<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2)
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
UOL PUBLISHING, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its charter)
- --------------------------------------------------------------------------------
(Name of person(s) filing proxy statement if other than registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
CALCULATION OF FILING FEE
Transaction valuation Amount of filing fee
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
- --------------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE> 2
UOL PUBLISHING, INC.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD , 1999
------------------
TO THE STOCKHOLDERS OF
UOL PUBLISHING, INC.:
You are invited to attend the Annual Meeting of Stockholders of UOL
Publishing, Inc., a Delaware corporation (the "Company"), to be held at the
Holiday Inn Tyson's Corner, 1960 Chain Bridge Road, McLean, Virginia on
, , 1999 at 10:00 a.m., for the following purposes:
1. To elect a board of seven directors;
2. To amend the Company's Certificate of Incorporation to change the
Company's name to VCampus, Inc.;
3. To reserve an additional 1,000,000 shares for issuance under the
Company's 1996 Stock Plan;
4. To approve a private equity line of credit of up to $3 million, based
on availability, with Hambrecht & Quist Guaranty Finance LLC,
pursuant to which the Company would issue convertible preferred
stock;
5. To approve the $2.5 million convertible debenture financing with
Excalibur Limited Partnership and B.H. Capital Investments, L.P.;
6. To ratify the appointment of Ernst & Young LLP as the independent
auditors of the Company for the fiscal year ending December 31, 1999;
and
7. To act upon such other matters as may properly come before the
meeting or any adjournment thereof.
The foregoing items are more fully described in the attached Proxy Statement.
The Board of Directors has fixed the close of business on July 12, 1999 as
the record date for the determination of stockholders entitled to notice of and
to vote at the meeting or any adjournment or adjournments thereof. You are
cordially invited to attend the meeting in person. However, to assure your
representation at the meeting, you are urged to mark, sign, date and return the
enclosed proxy card as promptly as possible in the postage-prepaid envelope
enclosed for that purpose. You may vote in person at the meeting, even if you
returned a proxy.
The Company's Proxy Statement and proxy is submitted herewith along with
the Company's Annual Report to Stockholders for the fiscal year ended December
31, 1998.
IMPORTANT -- YOUR PROXY IS ENCLOSED
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, WE URGE YOU TO EXECUTE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE. NO POSTAGE IS
REQUIRED FOR MAILING IN THE UNITED STATES.
By Order of the Board of Directors
Narasimhan P. Kannan,
Chairman of the Board and
Chief Executive Officer
McLean, Virginia
, 1999
<PAGE> 3
UOL PUBLISHING, INC.
8251 Greensboro Drive, Suite 500
McLean, Virginia 22102
------------------
PROXY STATEMENT
------------------
ANNUAL MEETING OF STOCKHOLDERS
, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
The enclosed proxy is solicited by the Board of Directors of UOL
Publishing, Inc., a Delaware corporation (the "Company"), for use at the
Company's Annual Meeting of Stockholders to be held at the Holiday Inn Tyson's
Corner, 1960 Chain Bridge Road, McLean, Virginia at 10:00 a.m. on ,
, 1999, and any adjournments thereof (the "Meeting").
The cost of soliciting proxies will be borne by the Company. In addition to
solicitation of proxies by mail, employees of the Company, without extra
remuneration, may solicit proxies personally or by telephone. The Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries for
their reasonable out-of-pocket expenses for forwarding proxy materials to
beneficial owners and seeking instruction with respect thereto.
Copies of this Proxy Statement and accompanying proxy card were mailed to
stockholders on or about , 1999.
REVOCABILITY OF PROXIES
You have the power to revoke your proxy at any time before it is voted by
giving a later proxy or written notice to the Company (Attention: Corporate
Secretary), or by attending the Meeting and voting in person.
VOTING
When the enclosed proxy is properly executed and returned (and not
subsequently properly revoked), the shares it represents will be voted in
accordance with the directions indicated thereon, or, if no direction is
indicated thereon, it will be voted:
(i) FOR the election of the seven nominees for director identified below;
(ii) FOR the amendment of the Company's Certificate of Incorporation to
change the Company's name to VCampus, Inc.;
(iii) FOR the reservation of an additional 1,000,000 shares for issuance
under the Company's 1996 Stock Plan;
(iv) FOR approval of the private equity line of credit with Hambrecht &
Quist Guaranty Finance LLC ("H&Q");
(v) FOR approval of the $2.5 million convertible debenture financing with
Excalibur Limited Partnership and B.H. Capital Investments, L.P. (the
"Convertible Debenture Financing");
(vi) FOR ratification of the appointment of Ernst & Young LLP, Vienna,
Virginia, as independent auditors of the Company for the fiscal year
ending December 31, 1999; and
(vii) in the discretion of the proxies with respect to any other matters
properly brought before the stockholders at the Meeting.
RECORD DATE
Only the holders of record of the Company's Common Stock, Series C
Preferred Stock and Series D Preferred Stock at the close of business on the
record date, July 12, 1999 (the "Record Date"), are entitled to notice of and to
vote at the Meeting. On the Record Date, 4,811,365 shares of Common Stock,
623,339 shares
<PAGE> 4
of Series C Preferred Stock and 1,082,625 shares of Series D Preferred Stock
were outstanding. Stockholders will be entitled to one vote for each share of
Common Stock held on the Record Date and one vote for each share of Series C
Preferred Stock and Series D Preferred Stock held on the Record Date.
APPENDICES
Appendix A -- Private Equity Line of Credit Agreement with H&Q
Appendix B -- Certificate of Designations, Preferences and Rights of Series E
Convertible Preferred Stock
Appendix C -- Convertible Debenture and Warrants Purchase Agreement with
Excalibur Limited Partnership and B.H. Capital Investments, L.P.
Appendix D -- Form of Convertible Debenture
PROPOSAL NO. 1 -- ELECTION OF DIRECTORS
NOMINEES
The Company's Bylaws provide that the number of directors constituting the
Board of Directors shall be no less than five nor greater than nine. The number
of directors is currently seven, and the number authorized to be elected at the
Meeting is seven. Therefore, seven directors are to be elected to serve for one
year, until the election and qualification of their successors, and it is
intended that proxies, not limited to the contrary, will be voted FOR all of the
management nominees named below. If any such nominee is unable or declines to
serve as a director at the time of the Meeting, the individuals named in the
enclosed proxy may exercise their discretion to vote for any substitute proposed
by the Board of Directors. It is not anticipated that any nominee listed below
will be unable or will decline to serve as a director. None of the directors or
nominees is related by blood, marriage or adoption to any other nominee or any
executive officer of the Company.
<TABLE>
<CAPTION>
NAME AGE DIRECTOR SINCE
---- --- --------------
<S> <C> <C>
Narasimhan P. Kannan...................................... 50 1984
Edson D. deCastro......................................... 60 1994
Barry K. Fingerhut........................................ 53 1996
Kamyar Kaviani............................................ 37 1997
William E. Kimberly....................................... 66 1995
John D. Sears............................................. 44 1998
Steven M. H. Wallman...................................... 45 1997
</TABLE>
Narasimhan P. "Nat" Kannan has served as Chief Executive Officer and
Chairman of the Board of Directors of the Company since he founded the Company
in 1984. Prior to founding the Company, he co-founded Ganesa Group, Inc., a
developer of interactive graphics and modeling software, in 1981. Prior thereto,
he served as a consultant to Booz Allen and Hamilton, Inc., the MITRE
Corporation, The Ministry of Industry of the French Government, the Brookhaven
and Lawrence Livermore National Laboratories, the White House Domestic Policy
Committee on Energy, and Control Data Corporation. He serves on the board of
directors of TV on the Web, Inc. He holds a B.S. in Engineering from the Indian
Institute of Technology in Madras, India, and he performed advanced graduate
work in business and engineering at Dartmouth College.
Edson D. deCastro has been a director of the Company since 1994. From June
1995 to January 1997 Mr. deCastro served as Chief Executive Officer of
Xenometrix, Inc. and served as its Chairman from 1992 until November 1997. Mr.
deCastro was the founder of Data General Corporation and served as its Chief
Executive Officer from 1968 to 1990. From January 1990 to June 1995, Mr.
deCastro was an independent contractor. Mr. deCastro now works as a consultant.
Mr. deCastro also serves on the boards of directors of Boston Life Sciences,
Inc. and Avax Technologies, Inc., both public companies, and of several private
early-stage technology companies. He holds a B.S. in Electrical Engineering from
the University of Lowell.
Barry K. Fingerhut has been a director of the Company since August 1996.
Since 1981 he has been employed by GeoCapital, a registered investment advisor,
and has served as its Portfolio Manager and President since 1991. Mr. Fingerhut
is an officer of the General Partner of each of Wheatley Partners, L.P. and
Wheatley Foreign Partners L.P., both investment partnerships. In addition, he is
co-founder and General
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Partner of Applewood Associates, L.P. and an officer of a General Partner of
21st Century Communications Partners, L.P., also an investment partnership. Mr.
