates representing, in the
aggregate, the number of shares of Conversion Stock issuable by reason of such
conversion, in the name or names and in such denomination or denominations as
the converting holder has specified; and (B) a certificate representing any
shares which were represented by the certificate or certificates delivered to
the Corporation in connection with such conversion but which were not converted.
(vi) The issuance of certificates for shares of Conversion
Stock upon conversion of Series D Preferred Stock shall be made without charge
to the holders of such Series D Preferred Stock for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Conversion Stock, except for
any transfer or similar tax payable as a result of issuance of a certificate to
other than the registered holder of the shares being converted. Upon conversion
of any shares of Series D Preferred Stock, the Corporation shall use its best
efforts to take all such actions as are necessary in order to insure that the
Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable.
(vii) The Corporation shall not close its books against the
transfer of Series D Preferred Stock or of Conversion Stock issued or issuable
upon conversion of Series D Preferred Stock in any manner which interferes with
the timely conversion of Series D Preferred Stock. The Corporation shall assist
and cooperate with any holder of shares of Series D Preferred Stock required to
make any governmental filings or obtain any governmental approval prior to or in
connection with any conversion of shares hereunder (including, without
limitation, making any filings reasonably required to be made by the
Corporation).
(viii) No fractional shares of Conversion Stock or scrip
representing fractional shares shall be issued upon conversion of shares of
Series D Preferred Stock. If more than one share of Series D Preferred Stock
shall be surrendered for conversion at one time by the same record holder, the
number of full shares of Conversion Stock issuable upon the conversion thereof
shall be computed on the basis of the aggregate number of shares of Series D
Preferred Stock so surrendered by such record holder. Instead of any fractional
share of Conversion Stock otherwise issuable upon conversion of any shares of
the Series D Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of current per
share fair market value of the Conversion Stock as determined in good faith by
the Board of Directors on such basis as it considers appropriate.
(ix) The Corporation shall use its best efforts at all times
to reserve and keep available out of its authorized but unissued shares of
Conversion Stock, solely for the purpose of issuance upon the conversion of the
Series D Preferred Stock, such number of shares of Conversion Stock as are
issuable upon the conversion of all outstanding Series D Preferred Stock. All
shares of Conversion Stock which are so issuable shall, when issued, be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges, other than those created or agreed to by the holder. The Corporation
shall use its best efforts to take all
5
<PAGE> 6
such actions as may be necessary to assure that all such shares of Conversion
Stock may be so issued without violation of any applicable law or governmental
regulation or any requirements of any domestic securities exchange upon which
shares of Conversion Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Corporation upon each such
issuance).
(b) Conversion Price.
(i) "Conversion Price" for the Series D Preferred Stock
shall initially mean the Initial Conversion Price described in this Section 6,
as the same may be subsequently adjusted from time to time in accordance with
this Section 6.
(ii) The "Initial Conversion Price" shall be $5.50.
(c) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, or if the Corporation at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
applicable Conversion Price in effect immediately prior to such subdivision or
combination shall be proportionately adjusted.
(d) Consolidation, Merger or Sale for Assets. Any consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
Person or other transaction which is effected in such a manner that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) assets other than Conversion Stock ("Assets") with respect to or in
exchange for Common Stock is referred to herein as an "Fundamental Change."
Prior to the consummation of any Fundamental Change, the Corporation shall make
appropriate provisions to insure that each of the holders of Series D Preferred
Stock shall thereafter have the right to acquire and receive, in lieu of or in
addition to (as the case may be) the shares of Conversion Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Series D Preferred Stock, such Assets as such holder would have received in
connection with such Fundamental Change if such holder had converted its Series
D Preferred Stock into Conversion Stock immediately prior to such Fundamental
Change. The Corporation shall not effect any Fundamental Change, consolidation,
merger or sale unless prior to the consummation thereof, the successor
corporation (if other than the Corporation) resulting from consolidation or
merger or the corporation purchasing such assets assumes by written instrument
the obligation to deliver to each such holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
(e) Certain Events. If an event not specifically enumerated in
this Section 6 occurs which has substantially the same economic effect on the
Series D Preferred Stock as those specifically enumerated shall occur, then this
Section 6 shall be construed liberally, mutatis mutandis, in order to give the
Series D Preferred Stock the benefit of the protections provided under this
Section 6. The Corporation's Board of Directors shall make an appropriate
adjustment in the applicable Conversion Price so as to protect the rights of the
holders of Series D Preferred Stock.