Fingerhut serves as a director of Millbrook Press, Inc., Carriage Services, Inc.
and several private companies. Mr. Fingerhut holds a B.S. from the University of
Maryland and an M.B.A. with a concentration in Finance/Investments from New York
University.
Kamyar Kaviani has been a director since November 1997. Mr. Kaviani joined
the Company as Executive Vice President upon the Company's acquisition of HTR in
October 1997. Prior to such acquisition, Mr. Kaviani co-founded HTR, Inc. in
1987 and has served as its Chairman and Chief Executive Officer since that time.
Mr. Kaviani holds a B.A. in Economics from the University of Maryland.
William E. Kimberly has been a director of the Company since October 1995.
Mr. Kimberly served as the President of the Manchester Group, Ltd., an
investment banking firm, from 1990 to 1992, and as Chairman of NAZTEC
International Group, Inc., its successor, since 1994. Prior thereto, Mr.
Kimberly served in various senior executive capacities for 23 years for Kimberly
Clark Corporation. Mr. Kimberly also serves as a director of several private
emerging growth companies. He is a member of the Board of Trustees of The
Asheville School and the Pan American Development Foundation.
John D. Sears has been employed in various executive capacities by the
University of Phoenix since 1987, currently serving as Vice President of the
Office of Institutional Development, and prior thereto as the Vice President of
the Center for Distance Education. Mr. Sears holds a B.A. from the University of
Notre Dame and a Masters in Business Administration from the University of
Denver.
Steven M. H. Wallman has been a director of the Company since November
1997. From July 1994 to October 1997, Mr. Wallman served as a Commissioner of
the U.S. Securities and Exchange Commission. From 1986 to 1994, he was a partner
with the law firm of Covington & Burling. Mr. Wallman now serves as a
Non-Resident Senior Fellow at The Brookings Institution, Washington, D.C., as a
consultant, and since July 1998 has served as the Chief Executive Officer and a
director of FolioTrade LLC, a private internet financial services company. He
holds an S.B. from the Massachusetts Institute of Technology, an S.M. from the
Massachusetts Institute of Technology, Sloan School of Management, and a J.D.
from Columbia University School of Law.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND ITS COMMITTEES
The business of the Company is under the general management of the Board of
Directors as provided by the laws of Delaware and the Bylaws of the Company.
During the fiscal year ended December 31, 1998, the Board of Directors held four
formal meetings, excluding actions by unanimous written consent. Each Member of
the Board attended at least 75% of the fiscal 1998 meetings of Board of
Directors and Board committees of which he was a member.
The Board of Directors has an Audit Committee, a Compensation Committee and
a Nominating Committee. The Audit Committee currently consists of Messrs.
Wallman and Kimberly. During 1998, the Audit Committee held four formal
meetings, excluding actions by unanimous written consent. The Audit Committee
reviews the results and scope of the audit and other services provided by the
Company's independent auditors. The Compensation Committee currently consists of
Messrs. deCastro and Fingerhut. During 1998, the Compensation Committee held no
formal meetings, instead taking action exclusively by unanimous written consent.
The Compensation Committee makes recommendations to the Board of Directors
regarding salaries and incentive compensation for officers of the Company, and
determines the amount and type of equity incentives granted to participants in
the Company's 1996 Stock Plan. The Nominating Committee currently consists of
Messrs. Kannan and Fingerhut. The Nominating Committee makes recommendations to
the Board regarding the slate of directors to be nominated for election at the
Company's annual meetings of stockholders.
VOTE REQUIRED
The seven nominees receiving the highest number of affirmative votes of the
shares present or represented and entitled to be voted at the Meeting shall be
elected as directors of the Company. Votes withheld from any director will be
counted for purposes of determining the presence or absence of a quorum for the
transaction of business, but have no other effect under Delaware law. However,
because directors are elected by a plurality
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vote, abstentions in the election of directors have no effect once a quorum
exists. Furthermore, shares represented by proxies returned by a broker holding
such shares in nominee or "street" name will be counted as present or
represented for purposes of determining the presence or absence of a quorum for
the transaction of business, even if such shares are not voted in matters where
discretionary voting by the broker is not allowed ("broker non-votes"). Withheld
votes and broker non-votes, if any, are not treated as votes cast and therefore,
will have no effect on the proposal to elect directors.
THE BOARD OF DIRECTORS HAS APPROVED AND RECOMMENDS THAT STOCKHOLDERS VOTE
"FOR" THE ELECTION OF THE MANAGEMENT NOMINEES LISTED ABOVE.
PROPOSAL NO. 2 -- APPROVAL OF AMENDMENT AND RESTATEMENT OF THE
CERTIFICATE OF INCORPORATION TO CHANGE THE COMPANY'S NAME
On May 19, 1999, the Board authorized an amendment to the Company's
Certificate of Incorporation (the "Certificate") changing the Company's name to
"VCampus, Inc." The Board also recommended that the proposed amendment and
restatement be submitted to the Company's stockholders for consideration at the
Meeting. To effect the name change, the Certificate would be amended by deleting
Article I in its entirety and inserting the following in lieu thereof:
"The name of the corporation is VCampus, Inc."
The Board is recommending the proposed change so that the name of the
Company will reflect the operating name of its major business. Management has
chosen VCampus, Inc. as the Company's primary operating name and plans to use it
as its universal brand name for its key businesses. Accordingly, the Board
believes alignment of the Company's name with its operating name will enhance
the Company's brand equity and strengthen recognition of the Company by its
customers, partners and stockholders.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock, Series C Preferred Stock and Series D Preferred Stock
present or represented and voting together as one class on this proposal at the
Meeting will be required to approve this proposal. Votes withheld on this
proposal will be counted for purposes of determining the presence or absence of
a quorum for the transaction of business and will be treated as shares
represented and voting on this proposal at the Meeting. In accordance with
Delaware law, abstentions will be counted for purposes of determining both
whether a quorum is present at the Meeting and the total number of shares
represented and voting on this proposal. While broker non-votes will be counted
for purposes of determining the presence or absence of a quorum, broker
non-votes will not be counted for purposes of determining the number of shares
represented and voting with respect to the particular proposal on which the
broker has expressly not voted and, accordingly, will not affect the approval of
this proposal.
If the proposal is approved, officers of the Company will promptly make
appropriate filings in the State of Delaware and take any other actions
necessary to implement the name change.
The name change will not affect the validity or transferability of
currently outstanding stock certificates, and stockholders will not be requested
to surrender for exchange any certificates presently held by them. The Company
is considering changing its ticker symbol on the Nasdaq SmallCap Market to
reflect the new name.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
THE PROPOSED NAME CHANGE.
PROPOSAL NO. 3 --
APPROVAL OF AMENDMENT TO THE 1996 STOCK PLAN
The Company's 1996 Stock Plan (the "1996 Plan") was adopted and approved by
the Board of Directors in August 1996 and by the stockholders of the Company in
September 1996. A total of 2,524,893 shares of Common Stock have been reserved
for issuance under the 1996 Plan, 1,000,000 of which are subject to stockholder
approval at the Meeting. As of June 30, 1999, 6,437 shares of Common Stock had
been issued upon exercise of options granted under the 1996 Plan, and options
for 1,271,227 shares were outstanding
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thereunder at a weighted average exercise price of $10.86 per share. The 1996
Plan also allows for the grant of purchase rights, under which 27,619 shares
have been purchased to date. Absent stockholder approval, only 199,610 shares
remain available for issuance under the 1996 Plan as incentive stock options and
all future grants from the 1,000,000 shares subject to this proposal will not
qualify as incentive stock options.
The 1996 Plan provides for the grant of "incentive stock options" within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), solely to employees (including officers and employee directors), and
nonstatutory stock options to employees, directors and consultants.
In order to tie director compensation more directly to the individual
director's contributions to the Company, the 1996 Plan includes an automatic
grant program for non-employee directors. This program provides for automatic
grants on January 1 of each year to directors who are not employees of the
Company of an option to purchase 10,000 shares. In addition, in the case of a
new director, automatic grants shall be effective upon such director's initial
election or appointment to the Board with the number of underlying shares equal
to the product of 2,500 multiplied by the number of regularly scheduled meetings
remaining in that year. Subject to continued status as a director, options
granted pursuant to the automatic grant program vest 25% per year on each of the
fifth, sixth, seventh and eighth anniversaries of the date of grant; provided,
however, that 2,500 shares vest on each date the director attends a Board
meeting in person during that year. In addition, each such 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.
As of June 30, 1999, approximately 110 persons were eligible to receive
grants under the 1996 Plan. The 1996 Plan is administered by the Compensation
Committee of the Board of Directors. Subject to the restrictions of the 1996
Plan, the Compensation Committee determines who is granted options, the terms of
options granted, including exercise price, the number of shares subject to the
option and the option's exercisability. The current members of the Compensation
Committee are Messrs. deCastro and Fingerhut.
The exercise price of options granted under the 1996 Plan is determined on
the date of grant, and in the case of incentive stock options must be at least
100% of the fair market value per share at the time of grant. The exercise price
of any option granted to an optionee who owns stock possessing more than 10% of
the voting power of the Company's outstanding capital stock must equal at least
110% of the fair market value of the Common Stock on the date of grant. The
aggregate fair market value of Common Stock (determined as of the date of the
option grant) for which incentive stock options may for the first time become
exercisable by any individual in any calendar year may not exceed $100,000.
Payment of the exercise price may be made by delivery of cash or a check to the
order of the Company, or by any other means determined by the Board of
Directors.
Options granted to employees under the 1996 Plan generally become
exercisable in increments, based on the optionee's continued employment with the
Company, over a period of up to five years. The term of an incentive stock
option may not exceed 10 years. The form of option agreement generally provides
that options granted under the 1996 Plan, whether incentive stock options or
nonstatutory options, expire 10 years from the date of grant. Incentive stock
options granted pursuant to the 1996 Plan are not transferable by the optionee,
other than by will or the laws of descent and distribution, and are exercisable
during the optionee's lifetime only by the optionee. Generally, in the event of
a merger of the Company with or into another corporation or a sale of all or
substantially all of the Company's assets, all outstanding options under the
1996 Plan shall accelerate and become fully exercisable upon consummation of
such merger or sale of assets.
The Board may amend the 1996 Plan at any time or from time to time or may
terminate the 1996 Plan without the approval of the stockholders, provided that
stockholder approval is required for any amendment to the 1996 Plan requiring
stockholder approval under applicable law as in effect at the time. However, no
action by the Board of Directors or stockholders may alter or impair any option
previously granted under the 1996 Plan. The Board may accelerate the
exercisability of any option or waive any condition or restriction pertaining to
such option at any time. The 1996 Plan will terminate in August 2006, unless
terminated sooner by the Board.
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TAX CONSEQUENCES OF OPTIONS
An optionee who is granted an incentive stock option will generally not
recognize taxable income either at the time the option is granted or upon its
exercise, although the exercise will increase the optionee's alternative minimum
taxable income by an amount equal to the difference, if any, between the fair
market value of the shares at the time of exercise and the option's exercise
price, and therefore may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two years after grant of the
option and more than one year after exercising the option, any gain or loss will
be treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option's exercise or (ii)
the sale price of the shares. The Company will be entitled to a deduction in the
same amount as the ordinary income recognized by the optionee. Any gain or loss
recognized on such a premature disposition of the shares in excess of the amount
treated as ordinary income will be characterized as long-term or short-term
capital gain or loss, depending on the optionee's holding period with respect to
such shares.
All other options that do not qualify as incentive stock options are
referred to as nonstatutory options. Generally, an optionee will not recognize
any taxable income at the time he or she is granted a nonstatutory option. Upon
its exercise, however, the optionee will generally recognize taxable ordinary
income measured as the excess of the then fair market value of the shares
acquired over the exercise price of the option. Any taxable income recognized in
connection with an option exercise by an optionee who is also an employee of the
Company will be subject to tax withholding by the Company. The Company will be
entitled to a tax deduction in the same amount as the ordinary income recognized
by the optionee with respect to shares acquired upon exercise of a nonstatutory
option. Upon resale of such shares by the optionee, any difference between the
sales price received and the fair market value for the shares on the date of
exercise of the option will be treated as long-term or short-term capital gain
or loss, depending on the optionee's holding period with respect to such shares.
The foregoing is only a summary, based on the current Code and Treasury
Regulations thereunder, of the federal income tax consequences to the optionee
and the Company with respect to the grant and exercise of options under the 1996
Plan, does not purport to be complete, and does not discuss the tax consequences
of the optionee's death or the income tax laws of any municipality, state or
foreign country in which an optionee may reside.
PROPOSED AMENDMENT
In February 1999, the Board of Directors adopted an amendment to the 1996
Plan to increase the number of shares reserved for issuance thereunder by
1,000,000 shares, from 1,524,893 shares to 2,524,893 shares (the "Share Amount
Amendment"). Without giving effect to the Share Amount Amendment, as of March
31, 1999, only 199,610 shares remained available for future grant as incentive
stock options under the 1996 Plan, which will not allow the Company to meet its
anticipated needs with respect to the issuance of such additional options to
employees and consultants of the Company. Absent stockholder approval, all
future grants from the 1,000,000 additional shares subject to this proposal will
fail to qualify for favorable tax treatment as incentive stock options.
At the Meeting, the stockholders are being asked to approve the Share
Amount Amendment.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock, Series C Preferred Stock and Series D Preferred Stock
present or represented and voting together as one class on this proposal at the
Meeting will be required to approve the Share Amount Amendment. Failure to
obtain stockholder approval of the Share Amount Amendment will prevent the
Company from granting incentive stock options out of the additional 1,000,000
shares, but will not necessarily prevent the Company from otherwise granting
other awards under the 1996 Plan.
Votes withheld on this proposal will be counted for purposes of determining
the presence or absence of a quorum for the transaction of business and will be
treated as shares represented and voting on this proposal at
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the Meeting. In accordance with Delaware law, abstentions will be counted for
purposes of determining both whether a quorum is present at the Meeting and the
total number of shares represented and voting on this proposal. While broker
non-votes will be counted for purposes of determining the presence or absence of
a quorum, broker non-votes will not be counted for purposes of determining the
number of shares represented and voting with respect to the particular proposal
on which the broker has expressly not voted and, accordingly, will not affect
the approval of this proposal.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
THE PROPOSED AMENDMENT TO THE 1996 PLAN.
NASDAQ STOCKHOLDER APPROVAL REQUIREMENTS
Proposals No. 4 and 5 below are submitted for stockholder approval pursuant
to Nasdaq Marketplace Rule 4460(i), which is one of several non-quantitative
designation criteria required of a Nasdaq SmallCap Market issuer, such as the
Company. One of the events that necessitate prior stockholder approval pursuant
to Rule 4460(i) is as follows:
- in connection with a transaction other than a public offering involving
the sale or issuance by the issuer of common stock (or securities
convertible into or exercisable for common stock) equal to 20% or more of
the common stock or 20% or more of the voting power outstanding before
the issuance for less than the greater of book or market value of the
stock.
Because each of the proposed financing arrangements described in Proposals
No. 4 and 5 involve the potential issuance by the Company of common stock
greater than 20% of the Company's currently outstanding common stock (the "20%
Share Limitation") at below market value, each of the Proposals are subject to
Rule 4460(i) and, therefore, require your approval. Absent such approval, the
Company could be limited to issuing no more than as few as approximately 962,272
shares of common stock in connection with such financings (based on the number
of shares of common stock outstanding on the Record Date).
If the Company does not obtain approval from its stockholders for Proposals
No. 4 and 5, but the Company nonetheless issues common stock (or preferred
stock, warrants or debentures convertible into or exercisable for common stock)
as described in such Proposals, Nasdaq could delist the Company's common stock
on the Nasdaq SmallCap Market. If this happens, the common stock could be traded
in the Over-the-Counter market on the OTC Electronic Bulletin Board, an
electronic bulletin board established for securities that do not meet the Nasdaq
SmallCap Market listing requirements, in what is commonly referred to as the
"pink sheets." In such an event, the market price of the common stock may be
adversely impacted and you may find it difficult to dispose, or obtain accurate
quotations as to the market value, of your shares of common stock. In addition,
the Company could find it more difficult to obtain future financing.
PROPOSAL NO. 4 -- APPROVAL OF THE H&Q FINANCING
THE EQUITY LINE AGREEMENT
The Company requires additional working capital to support its operations.
In an effort to meet these capital requirements, on May 4, 1999 the Company
entered into a Private Equity Line of Credit Agreement (the "Equity Line
Agreement") with Hambrecht & Quist Guaranty Finance, LLC ("H&Q"). Under the
Equity Line Agreement, the Company has the right, subject to certain conditions,
to issue and sell to H&Q, from time to time, shares of its Series E Convertible
Preferred Stock (the "Put Shares") for cash consideration of up to an aggregate
of $3,000,000, subject to availability (the "H&Q Financing").
Under the Equity Line Agreement, the Company is required to file a
Registration Statement with the SEC in order to permit H&Q to resell to the
public or in privately negotiated transactions any shares of common stock that
it acquires pursuant to the Equity Line Agreement. Beginning on the date the
Registration Statement is declared effective by the Commission and ending on
December 31, 1999, the Company has the right from time to time at its sole
discretion, and subject to certain restrictions and conditions set forth in the
Equity Line Agreement, to sell the Put Shares to H&Q at a price equal to 85% of
the then current average
7
<PAGE> 10
market price of the Company's common stock. The market price for purposes of
this calculation is the lower of:
(1) the average of the lowest intra-day prices of the common stock on the
Nasdaq SmallCap Market for the five days beginning two days before and
ending two days after the Company notifies H&Q of its intention to sell
Put Shares to H&Q; or
(2) the closing price of the common stock on such date.
Puts can be made every 15 days in amounts not to exceed $500,000. As of the date
of this Proxy Statement, no shares have been sold to H&Q under the Equity Line
Agreement.