6
<PAGE> 7
(f) Notices.
(i) Promptly upon any adjustment of the applicable
Conversion Price, the Corporation shall give written notice thereof to all
holders of Series D Preferred Stock, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all
holders of Series D Preferred Stock at least 10 days prior to the date on
which the Corporation closes its books or takes a record (A) with respect to
any dividend or distribution upon Common Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock, or (C) for determining
rights to vote with respect to any Fundamental Change, dissolution or
liquidation.
(iii) The Corporation shall give written notice to the
holders of Series D Preferred Stock at least twenty (20) days prior to the
date on which any Fundamental Change shall take place, which notice may be one
and the same as that required by (ii) above.
7. Definitions. The following terms have the meanings specified
below:
(a) Affiliate. The term "Affiliate" shall mean (i) any Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with the Corporation (or other specified Person), (ii) any Person
who is a beneficial owner of at least 10% of the then outstanding voting capital
stock (or options, warrants or other securities which, after giving effect to
the exercise thereof, would entitle the holder thereof to hold at least 10% of
the then outstanding voting capital stock) of the Corporation (or other
Specified Person), (iii) any director or executive officer of the Corporation
(or other Specified Person) or Person of which the Corporation (or other
Specified Person) shall, directly or indirectly, either beneficially or of
record, own at least 10% of the then outstanding equity securities of such
Person, and (iv) in the case of Persons specified above who are individuals,
Family Members of such Person; provided, however, that no holder of Preferred
Stock nor any of their designated members of the Board of Directors shall be an
Affiliate of the Corporation for purposes hereof.
(b) Board of Directors. The term "Board of Directors" shall mean
the Board of Directors of the Corporation.
(c) Conversion Stock. The term "Conversion Stock" shall mean the
shares of Common Stock issuable upon conversion of shares of Series D Preferred
Stock; provided that if there is a change such that the securities issuable upon
conversion of the Series D Preferred Stock are issued by an entity other than
the Corporation or there is a change in the class of securities so issuable,
then the term "Conversion Stock" shall mean shares of the security issuable upon
conversion of the Series D Preferred Stock if such security is issuable in
shares, or shall mean the smallest unit in which such security is issuable if
such security is not issuable in shares.
(d) Family Members. The term "Family Members" shall mean, as
applied to any individual, any spouse, child, grandchild, parent, brother or
sister thereof or any spouse of any of the foregoing, and each trust created for
the benefit of one or more of such Persons (other than any trust administered by
an independent trustee) and each custodian of property of one or more such
Persons.
7
<PAGE> 8
(e) Issue Date. The term "Issue Date" shall mean the date on
which a share of Series D Preferred Stock is first issued by the Corporation.
(f) Person. The term "Person" shall mean an individual,
corporation, partnership, association, trust, joint venture or unincorporated
organization or any government, governmental department or any agency or
political subdivision thereof.
(g) Public Offering. The term "Public Offering" shall mean any
offering by the Corporation of its equity securities to the public pursuant to
an effective registration statement under the Securities Act or any comparable
statement under any similar federal statute then in force, other than an
offering in connection with an employee benefit plan.
(h) Securities Act. The term "Securities Act" shall mean the
Securities Act of 1933, as amended, or any successor federal statute, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder, all as the same shall be in effect from time to time.
(i) Subsidiary. The term "Subsidiary" shall mean any Person of
which the Corporation shall at the time own, directly or indirectly through
another Subsidiary, 50% or more of the outstanding voting capital stock (or
other shares of beneficial interest with voting rights), or which the
Corporation shall otherwise control.
8
<PAGE> 9
IN WITNESS WHEREOF, UOL Publishing, Inc. has caused this certificate to be
signed by its duly authorized officer as of the ____ day of June 1998.
UOL PUBLISHING, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
9
<PAGE> 1
EXHIBIT 10.35
AMENDED
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
UOL PUBLISHING, INC.
I. Creation of Series C Convertible Preferred Stock.
The undersigned officer of UOL Publishing, Inc., a Delaware
corporation (the "Corporation"), pursuant to the provisions of Section 151 of
the General Corporation Law of the State of Delaware, do hereby make this
Amended Certificate of Designations, Preferences and Rights and do hereby state
and certify that pursuant to the authority expressly vested in the Board of
Directors of the Corporation by the Certificate of Incorporation, as amended,
the Board of Directors duly adopted the following resolutions:
RESOLVED, that, pursuant to the Certificate of Incorporation, as
amended, of the Corporation (the "Amended Certificate of Incorporation"), which
authorizes 10,000,000 shares of undesignated preferred stock, par value $0.01
per share, of which no shares are presently issued and outstanding, the Board of
Directors is authorized, within the limitations and restrictions stated in the
Amended Certificate of Incorporation, to fix by resolution or resolutions the
designation of each series of preferred stock and the powers, preferences and
relative participating, optional, or other special rights, and qualifications,
limitations, and restrictions thereof; and
RESOLVED, that the Corporation hereby fixes the designations and
preferences and relative, participating, optional, and other special rights, and
qualifications, limitations, and restrictions of the preferred stock consisting
of One Million (1,000,000) shares to be designated Series C Convertible
Preferred Stock, par value $0.01 per share (the "Series C Preferred Stock"); and
RESOLVED, that the Series C Preferred Stock is hereby authorized on
the terms and with the provisions herein set forth:
II. Provisions Relating to the Preferred Stock.
1. Rank. The Series C Preferred Stock shall, with respect to
dividend rights and with respect to rights upon liquidation, winding up or
dissolution, rank pari passu to the
<PAGE> 2
Series D Convertible Preferred Stock authorized pursuant to the Certificate of
Designations, Preferences and Rights of Series D Convertible Stock filed with
the Delaware Secretary of State on or about the date hereof (the "Series D
Preferred Stock") and senior and prior in right to (a) each class of Common
Stock of the Corporation, (b) any series of preferred stock either previously or
hereafter created (except Series D Preferred Stock) and (c) any other equity
interests (including, without limitation, warrants, stock appreciation rights,
phantom stock rights, profit participation rights in debt instruments or other
rights with equity features, calls or options exercisable for or convertible
into such capital stock or equity interests) in the Corporation that by its
terms rank junior to the Series C Preferred Stock (all of such classes or series
of capital stock and other equity interests, including, without limitation, all
classes of Common Stock of the Corporation, are collectively referred to as
"Junior Securities").
2. Dividends. (a) The holders of Series C Preferred Stock shall
be entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, dividends payable either in cash, in
property or in shares of capital stock.
(b) So long as any shares of Series C Preferred Stock are
outstanding, the Corporation will not declare, pay or set apart for payment any
dividends (except dividends payable in Common Stock of the Corporation) or make
any other distribution on or redeem, purchase or otherwise acquire any Junior
Securities and will not permit any Subsidiary or other Affiliate (using funds of
the Corporation or any Subsidiary) to redeem, purchase or otherwise acquire for
value, any Junior Securities. Notwithstanding the foregoing provisions of this
Section 2(b), the Corporation or any Subsidiary may (i) make payments in respect
of fractional shares of Junior Securities and (ii) repurchase, redeem or
otherwise acquire for value any Junior Securities from any employee or former
employee of the Corporation or any Subsidiary in connection with the termination
of employment by the Corporation or any Subsidiary or by such employee or former
employee, whether by reason of death, disability, retirement or otherwise.