The Company's ability to sell Put Shares, and H&Q's obligation to purchase
the Put Shares, is conditioned upon the satisfaction of certain conditions with
respect to any put date. These conditions include:
(1) the Registration Statement must have been declared effective by the SEC
and shall remain effective;
(2) the representations and warranties of the Company set forth in the
Equity Line Agreement must be accurate in all material respects as of
the date of each put;
(3) the Company must have performed and complied with all of its
obligations under the Equity Line Agreement and a registration rights
agreement entered into between the Company and H&Q and a warrant issued
to H&Q;
(4) no statute, rule, regulation, executive order, decree, ruling or
injunction may be in effect which prohibits or adversely affects any of
the transactions contemplated by the Equity Line Agreement;
(5) the Company's common stock must not have been suspended from trading
and such stock shall have been approved for listing or quotation on and
shall not have been delisted from its then applicable principal trading
market (currently the Nasdaq SmallCap Market); and
(6) the number of Put Shares to be sold to H&Q, together with any shares
then beneficially held by H&Q, may not exceed 9.9% of all shares of the
Company's common stock that would be outstanding upon completion of the
put (the "9.9% Limitation"). Based on the number of shares of common
stock outstanding on the Record Date and the closing price of $6.5625
on July 1, 1999, and assuming H&Q does not resell any shares issued to
it, this limitation restricts the amount of money the Company can raise
under the Equity Line Agreement to approximately $2.6 million; If the
price of the common stock drops, this amount will decrease.
TERMS OF THE SERIES E PREFERRED "PUT" SHARES
The terms of the Put Shares are complex. Any summary of the terms will be
general in nature and must be qualified by reference to the actual agreements.
The Equity Line Agreement with H&Q and the Certificate of Designations,
Preferences and Rights of Series E Convertible Preferred Stock are attached to
this Proxy Statement as Appendices A and B, respectively. We urge any
stockholders desiring a more detailed understanding of the terms of the Put
Shares to refer to such Appendices. The following is a summary of such terms:
Rank. The Put Shares shall, with respect to dividend rights and rights
upon liquidation, rank equal with the Company's Series C Preferred Stock and
Series D Preferred Stock and senior to common stock.
Dividends. The holders of Put Shares will be entitled to receive a 6%
annual dividend, payable monthly in additional Put Shares at 85% of the average
of the lowest closing prices of the common stock on the applicable principal
trading market for such stock on the date of the dividend and the four trading
days prior to such date.
Conversion Rate. At any time, any holder of Put Shares may convert all or
a portion of such shares into a number of shares of common stock computed by
multiplying the number of Put Shares to be converted by the purchase price
thereof and dividing the result by the Conversion Price (as described below)
then in effect. The initial conversion rate will be one-for-one.
8
<PAGE> 11
Conversion Price. The Conversion Price with respect to any group of Put
Shares shall initially be the purchase price paid for such shares, as may be
adjusted from time to time to account for any stock splits, stock dividends,
recapitalizations, mergers, asset sales or similar events.
Liquidation. Upon a change in control, liquidation, dissolution or winding
up of the affairs of the Company, the holders of Put Shares will be entitled,
equally with the holders of the Company's Series C and D Preferred Shares, to a
liquidation preference prior in right to any holders of common stock. The
liquidation preference for the Put Shares will equal an amount per share equal
to the per share price paid for the Put Shares.
Voting. The holders of Put Shares will be entitled to vote on all matters
submitted to stockholders for a vote, which shares shall vote together with the
holders of common stock voting together as a single class, with each Put Share
entitled to one vote for each share of common stock into which it is
convertible. The holders of Put Shares are entitled to vote as a separate class
on the creation of any new series of preferred stock or the issuance of
additional shares of capital stock ranking senior or equal to the Put Shares.
Registration Rights. As a condition to drawing down on the Equity Line
Agreement, the Company is required to file and have declared effective a
registration statement registering the common stock underlying the Put Shares.
Consummation of the H&Q Financing will require one or more amendments to
the Company's Certificate of Incorporation to establish the Series E Convertible
Preferred Stock described above. Your approval of the H&Q Financing will
constitute approval for such amendments.
Securities such as the Put Shares that may be converted into common stock
at a price lower than the future market price of the common stock are often
referred to as "Future-Priced Securities." Because the conversion rate of the
Put Shares cannot be determined and there is no limit on the number of shares of
common stock into which the Put Shares may be converted (other than the 9.9%
Limitation), if stockholders approve this transaction and the issuance of a
Future-Priced Security is followed by a decline in the common stock price, the
existing holders of common stock could face substantial dilution of their voting
power and percentage ownership in the Company. Additionally, as the Company
issues more shares, the price of the common stock may decline further.
TERMS OF THE WARRANT
Simultaneous with the execution of the Equity Line Agreement on May 4,
1999, the Company issued a warrant (the "Warrant") to H&Q entitling H&Q to
purchase 100,000 shares of the Company's Series E Convertible Preferred Stock at
$3.6675 per share, subject to adjustments for stock splits, stock dividends,
reorganizations, mergers and similar events (which initial exercise price was
determined by taking 120% of the average closing price of the common stock over
the five trading days ending on the date of grant). The exercise price is
subject to an anti-dilution adjustment if the Company issues certain new
securities at a price below the Warrant exercise price. The Warrant is
exercisable through May 31, 2006. The shares of common stock underlying the
Warrant have the same registration rights as the common stock underlying the Put
Shares.
EFFECT OF NASDAQ MARKETPLACE RULE 4460(i)
Because the H&Q Financing involves the potential below-market issuance of
shares exceeding Nasdaq's 20% Share Limitation described above, stockholder
approval is required before the Company could properly issue more than as few as
approximately 962,272 shares of common stock (based on the number of outstanding
shares on the Record Date) to H&Q upon conversion of Put Shares. Absent
stockholder approval, the Company would not be able to draw down a significant
portion of the funds available under the equity line, which are currently needed
for working capital.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock, Series C Preferred Stock and Series D Preferred Stock
present or represented and voting together as one class on this proposal at the
Meeting will be required to approve the H&Q Financing. In addition, separate
approval will be required by the holders of a majority of the shares of the
Company's Series C Preferred Stock and Series D
9
<PAGE> 12
Preferred Stock, each voting as a separate class. In accordance with Delaware
law, abstentions will be counted for purposes of determining both whether a
quorum is present at the Meeting and the total number of shares represented and
voting on this proposal. Thus, abstentions will have the effect of a vote
against this proposal. While broker non-votes will be counted for purposes of
determining the presence or absence of a quorum for the transaction of business,
they will not be counted for purposes of determining the number of shares
represented and voting with respect to the particular proposal on which the
broker has expressly not voted, and, accordingly, will not affect approval of
this proposal.
BOARD RECOMMENDATIONS; REASONS
Based primarily on its consideration of the factors described below, the
Board believes that the consummation of the H&Q Financing is in the best
interests of the Company and its stockholders.
Among the factors considered by the Board in approving the H&Q Financing
was the Board's view that the proceeds from the financing are necessary to
support the Company's near-term working capital requirements, as well as its
growth over the longer term. The Board determined that the economic terms of the
proposed financing would be of substantial benefit to the Company and its
stockholders and that the financing is fair to the Company's stockholders from a
financial point of view. In reaching its determination, the Board considered the
purchase price to be paid for the Put Shares and its relationship to the trading
prices of the common stock prior to the execution of the Equity Line Agreement.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE H&Q FINANCING AND
RECOMMENDS THAT YOU VOTE FOR ITS APPROVAL.
PROPOSAL NO. 5 -- APPROVAL OF THE CONVERTIBLE DEBENTURE FINANCING
As part of the Company's continuing efforts to meet its working capital
needs, effective on June 4, 1999, the Company secured additional financing from
Excalibur Limited Partnership and B.H. Capital Investments, L.P. through the
issuance of $2,500,000 in convertible debentures (the "Debentures"), bearing
interest at nine percent (9%) simple interest and maturing on December 15, 2000,
if not sooner converted (the "Convertible Debenture Financing"). Depending on
the Company's stock price at the time of a repayment, repayments of principal
and interest under the Debentures may be made either in cash or through the
issuance of the Company's common stock. The initial conversion price for the
Debentures is $5.55 per share, based on the 5-day average closing price of the
Company's common stock prior to closing.
Under the terms of the Convertible Debenture Financing, beginning September
15, 1999, the holders of the Debentures can demand monthly repayment of up to
15% of the principal outstanding under the Debentures, on a cumulative basis.
Upon any such demand, the Company must make repayments either in cash or its
common stock as follows:
(1) If the 5-day average closing price of the Company's common stock at the
time of a repayment is HIGHER than the fixed conversion price of $5.55
per share, then the repayment must be made in the Company's common
stock at the fixed price;
(2) If the 5-day average closing price of the Company's common stock at the
time of a repayment is LOWER than the fixed conversion price of $5.55,
then the repayment must be made in cash as follows:
(a) Prior to January 15, 2000, at 110% of the amount of repayment
requested, plus accrued interest, and the Company must issue an
additional warrant to the holders of the Debentures to purchase an
additional 22,520 shares of common stock;
(b) After January 15, 2000, at 115% of the amount of repayment
requested, plus accrued interest.
Provided, however, if the Company is unable or unwilling to make any
repayment in cash as required, the Company may elect to make such
repayment in common stock valued at 85% of the average of the two lowest
consecutive closing bid prices for such stock during the 20-day trading
period prior to the repayment request. However, to the extent available,
the Company intends to use funds available under the H&Q equity line of
credit to make repayments in cash rather than permit any conversions at
less than the fixed conversion price of $5.55 per share.
10
<PAGE> 13
In connection with the Convertible Debenture Financing, the Company also
issued warrants to the investors for the purchase of 112,600 shares at a strike
price of $6.38 per share (determined based on 115% of the 5-day average closing
bid price of the Company's common stock prior to the issuance date of the
warrant). The warrants are exercisable until June 4, 2004.
The Company has agreed to file within 45 days after closing a registration
statement for the registration of the common stock issuable upon conversion of
the Debentures and exercise of the related warrants and to have such
registration statement declared effective within 90 days of closing (or 120 days
from closing if the SEC reviews the registration statement). The Company paid
$25,000 for the investors' legal and due diligence expenses relating to the
financing.
The terms of the Debentures are complex. Any summary of the terms will be
general in nature and must be qualified by reference to the actual agreements.
The purchase agreement and the related Debenture are attached to this Proxy
Statement as Appendices C and D, respectively. We urge any stockholders desiring
a more detailed understanding of the terms of the Convertible Debenture
Financing to refer to such Appendices.
Because the conversion price of the Debentures can decrease if the market
price of the Company's common stock falls below $5.55 per share, unless the
Company can and does elect to repay the Debentures in cash as described above,
there would be no limit on the number of shares of common stock into which the
Debentures may be converted (other than a restriction limiting the amount the
investors can own at any given time to 9.9% of the outstanding shares), if
stockholders approve this transaction and the market price of the common stock
declines, the existing holders of common stock could face substantial dilution
of their voting power and percentage ownership in the Company.
EFFECT OF NASDAQ MARKETPLACE RULE 4460(i)
Because the Convertible Debenture Financing involves the potential
below-market issuance of shares exceeding Nasdaq's 20% Share Limitation
described above, stockholder approval is required. Absent stockholder approval,
Nasdaq could delist the Company's common stock on the Nasdaq SmallCap Market,
which could adversely affect the marketability of your shares.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock, Series C Preferred Stock and Series D Preferred Stock
present or represented and voting together as one class on this proposal at the
Meeting will be required to approve the Convertible Debenture Financing. In
accordance with Delaware law, abstentions will be counted for purposes of
determining both whether a quorum is present at the Meeting and the total number
of shares represented and voting on this proposal. Thus, abstentions will have
the effect of a vote against this proposal. While broker non-votes will be
counted for purposes of determining the presence or absence of a quorum for the
transaction of business, they will not be counted for purposes of determining
the number of shares represented and voting with respect to the particular
proposal on which the broker has expressly not voted, and, accordingly, will not
affect approval of this proposal.
BOARD RECOMMENDATIONS; REASONS
Based primarily on its consideration of the factors described below, the
Board believes that the Convertible Debenture Financing is in the best interests
of the Company and its stockholders.
Among the factors considered by the Board in approving the Convertible
Debenture Financing was the Board's view that the proceeds from the financing
are necessary to support the Company's near-term working capital requirements,
and in particular will give the Company bridge financing until the H&Q Financing
can be completed. The Board determined that the economic terms of the proposed
financing would be of substantial benefit to the Company and its stockholders
and that the financing is fair to the Company's stockholders from a financial
point of view. In reaching its determination, the Board considered the
conversion price for the Debentures and its relationship to the trading prices
of the common stock prior to execution of the financing agreements, as well as
the Company's right to repay in cash if the conversion price would be below
$5.55 per share.
11
<PAGE> 14
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE CONVERTIBLE DEBENTURE
FINANCING AND RECOMMENDS THAT YOU VOTE "FOR" ITS APPROVAL.
PROPOSAL NO. 6 --
RATIFICATION OF SELECTION OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed the firm of Ernst &
Young LLP, Vienna, Virginia, to serve as the independent auditors of the Company
for the fiscal year ending December 31, 1999, and recommends that the
stockholders ratify such action. Ernst & Young LLP has audited the accounts of
the Company since 1994 and has advised the Company that it does not have, and
has not had, any direct or indirect financial interest in the Company or its
subsidiaries in any capacity other than that of serving as independent auditors.
Representatives of Ernst & Young LLP are expected to attend the Meeting. They
will have an opportunity to make a statement, if they desire to do so, and will
also be available to respond to appropriate questions.
The affirmative vote of the holders of a majority of the shares of the
Company's Common Stock, Series C Preferred Stock and Series D Preferred Stock
present or represented and voting together as one class on this proposal at the
Meeting shall constitute ratification of the appointment of Ernst & Young LLP.
If the appointment of Ernst & Young LLP is not ratified by the stockholders, the
Board of Directors will reconsider its selection.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED AND RECOMMENDS A VOTE "FOR"
THE RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31, 1999.
12
<PAGE> 15
OTHER INFORMATION
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the ownership
of shares of the Company's Common Stock, Series C Preferred Stock and Series D
Preferred Stock as of the Record Date by (1) each person known by the Company to
beneficially own more than 5% of the outstanding shares of Common Stock, (2)
each director and director nominee of the Company, (3) each of the Named
Officers, as listed under "-- Executive Compensation -- Summary Compensation"
below, and (4) all directors and executive officers of the Company as a group.
As of the Record Date the Company had outstanding (1) 4,811,365 shares of Common
Stock, (2) 623,339 shares of Series C Preferred Stock (convertible into 755,549
shares of Common Stock based on a conversion ratio of 1.2121-for-1), and (3)
1,082,625 shares of Series D Preferred Stock convertible into Common Stock on a
one-for-one basis. Share ownership in the case of Common Stock includes shares
issuable upon conversion of Series C Preferred Stock and Series D Preferred
Stock into Common Stock, and exercise of warrants and options that may be
exercised in each case within 60 days after the Record Date for purposes of
computing the percentage of Common Stock owned by such person but not for
purposes of computing the percentage owned by any other person. Percentage
voting power is calculated assuming the Common Stock, the Series C Preferred
Stock and the Series D Preferred Stock vote together as one class with each
share of Common Stock, Series C Preferred Stock and Series D Preferred Stock
entitled to one vote. Except as indicated in the footnotes to this table, the
persons named in this table have sole voting and investment power with respect
to all shares of Common Stock and Preferred Stock indicated below.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------------------------------
SERIES C SERIES D
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- -------------------- PERCENTAGE
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT TOTAL VOTING
NAME OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS POWER
---- --------- -------- --------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Barry K. Fingerhut(1)(9)...... 1,358,193 24.0% 229,839 36.7% 409,090 37.8% 16.6%
80 Cuttermill Road, Suite
311
Great Neck, NY 11021
Irwin Lieber(2)(9)............ 1,148,349 22.3% 207,387 33.1% 381,817 35.3% 13.9%
80 Cuttermill Road, Suite
311
Great Neck, NY 11021
Seth Lieber(3)(9)............. 1,082,199 21.2% 192,025 30.7% 363,636 33.6% 13.2%
80 Cuttermill Road, Suite
311
Great Neck, NY 11021
Jonathan Lieber(4)(9)......... 1,079,387 21.2% 192,025 30.7% 363,636 33.6% 13.2%
80 Cuttermill Road, Suite
311
Great Neck, NY 11021
Barry Rubenstein(5)(9)........ 1,173,179 21.0% 218,612 34.9% 381,817 35.3% 14.1%
68 Wheatley Road
Brookville, NY 11545
Wheatley Partners,
L.P.(6)(9).................. 1,072,853 19.5% 189,071 30.2% 363,636 33.6% 13.1%
80 Cuttermill Road, Suite
311
Great Neck, NY 11021
Wheatley Foreign Partners,
L.P.(7)(9).................. 1,072,853 19.5% 189,071 30.2% 363,636 33.6% 13.1%
Third Floor, One Capital
Place
George Town, Grand Cayman
Cayman Islands, B.W.I
Wheatley Partners,
LLC(8)(9)................... 1,072,853 19.5% 189,071 30.2% 363,636 33.6% 13.1%
80 Cuttermill Road, Suite
311
Great Neck, NY 11021
Austin O. Furst, Jr. (10)..... 353,846 7.2% -- -- -- -- 2.7%
138 Frogtown Road
New Canaan, CT 06840
Kamyar Kaviani(11)............ 311,021 6.5% -- -- 68,358 6.3% 4.6%
</TABLE>
13
<PAGE> 16
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
------------------------------------------------------------------
SERIES C SERIES D
COMMON STOCK PREFERRED STOCK PREFERRED STOCK
-------------------- -------------------- -------------------- PERCENTAGE
NUMBER PERCENT NUMBER PERCENT NUMBER PERCENT TOTAL VOTING
NAME OF SHARES OF CLASS OF SHARES OF CLASS OF SHARES OF CLASS POWER
---- --------- -------- --------- -------- --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Errol M. Rudman(12)........... 264,936 5.6% 1,600 * -- -- 4.1%
Rudman Management, Inc.