3. Liquidation. Upon a liquidation, dissolution or winding up
of the affairs of the Corporation, whether voluntary or involuntary (a
"Liquidation Event"), the holders of the Series C Preferred Stock shall be
entitled, pari passu with the Liquidation Preference payable to holders of the
Series D Preferred Stock (the "Series D Liquidation Preference"), before any
assets of the Corporation shall be distributed among or paid over to the
holders of Junior Securities, to receive from the assets of the Corporation
available for distribution to stockholders, an amount per share equal to
$12.69375 as adjusted to reflect any and all subdivisions (by stock split,
stock dividend or otherwise) or combinations or consolidations (by
reclassification or otherwise) of the Series C Preferred Stock occurring after
the Issue Date, plus all declared but unpaid dividends (the "Series C
Liquidation Preference"). If the assets of the Corporation legally available
for distribution shall be insufficient to permit the payment in full to the
holders of the Series C and Series D Preferred Stock of the Series C and Series
D Liquidation Preferences, then the entire assets of the Corporation legally
available for distribution shall be distributed ratably among such holders and
all other classes and series of preferred stock ranking (as to any such
distribution) on a parity with the Series C and Series D Preferred Stock. For
purposes of this Section 3, a Liquidation Event shall be deemed to be
occasioned by, and to include, (i) the Corporation's sale of all or
substantially all of its assets or capital stock or (ii) any transaction or
series or related transactions (including, without limitation, any
reorganization, merger or consolidation) that will result in the holders of the
outstanding voting equity securities
2
<PAGE> 3
of the Corporation immediately prior to such transaction or series of related
transactions holding securities representing less than 40 percent of the voting
power of the surviving entity immediately following such transaction or series
of related transactions.
4. Voting. (a) Except as otherwise provided by law or by
subsection 4(b), the holders of the Series C Preferred Stock shall be entitled
to vote on all matters submitted to the stockholders for a vote together with
the holders of the Common Stock voting together as a single class, with each
holder of Common Stock entitled to one vote for each share of Common Stock held
by such holder and each holder of Series C Preferred Stock entitled to one vote
for each share of Series C Preferred Stock held by such holder at the time the
vote is taken.
(b) The holders of the Series C Preferred Stock shall vote as a
separate class on the creation of any new series of preferred stock or the
issuance of additional shares of capital stock of the Corporation that ranks
senior to or on a parity with the Series C Preferred Stock.
5. Conversion of Series C Preferred Stock into Common Stock.
(a) Conversion Procedure.
(i) At any time and from time to time prior to the Maturity
Date, any holder of Series C Preferred Stock may convert all or any portion of
the Series C Preferred Stock held by such holder into a number of shares of
Conversion Stock computed by multiplying the number of shares to be converted by
the purchase price thereof and dividing the result by the Conversion Price (as
defined below) then in effect.
(ii) Each conversion of Series C Preferred Stock shall be
deemed to have been effected as of the close of business on the date on which
notice of election of such conversion is delivered to the Corporation by such
holder. Until the certificates representing the shares of Series C Preferred
Stock which are being converted have been surrendered and new certificates
representing shares of the Conversion Stock shall have been issued by the
Corporation, such certificate(s) evidencing the shares of Series C Preferred
Stock being converted shall be evidence of the issuance of such shares of
Conversion Stock. At such time as such conversion has been effected, the rights
of the holder of such Series C Preferred Stock as such holder shall cease and
the Person or Persons in whose name or names any certificate or certificates for
shares of Conversion Stock are to be issued upon such conversion shall be deemed
to have become the holder or holders of record of the shares of Conversion Stock
represented thereby.
(iii) Notwithstanding any other provision hereof, if a
conversion of shares is to be made in connection with a Public Offering, the
conversion of such shares may, at the election of the holder thereof, be
conditioned upon the consummation of the Public Offering, in which case such
conversion shall not be deemed to be effective until the consummation of the
Public Offering.