1114 Avenue of the Americas
New York, NY 10036
Narasimhan P. Kannan(13)...... 256,000 5.3% -- -- -- -- 2.9%
Farzin Arsanjani(14).......... 222,125 4.6% -- -- 56,834 5.2% 3.2%
William E. Kimberly(15)....... 80,660 1.7% -- -- -- -- *
Steven M. H. Wallman(16)...... 56,923 1.2% -- -- -- -- *
Daniel J. Callahan, IV(17).... 38,399 * -- -- 9,255 * *
Michael W. Anderson(18)....... 20,739 * -- -- -- -- *
Joanne O'Rourke Hindman(19)... 15,750 * -- -- -- -- *
Edson D. deCastro(20)......... 19,298 * -- -- -- -- --
John D. Sears(20)............. 10,000 * -- -- -- -- --
All directors and executive
officers as a group (7
directors and 5 executive
officers)(21)............... 2,350,709 39.1% 229,839 36.7% 534,282 49.4% 28.5%
</TABLE>
- ---------------
* Less than one percent.
(1) Consists of: (i) 137,203 shares of Common Stock, 45,835 shares of Common
Stock issuable upon conversion of Series C Preferred Stock, 45,454 shares
of Common Stock issuable upon conversion of Series D Preferred Stock,
37,814 shares of Common Stock issuable upon exercise of warrants which are
currently exercisable and 12,500 shares of Common Stock issuable upon
exercise of options which are currently exercisable, all held by Mr.
Fingerhut; (ii) 273,528 and 17,442 shares of Common Stock, 211,231 and
17,945 shares of Common Stock issuable upon conversion of Series C
Preferred Stock, 335,162 and 28,474 shares of Common Stock issuable upon
conversion of Series D Preferred Stock and 174,266 and 14,805 shares of
Common Stock issuable upon exercise of warrants which are currently
exercisable, all held by Wheatley Partners, L.P. and Wheatley Foreign
Partners, L.P., respectively, two investment partnerships of which Mr.
Fingerhut serves as an officer of the General Partner; and (iii) 3,580
shares of Common Stock issuable upon conversion of Series C Preferred Stock
and 2,954 shares of Common Stock issuable upon exercise of warrants which
are currently exercisable held in a joint account with respect to which Mr.
Fingerhut has investment and voting power. Mr. Fingerhut disclaims
beneficial ownership of the shares held by Wheatley Partners, L.P. and
Wheatley Foreign Partners, L.P., except to the extent of his pecuniary
interest therein.
(2) Consists of: (i) 1,072,853 shares beneficially owned by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P. , with respect to each of which
Mr. Leiber may be deemed to share voting and dispositive power; (ii) 4,297
shares of Common Stock issuable upon conversion of Series C Preferred Stock
and 3,545 shares of Common Stock issuable upon exercise of a warrant, both
held by Mr. Leiber's child; and (iii) 14,771 shares of Common Stock
issuable upon exercise of a warrant, 17,904 shares of Common Stock issuable
upon exercise of Series C Preferred Stock, 18,181 shares of Common Stock
issuable upon exercise of Series D Preferred Stock and 16,798 shares of
Common Stock, all held by Wheatley Partners, LLC, of which Mr. Leiber is
the President and a member.
(3) Consists of: (i) 1,072,853 shares beneficially owed by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P., with respect to which Mr. Leiber
may be deemed to share voting and dispositive power; and (ii) 2,954 shares
of Common Stock issuable upon exercise of a warrant, 3,580 shares of Common
Stock issuable upon conversion of Series C Preferred Stock and 2,812 shares
of Common Stock, all held by Wheatley Partners, LLC, of which Mr. Leiber is
a Vice President and a member.
(4) Consists of: (i) 1,072,853 shares beneficially owned by Wheatley Partners,
L.P. and Wheatley Foreign Partners, L.P., with respect to which Mr. Leiber
may be deemed to share voting and dispositive power; and (ii) 2,812 shares
of Common Stock, 3,580 shares of Common Stock issuable upon conversion of
Series C Preferred Stock and 2,954 shares of Common Stock issuable upon
exercise of a warrant, all held by Mr. Leiber.
(5) Consists of 1,072,853 shares beneficially owned by Wheatley Partners, L.P.
and Wheatley Foreign Partners, L.P., with respect to each of which Mr.
Rubenstein is the CEO of the general partner, and 35,806 shares of Common
Stock issuable upon conversion of Series C Preferred Stock, 18,181 shares
of Common Stock issuable upon conversion of Series D Preferred Stock,
29,541 shares of Common Stock issuable upon exercise of warrants and 16,798
shares of Common Stock, held by three investment partnerships with respect
to which Mr. Rubenstein is a general partner.
(6) Includes: (i) 211,132 shares of Common Stock issuable upon conversion of
Series C Preferred Stock; (ii) 174,266 shares of Common Stock issuable upon
exercise of warrants which are currently exercisable; (iii) 335,162 shares
of Common Stock issuable upon conversion of Series D Preferred Stock; and
(iv) 17,442 shares of Common Stock, 14,805 shares of Common Stock issuable
upon exercise of a warrant, 17,954 shares of Common Stock issuable upon
conversion of Series C Preferred Stock and 28,474 shares of Common Stock
issuable upon conversion of Series D Preferred Stock, all held by Wheatley
Foreign Partners, L.P. Wheatley
14
<PAGE> 17
Partners, L.P. disclaims beneficial ownership of the shares held by
Wheatley Foreign Partners, L.P., except to the extent of its pecuniary
interest therein.
(7) Includes 994,187 shares beneficially held by Wheatley Partners, L.P.
Wheatley Foreign Partners, L.P. disclaims beneficial ownership of such
securities, except to the extent of its pecuniary interest therein.
(8) Consists of 1,072,853 shares beneficially owned by Wheatley Partners, L.P.
and Wheatley Foreign Partners, L.P., with respect to each of which Wheatley
Partners, LLC is a general partner.
(9) As reported in the Schedule 13D filed as of September 9, 1998 with the SEC
by this stockholder and a group of affiliated investors. These share
numbers also include the annual 5% dividend on the Series D Preferred Stock
paid in shares of Common Stock in December 1998.
(10) Includes 179,848 shares of Common Stock issuable upon exercise of warrants
held by trusts for which Mr. Furst is the trustee and which are currently
exercisable.
(11) Includes 13,500 shares of Common Stock issuable upon exercise of options
which are currently exercisable and 68,358 shares of Common Stock issuable
upon conversion of Series D Preferred Stock.
(12) Includes 261,400 shares of Common Stock as reported in the Schedule 13G
dated March 26, 1998 filed with the SEC by Errol D. Rudman. Also includes
1,600 shares of Series C Preferred Stock (convertible into 1,936 shares of
Common Stock) and 1,600 shares of Common Stock issuable upon exercise of
warrants acquired by Mr. Rudman effective on March 31, 1998.
(13) Includes 67,980 shares of Common Stock issuable upon exercise of a warrant
held by Mr. Kannan that is currently exercisable, 169,092 shares of Common
Stock held by two trusts of which Mr. Kannan and his wife are co-trustees;
8,513 shares of Common Stock held by a limited partnership as to which Mr.
Kannan and his wife are the general partners, and 1,513 shares of Common
Stock issuable upon exercise of options which are currently exercisable.
(14) Includes 56,834 shares of Common Stock issuable upon conversion of Series D
Preferred Stock and 13,500 shares of Common Stock issuable upon exercise of
options which are currently exercisable.
(15) Includes 10,197 shares of Common Stock issuable upon exercise of a warrant
held by Mr. Kimberly that is currently exercisable, 29,298 shares of Common
Stock issuable upon exercise of options which are currently exercisable, as
well as 5,344 outstanding shares of Common Stock and 2,549 shares of Common
Stock issuable upon exercise of a warrant which is currently exercisable,
both held by Elena Kimberly, Mr. Kimberly's wife.
(16) Includes 22,500 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(17) Includes 9,255 shares of Common Stock issuable upon conversion of Series D
Preferred Stock.
(18) Includes 20,439 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(19) Includes 14,750 shares of Common Stock issuable upon exercise of options
which are currently exercisable.
(20) Consists of shares of Common Stock issuable upon exercise of options which
are currently exercisable.
(21) Includes the shares (including shares underlying options and warrants)
discussed in footnotes (1), (11), (13)-(16) and (18)-(20).
15
<PAGE> 18
EXECUTIVE COMPENSATION
Summary Compensation
The following table sets forth all compensation paid by the Company for
services rendered to it in all capacities for the fiscal years ended December
31, 1996, 1997 and 1998 to the Company's Chief Executive Officer, the Company's
four other highest-paid executive officers who earned at least $100,000 in the
respective fiscal year and two additional executive officers who otherwise would
have been includable in such table on the basis of their 1998 compensation but
for the fact that they were no longer executive officers of the Company at the
end of 1998 (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION AWARDS
---------------------- ------------
STOCK
FISCAL OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (SHARES) COMPENSATION
--------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Narasimhan P. Kannan.................... 1998 $195,000(1) $ -- 189,013 $46,077(2)
Chairman and Chief Executive Officer 1997 $164,123 $ 32,500 -- $ 1,080(3)
1996 $156,556 $ 2,500 -- $ 1,586(3)
Kamyar Kaviani.......................... 1998 $154,583 $310,500 -- $ 9,600(4)
Executive Vice President 1997 $113,595 $ -- 70,900 $ --
Farzin Arsanjani........................ 1998 $154,583 $310,500 20,000 $ 9,600(4)
Executive Vice President 1997 $112,732 $ -- 70,900 $ --
Carl N. Tyson(5)........................ 1998 $245,700(6) $ -- 50,000(7) $12,416(4)
President and Chief Operating Officer 1997 $199,500 $ 8,750 -- $ 6,304(8)
1996 $227,500 $107,500 132,487(7) $50,093(9)
Daniel J. Callahan, IV(10).............. 1998 $114,958 $ 69,000 -- $15,442(11)
Vice President 1997 $ 89,182 $ -- 15,700 $ --
Michael W. Anderson..................... 1998 $144,848 $ -- 70,300 $ --
Chief Operating Officer 1997 $138,337 $ 25,833 -- $12,155(12)
Joanne O'Rourke Hindman................. 1998 $146,674 $ -- 91,000 $ --
Chief Financial Officer
</TABLE>
- ---------------
(1) Includes $15,000 of salary for Mr. Kannan from December 1997 that was paid
in 1998.
(2) Consists of $1,566 of taxable premiums paid for life insurance and $44,511
of accrued vacation paid in the form of Common Stock.
(3) Consists of taxable premiums paid for life insurance.
(4) Consists of expenses for automobile allowance.
(5) Mr. Tyson's employment with the Company terminated in October 1998.
(6) Includes $18,900 of salary for Mr. Tyson from December 1997 that was paid
in 1998.
(7) These options terminated following Mr. Tyson's termination of employment in
October 1998.
(8) Consists of $5,920 for automobile allowance and $384 of taxable premiums
paid for life insurance.
(9) Consists of $50,000 of moving expenses and $93 of taxable premiums paid for
life insurance.
(10) Mr. Callahan's employment with the Company terminated in June 1998.
(11) Consists of $4,402 of accrued vacation paid upon Mr. Callahan's termination
of employment, $2,040 of taxable premiums paid for life insurance and
$9,000 for automobile allowance.
(12) Consists of moving expenses.
16
<PAGE> 19
Option Grants, Exercises and Holdings and Fiscal Year-End Option Values.
The following table summarizes all option grants during the year ended
December 31, 1998 to the Named Officers:
OPTION GRANTS DURING THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF
SHARES OPTIONS STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------------
NAME GRANTED IN 1998 PER SHARE DATE 5% 10%
---- ---------- ---------- ----------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Narasimhan P. Kannan......... 160,000 14.6% $13.00 5/26/08 $1,308,101 $3,314,984
27,500 2.5% $ 7.00 12/09/08 121,062 306,795
1,513 0.1% $ 7.07 12/03/00 1,095 2,243
Carl N. Tyson(2)............. 50,000 4.6% $13.00 5/26/08 408,782 1,035,933
Farzin Arsanjani............. 20,000 1.8% $ 7.00 12/09/08 88,045 223,124
Michael Anderson............. 25,000 2.3% $13.00 5/26/08 204,391 517,966
45,000 4.1% $ 7.00 12/09/08 198,102 502,029
300 -- $ 7.07 12/03/00 217 445
Joanne O'Rourke Hindman...... 55,000 5.0% $ 9.63 5/26/08 332,921 843,687
35,000 3.2% $ 7.00 12/09/08 154,079 390,467
1,000 0.1% $ 7.07 12/03/00 724 1,483
</TABLE>
- ---------------
(1) The compounding assumes a 10-year exercise period for all option grants.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock and overall stock market conditions. The
amounts reflected in this table may not be necessarily achieved.
(2) These options expired pursuant to their terms following the termination of
Mr. Tyson's employment with the Company in October 1998.
No stock options were exercised by the Named Officers during 1998. The
following table sets forth certain information concerning the number and value
of unexercised options held by the Named Officers as of December 31, 1998:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998(1)
---------------------------------- ----------------------------------
NAME EXERCISABLE(2) UNEXERCISABLE(2) EXERCISABLE(2) UNEXERCISABLE(2)
---- -------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Narasimhan P. Kannan...... 69,493 187,500 $0 $0
Kamyar Kaviani............ 13,500 57,400 $0 $0
Farzin Arsanjani.......... 13,500 77,400 $0 $0
Carl N. Tyson............. 31,865 0 $0 $0
Michael W. Anderson....... 20,439 101,373 $0 $0
Joanne O'Rourke Hindman... 1,000 90,000 $0 $0
</TABLE>
- ---------------
(1) Options are considered in-the-money if the market value of the shares
covered thereby is greater than the option exercise price. None of the
listed options had any value at December 31, 1998 because all of their
exercise prices were higher than the fair market value of the shares on that
date ($5.94), as quoted on the Nasdaq Stock Market.
(2) The first number represents the number or value (as called for by the
appropriate column) of exercisable options; the second number represents the
number or value (as appropriate) of unexercisable options.
EMPLOYMENT AGREEMENTS
Under the terms of the Company's form of employment agreement for executive
officers, such officers are entitled to annual incentive-based bonus
compensation of up to 50% of their base salary. The exact amount of such
compensation is determined by the Company's Board of Directors, generally based
upon the achievement
17
<PAGE> 20
of specified performance goals established by the Board. Under such agreements,
executive officers are also eligible to participate in all employee benefit
plans and programs that the Company offers to its executive employees and are
entitled to reimbursement for all documented reasonable business expenses they
incur. Generally, consistent with Company policies, in the event that an
executive officer is terminated without cause or resigns for good cause, the
Company is required under its form of employment agreement to continue paying
salary to such officer for six to nine months as severance.
Mr. Kannan's employment agreement with the Company provides for an annual
base salary of $180,000. The term of the agreement expired in June 1999, but the
agreement is subject to automatic one-year renewal terms. In the event of a
material change in Mr. Kannan's duties, titles, authority or position with the
Company, he may elect, in lieu of receiving his severance pay, to enter into a
consulting arrangement with the Company, whereby Mr. Kannan would provide
consulting services to the Company for a period of one year and be paid $750 per
day for providing such services.
Following termination of Mr. Tyson's employment with the Company in October
1998, the Company began paying Mr. Tyson a severance equal to nine months of his
base salary, or $170,100, pursuant to the terms of his employment agreement.
COMPENSATION OF DIRECTORS
All directors are reimbursed for expenses incurred in connection with each
board committee meeting attended.
The 1996 Plan provides for the grant of nonstatutory options to
non-employee directors of the Company. The 1996 Plan provides automatic grants
on January 1 of each year to directors who are not employees of the Company of
an option to purchase 10,000 shares. In addition, in the case of a new director,
automatic grants shall be effective upon such director's initial election or
appointment to the Board with the number of underlying shares equal to the
product of 2,500 multiplied by the number of regularly scheduled meetings
remaining in that year. Subject to continued status as a director, options vest
25% per year on each of the fifth, sixth, seventh and eighth anniversaries of
the date of grant; provided, however, that 2,500 shares vest on each date the
director attends a Board meeting in person during that year. In addition, such
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.
Under the 1996 Plan, during 1998 the non-employee directors received
options as follows: Mr. Fingerhut -- 10,000; Mr. Wallman -- 17,500; Mr.
Kimberly -- 17,500; Mr. Sears -- 7,500; and Mr. deCastro -- 10,000.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors is
responsible for establishing compensation policy and administering the
compensation programs of the Company's executive officers. The purpose of this
report is to inform stockholders of the Company's compensation policies for
executive officers and the rationale for the compensation paid to executive
officers in 1998.
The Compensation Committee of the Board of Directors, consisting entirely
of non-employee directors, approves all policies under which compensation is
paid or awarded to the Company's executive officers. The Compensation Committee
is currently composed of Messrs. Fingerhut and deCastro. The members of the
Compensation Committee also administer the Company's stock plans.
For compensation paid to the Chief Executive Officer and other Named
Officers in 1998, no reference was made to the data for comparable companies
included in the performance graph included in this proxy statement under the
heading "-- Performance Graph" (the "Performance Graph").