(iv) As soon as practicable after a conversion has been
effected in accordance with clause (ii) above, the Corporation shall deliver to
the converting holder: (A) a certificate or certificates representing, in the
aggregate, the number of shares of Conversion Stock issuable by reason of such
conversion, in the name or names and in such denomination or
3
<PAGE> 4
denominations as the converting holder has specified; and (B) a certificate
representing any shares which were represented by the certificate or
certificates delivered to the Corporation in connection with such conversion but
which were not converted.
(v) The issuance of certificates for shares of Conversion
Stock upon conversion of Series C Preferred Stock shall be made without charge
to the holders of such Series C Preferred Stock for any issuance tax in respect
thereof or other cost incurred by the Corporation in connection with such
conversion and the related issuance of shares of Conversion Stock, except for
any transfer or similar tax payable as a result of issuance of a certificate to
other than the registered holder of the shares being converted. Upon conversion
of any shares of Series C Preferred Stock, the Corporation shall use its best
efforts to take all such actions as are necessary in order to insure that the
Conversion Stock issuable with respect to such conversion shall be validly
issued, fully paid and nonassessable.
(vi) The Corporation shall not close its books against the
transfer of Series C Preferred Stock or of Conversion Stock issued or issuable
upon conversion of Series C Preferred Stock in any manner which interferes with
the timely conversion of Series C Preferred Stock. The Corporation shall assist
and cooperate with any holder of shares of Series C Preferred Stock required to
make any governmental filings or obtain any governmental approval prior to or in
connection with any conversion of shares hereunder (including, without
limitation, making any filings reasonably required to be made by the
Corporation).
(vii) No fractional shares of Conversion Stock or scrip
representing fractional shares shall be issued upon conversion of shares of
Series C Preferred Stock. If more than one share of Series C Preferred Stock
shall be surrendered for conversion at one time by the same record holder, the
number of full shares of Conversion Stock issuable upon the conversion thereof
shall be computed on the basis of the aggregate number of shares of Series C
Preferred Stock so surrendered by such record holder. Instead of any fractional
share of Conversion Stock otherwise issuable upon conversion of any shares of
the Series C Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction of current per
share fair market value of the Conversion Stock as determined in good faith by
the Board of Directors on such basis as it considers appropriate.
(viii) The Corporation shall use its best efforts at all
times to reserve and keep available out of its authorized but unissued shares
of Conversion Stock, solely for the purpose of issuance upon the conversion of
the Series C Preferred Stock, such number of shares of Conversion Stock as are
issuable upon the conversion of all outstanding Series C Preferred Stock. All
shares of Conversion Stock which are so issuable shall, when issued, be duly
and validly issued, fully paid and nonassessable and free from all taxes, liens
and charges, other than those created or agreed to by the holder. The
Corporation shall use its best efforts to take all such actions as may be
necessary to assure that all such shares of Conversion Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of
Conversion Stock may be listed (except for official notice of issuance which
shall be immediately delivered by the Corporation upon each such issuance).
4
<PAGE> 5
(b) Conversion Price.
(i) "Conversion Price" for the Series C Preferred Stock
shall initially mean the Initial Conversion Price described in this Section 5,
as the same may be subsequently adjusted from time to time in accordance with
this Section 5.
(ii) The "Initial Conversion Price" shall be $6.9815625
(such that 1.2121 shares of Common Stock are issuable upon conversion of each
share of Series C Preferred Stock at the Initial Conversion Price).
(iii) If and whenever on or after the Issue Date and on or
prior to the first anniversary thereof, the Corporation issues or sells, or in
accordance with Section 5(c) is deemed to have issued or sold, any shares of its
Common Stock or other instrument or security convertible into or exchangeable
for Common Stock for a consideration per share less than the fair market value
thereof (as reflected by the then applicable bid price thereof, averaged over a
five-day period, if deemed appropriate by the Board, on the principal market or
exchange therefor, or as determined in good faith by the Board if there is no
such bid price) (the "Sale Price"), then forthwith upon such issue or sale the
applicable Conversion Price shall be recalculated by being multiplied by a
fraction of which (x) the numerator shall be (1) the number of shares of Common
Stock Deemed Outstanding immediately prior to such issue or sale, plus (2) the
number of shares of Common Stock which the aggregate consideration received or
deemed received by the Corporation in accordance with Section 5(c) for the total
number of shares of Common Stock issued and sold or deemed issued and sold in
accordance with Section 5(c) would purchase at such Conversion Price as in
effect immediately prior to such issue and sale, and (y) the denominator shall
be the number of shares of Common Stock Deemed Outstanding immediately after
such issue or sale; provided, however, the foregoing shall not apply to the
issuance of shares of Common Stock to employees, directors or consultants
pursuant to the Corporation's existing or future stock plans.
(c) Effect on Conversion Price of Certain Events. For purposes
of determining the applicable adjusted Conversion Price under Section 5(b),
the following shall be applicable:
(i) Issuance of Rights or Options. If the Corporation in
any manner grants any rights or options to subscribe for or to purchase Common
Stock ("Options") or any stock or other securities convertible into or
exchangeable for Common Stock ("Convertible Securities"), and the price per
share for which Common Stock is issuable upon the exercise of such Options or
upon conversion or exchange of such Convertible Securities is less than the fair
market value thereof immediately prior to the time of the granting of such
Options, then the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon conversion or exchange of the total maximum
amount of such Convertible Securities shall be deemed to be outstanding and to
have been issued and sold by the Corporation at the time of the granting of such
Options for such price per share. For purposes of this paragraph, the "price per
share for which Common Stock is issuable" shall be determined by dividing (A)
the total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum aggregate
amount of additional consideration payable to the Corporation upon exercise of
all such Options, plus in the case of such Options which relate to
5
<PAGE> 6
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the issuance or sale of
such Convertible Securities and the conversion or exchange thereof (such amount
is the consideration "deemed received" for purposes of Section 5(b) above), by
(B) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options. Upon the
expiration of any Option or termination of any conversion right of any
Convertible Security issuable upon exercise of any Option, the issuance of which
resulted in an adjustment of the Conversion Price, if any such Option shall
expire or conversion right of any Convertible Security shall terminate and shall
not have been exercised or converted, as applicable, the Conversion Price shall
be recalculated immediately upon such expiration and effective immediately upon
such expiration and increased to the price it would have been (but reflecting
any other adjustments to the Conversion Price made pursuant to the provisions of
this Section 5 after the issuance of such Options) had the adjustment of the
Conversion Price made upon issuance of such Options been made on the basis of
the issuance of only those Options actually exercised or Convertible Securities
issuable upon exercise of such Options actually converted, as applicable. No
further adjustment of the applicable Conversion Price shall be made when
Convertible Securities are actually issued upon the exercise of such Options or
when Common Stock is actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Corporation
in any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon conversion or exchange thereof is less
than the fair market value thereof immediately prior to the time of such issue
or sale, then the maximum number of shares of Common Stock issuable upon
conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Corporation at the time of
the issuance or sale of such Convertible Securities for such price per share.
For the purposes of this paragraph, the "price per share for which Common Stock
is issuable" shall be determined by dividing (A) the total amount received or
receivable by the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof (such amount is the consideration "deemed received" for
purposes of Section 5(b) above), by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. Upon the termination of any conversion right of any Convertible
Security, the issuance of which resulted in an adjustment of the Conversion
Price, if any such conversion right of any Convertible Security shall terminate
and shall not have been converted, the Conversion Price shall be recalculated
immediately upon such termination and effective immediately upon such
termination shall be increased to the price it would have been (but reflecting
any other adjustments to the Conversion Price made pursuant to the provisions of
this Section 5 after the issuance of such Convertible Securities) had the
adjustment of the Conversion Price made upon the issuance of such Convertible
Securities been made on the basis of the issuance of only those Convertible
Securities actually converted. No further adjustment of the applicable
Conversion Price shall be made when Common Stock is actually issued upon the
conversion or exchange of such Convertible Securities, and if any such issue or
sale of such Convertible Securities is made upon exercise of any Options for
which adjustments of the applicable Conversion Price had been or are to be made
pursuant to other provisions of this
6
<PAGE> 7
Section 5, no further adjustment of the applicable Conversion Price shall be
made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the conversion or exchange of any Convertible Securities, or
the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock change at any time, the applicable Conversion
Price in effect at the time of such change shall be readjusted to the applicable
Conversion Price which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(d) Subdivision or Combination of Common Stock. If the
Corporation at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, or if the Corporation at any time
combines (by reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the
applicable Conversion Price in effect immediately prior to such subdivision or
combination shall be proportionately adjusted.
(e) Consolidation, Merger or Sale for Assets. Any consolidation,
merger, sale of all or substantially all of the Corporation's assets to another
Person or other transaction which is effected in such a manner that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) assets other than Conversion Securities ("Assets") with respect to
or in exchange for Common Stock is referred to herein as an "Fundamental
Change." Prior to the consummation of any Fundamental Change, the Corporation
shall make appropriate provisions to insure that each of the holders of Series C
Preferred Stock shall thereafter have the right to acquire and receive, in lieu
of or in addition to (as the case may be) the shares of Conversion Stock
immediately theretofore acquirable and receivable upon the conversion of such
holder's Series C Preferred Stock, such Assets as such holder would have
received in connection with such Fundamental Change if such holder had converted
its Series C Preferred Stock into Conversion Stock immediately prior to such
Fundamental Change. The Corporation shall not effect any Fundamental Change,
consolidation, merger or sale unless prior to the consummation thereof, the
successor corporation (if other than the Corporation) resulting from
consolidation or merger or the corporation purchasing such assets assumes by
written instrument the obligation to deliver to each such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
(f) Certain Events. If an event not specifically enumerated in
this Section 5 occurs which has substantially the same economic effect on the
Series C Preferred Stock as those specifically enumerated shall occur, then this
Section 5 shall be construed liberally, mutatis mutandis, in order to give the
Series C Preferred Stock the benefit of the protections provided under this
Section 5. The Corporation's Board of Directors shall make an appropriate
adjustment in the applicable Conversion Price so as to protect the rights of the
holders of Series C Preferred Stock.
7
<PAGE> 8
(g) Notices.
(i) Promptly upon any adjustment of the applicable
Conversion Price, the Corporation shall give written notice thereof to all
holders of Series C Preferred Stock, setting forth in reasonable detail and
certifying the calculation of such adjustment.
(ii) The Corporation shall give written notice to all
holders of Series C Preferred Stock at least 10 days prior to the date on which
the Corporation closes its books or takes a record (A) with respect to any
dividend or distribution upon Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock, or (C) for determining rights to
vote with respect to any Fundamental Change, dissolution or
liquidation.
(iii) The Corporation shall give written notice to the
holders of Series C Preferred Stock at least twenty (20) days prior to the date
on which any Fundamental Change shall take place, which notice may be one and
the same as that required by (ii) above.
6. Definitions. The following terms have the meanings specified
below:
(a) Affiliate. The term "Affiliate" shall mean (i) any Person
directly or indirectly controlling, controlled by or under direct or indirect
common control with the Corporation (or other specified Person), (ii) any Person
who is a beneficial owner of at least 10% of the then outstanding voting capital
stock (or options, warrants or other securities which, after giving effect to
the exercise thereof, would entitle the holder thereof to hold at least 10% of
the then outstanding voting capital stock) of the Corporation (or other
Specified Person), (iii) any director or executive officer of the Corporation
(or other Specified Person) or Person of which the Corporation (or other
Specified Person) shall, directly or indirectly, either beneficially or of
record, own at least 10% of the then outstanding equity securities of such
Person, and (iv) in the case of Persons specified above who are individuals,
Family Members of such Person; provided, however, that no holder of Preferred
Stock nor any of their designated members of the Board of Directors shall be an
Affiliate of the Corporation for purposes hereof.
(b) Board of Directors. The term "Board of Directors" shall mean
the Board of Directors of the Corporation.
(c) Common Stock Deemed Outstanding. The term "Common Stock
Deemed Outstanding" shall mean, at any given time, the number of shares of
Common Stock actually outstanding at such time, plus the number of shares of
Common Stock issuable upon conversion of the Series C Preferred Stock plus the
number of shares of Common Stock deemed to be outstanding with respect to
Options and Convertible Securities pursuant to Section 5 hereof whether or not
the Options or Convertible Securities are actually exercisable at such time.
(d) Conversion Stock. The term "Conversion Stock" shall mean the
shares of Common Stock issuable upon conversion of shares of Series C Preferred
Stock; provided that if there is a change such that the securities issuable upon
conversion of the Series C Preferred Stock are issued by an entity other than
the Corporation or there is a change in the class of securities so issuable,
then the term "Conversion Stock" shall mean shares of the security issuable upon
conversion of the Series C Preferred Stock if such security is issuable in
shares, or
8
<PAGE> 9
shall mean the smallest unit in which such security is issuable if such security
is not issuable in shares.
(e) Family Members. The term "Family Members" shall mean, as
applied to any individual, any spouse, child, grandchild, parent, brother or
sister thereof or any spouse of any of the foregoing, and each trust created for
the benefit of one or more of such Persons (other than any trust administered by
an independent trustee) and each custodian of property of one or more such
Persons.
(f) Issue Date. The term "Issue Date" shall mean the date on
which a share of Series C Preferred Stock is first issued by the Corporation.
(g) Person. The term "Person" shall mean an individual,
corporation, partnership, association, trust, joint venture or unincorporated
organization or any government, governmental department or any agency or
political subdivision thereof.
(h) Public Offering. The term "Public Offering" shall mean any
offering by the Corporation of its equity securities to the public pursuant to
an effective registration statement under the Securities Act or any comparable
statement under any similar federal statute then in force, other than an
offering in connection with an employee benefit plan.
(i) Securities Act. The term "Securities Act" shall mean the
Securities Act of 1933, as amended, or any successor federal statute, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder, all as the same shall be in effect from time to time.
(j) Subsidiary. The term "Subsidiary" shall mean any Person of
which the Corporation shall at the time own, directly or indirectly through
another Subsidiary, 50% or more of the outstanding voting capital stock (or
other shares of beneficial interest with voting rights), or which the
Corporation shall otherwise control.
IN WITNESS WHEREOF, UOL Publishing, Inc. has caused this certificate to be
signed by its duly authorized officer as of the ____ day of June 1998.
UOL PUBLISHING, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 2,246,154
<SECURITIES> 0
<RECEIVABLES> 5,104,920
<ALLOWANCES> 1,778,991
<INVENTORY> 0
<CURRENT-ASSETS> 6,002,324
<PP&E> 4,127,609
<DEPRECIATION> 1,229,994
<TOTAL-ASSETS> 23,950,374
<CURRENT-LIABILITIES> 12,023,987
<BONDS> 0
0
17,089
<COMMON> 38,256
<OTHER-SE> 11,185,064
<TOTAL-LIABILITY-AND-EQUITY> 23,950,374
<SALES> 7,028,331
<TOTAL-REVENUES> 7,028,331
<CGS> 4,976,259
<TOTAL-COSTS> 4,976,259
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 294,870
<INCOME-PRETAX> (11,191,652)
<INCOME-TAX> 0
<INCOME-CONTINUING> (11,191,652)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (11,191,652)
<EPS-PRIMARY> (2.93)
<EPS-DILUTED> (2.93)
</TABLE>