Compensation Philosophy. The Company's executive compensation program has
three objectives: (1) to align the interests of the executive officers with the
interest of the Company's stockholders by basing a significant portion of an
executive's compensation on the Company's performance; (2) to attract and retain
highly talented and productive executives; and (3) to provide incentives for
superior performance by the
18
<PAGE> 21
Company's executives. To achieve these objectives, the Compensation Committee
has crafted a program that consists of base salary, short-term incentive
compensation in the form of cash bonuses and long-term incentive compensation in
the form of stock options. These compensation elements are in addition to the
general benefits programs which are offered to all of the Company's employees.
Each year, the Compensation Committee reviews the Company's executive
compensation program. In its review, the Compensation Committee studies the
compensation packages for executives of companies at a comparable stage of
development and in the Company's geographical area, assesses the competitiveness
of the Company's executive compensation program and reviews the Company's
financial and operational performance for the previous fiscal year. The
Compensation Committee also gauges the success of the compensation program in
achieving its objectives in the previous year, and considers the Company's
overall performance objectives.
Each element of the Company's executive compensation program is discussed
below.
Base Salaries. The Compensation Committee annually reviews the base
salaries of the Company's executive officers. The base salaries for the
Company's executive officers for 1998 were established at the beginning of that
fiscal year, or when the executive joined the Company, as the case may be. In
addition to considering the factors listed in the foregoing section that support
the Company's executive compensation program generally, the Compensation
Committee reviews the responsibilities of the specific executive position and
the experience and knowledge of the individual in that position. The
Compensation Committee also measures individual performance based upon a number
of factors, including measurement of the Company's historic and recent financial
and operational performance and the individual's contribution to that
performance, the individual performance on non-financial goals and other
contributions of the individual to the Company's success, and gives each of
these factors relatively equal weight without confining its analysis to a
rigorous formula. As is typical of most corporations, the actual payment of base
salary is not conditioned upon the achievement of any predetermined performance
targets.
Incentive Compensation. Cash bonuses established for executive officers
are intended to motivate the individual to work hard to achieve the Company's
financial and operational performance goals or to otherwise incent the
individual to aim for a high level of achievement on behalf of the Company in
the coming year. Because the Company has been in the early stages of
development, it has not historically paid cash bonuses. However, in 1998,
bonuses were paid to the HTR executives pursuant to the terms of the HTR
acquisition effected in October 1997. The Compensation Committee does not have
an exact formula for determining bonus payments, but has established general
target bonus levels (up to a maximum of 50% of base salary) for executive
officers based in relatively equal measures upon the Compensation Committee's
subjective assessment of the Company's projected revenues and net income, and
other operational and individual performance factors. The Committee may adjust
these targets during the year.
Long-Term Incentive Compensation. The Company's long-term incentive
compensation plan for its executive officers is based upon the Company stock
plans. The Company believes that placing a portion of its executives' total
compensation in the form of stock options achieves three objectives. It aligns
the interest of the Company's executives directly with those of the Company's
stockholders, gives executives a significant long-term interest in the Company's
success and helps the Company retain key executives. Options generally vest over
a three to five-year period based upon continued employment. In December 1996,
and again in May and December 1998, the Company granted performance-based
options to the Chief Executive Officer and various other executive officers.
These grants vest ratably over four years beginning five years from the date of
grant, subject to accelerated vesting in full during the first four years after
the grant date if the fair market value of Company's Common Stock over
consecutive 20 trading days is greater than a target price representing a
four-year compounded return of 22.5% per year on the stock's fair market value
at the date of grant.
In determining the number of options to grant an executive, the Board
primarily considered the executive's past performance and the degree to which an
incentive for long-term performance would benefit the Company, as well as the
number of shares and options already held by the executive officer. It is the
Compensation Committee's policy to grant options at fair market value unless
particular circumstances warrant otherwise.
19
<PAGE> 22
Benefits. The Company believes that it must offer a competitive benefit
program to attract and retain key executives. During fiscal 1998, the Company
provided the same medical and other benefits to its executive officers that are
generally available to its other employees.
Compensation of the Chief Executive Officer. The Chief Executive Officer's
compensation is based upon the same elements and measures of performance as is
the compensation for the Company's other executive officers. The Compensation
Committee approved a base salary for Mr. Kannan for 1998 of $180,000. In
structuring the compensation of Mr. Kannan, the Compensation Committee
considered the alignment of his compensation package with the financial
performance of the Company to be essential. No bonus was paid to Mr. Kannan for
1998.
Section 162(m) of the Code. It is the responsibility of the Compensation
Committee to address the issues raised by Section 162(m) of the Code. Revisions
to this Section made certain non-performance based compensation in excess of
$1,000,000 to executives of public companies non-deductible to such companies
beginning in 1994. The Compensation Committee has reviewed these issues and has
determined that it is not necessary for the Company to take any action at this
time with regard to these issues.
Neither the material in this report, nor the Performance Graph, is
soliciting material, is or will be deemed filed with the Securities and Exchange
Commission or is or will be incorporated by reference in any filing of the
Company under the Securities Act of 1933 or the Exchange Act, whether made
before or after the date of this proxy statement and irrespective of any general
incorporation language in such filing.
Submitted by: THE COMPENSATION COMMITTEE
Edson D. deCastro
Barry K. Fingerhut
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
deCastro and Fingerhut, none of whom was at any time during the fiscal year
ended December 31, 1998 or at any other time an officer or employee of the
Company. No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Board of Directors or the
Compensation Committee of the Company.
20
<PAGE> 23
PERFORMANCE GRAPH
The following graph shows an approximately two-year(1) comparison of
cumulative total stockholder returns(2) for the Company, the CRSP Total Market
Return Index of the Nasdaq Stock Market and CRSP Nasdaq Non-Financial Stocks
Total Return Index. (The "CRSP" is the Center for Research in Securities Prices
at the University of Chicago.) The graph assumes that $100 was invested on
November 26, 1996 (the effective date of the Company's initial public offering)
in each of the Company's Common Stock, the stocks in the CRSP Total Market
Return Index of the Nasdaq Stock Market and the stocks in the CRSP Nasdaq
Non-Financial Stocks Index.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
UOLP NASDAQ CRSP TOTAL NASDAQ NON-FINANCIAL
---- ----------------- --------------------
<S> <C> <C> <C>
11/26/96 100.00 100.00 100.00
12/31/96 101.92 100.81 100.69
12/31/97 126.92 123.35 118.19
12/31/98 45.69 170.35 173.11
</TABLE>
- ---------------
(1) Indicates comparison of total return for all of 1997 and 1998 and solely for
that period of 1996 (November 26, 1996 -- December 31, 1996) during which
the Company's Common Stock was registered under Section 12 of the Exchange
Act.
(2) Total return assumes reinvestment of dividends. Total returns for the Nasdaq
Stock Market and the Nasdaq Non-Financial Stocks indices are weighted based
on market capitalization.
CERTAIN TRANSACTIONS
In March 1997, the Company acquired Ivy Software, Inc., a Virginia
corporation that develops and distributes business and accounting software for
the academic education market, for $314,000 in cash and potential future
payments not to exceed approximately $862,000. In connection with this
transaction, the President and sole shareholder of Ivy, Robert N. Holt, entered
into a three-year consulting agreement with the Company. In September 1998, the
Company sold Ivy back to Mr. Holt for $250,000 in cash and a note receivable for
approximately $200,000. In connection therewith, all other payment obligations
of the Company to Mr. Holt were terminated (other than $35,000 already earned
and paid under the consulting agreement). The Company agreed to pay Mr. Holt his
standard consulting fee of $2,500 per day for any future services the Company
might request from him.
In April 1997, the Company acquired 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 $3.0
million cash payment at closing and $2.0 million in the form of a promissory
note to be paid in cash ratably on the first, second and third anniversary dates
of the acquisition. In connection with this transaction, James R. Cooper,
formerly the President of Teletutor, entered into an employment agreement to
become an Executive Vice President of the Company, from which position he
resigned effective in March 1998. During the second quarter of 1998, the Company
made the first installment payment of $666,667
21
<PAGE> 24
to the former Teletutor shareholders. In December 1998, the Company and the
former Teletutor stockholders restructured the terms of the note as follows: the
Company issued to such stockholders an aggregate of 105,000 shares of Common
Stock and three-year warrants to purchase 55,000 shares of its Common Stock at
an exercise price of $6.00 per share and executed a new non-interest bearing
promissory note for $826,666, payable in installments between March 15, 1999 and
April 15, 2000.
In October 1997, the Company acquired HTR, Inc., a Delaware corporation
whose strategy is to deliver a total solution for corporate information
technology requirements through its suite of products and services which
includes traditional and on-site training, courseware and consulting, in
exchange for 585,940 shares of Common Stock, options and warrants to purchase an
additional 34,020 shares, the assumption of an aggregate of approximately $3.5
million of HTR debt and a combination of cash and notes payable in the aggregate
amount of approximately $600,000. In addition, the executive officers of HTR,
Messrs. Kaviani (who became a director and executive officer of the Company upon
closing of the acquisition), Arsanjani (who became an executive officer of the
Company upon closing of the acquisition) and Callahan (who became an executive
officer of the Company upon closing of the acquisition) became entitled to
receive bonuses in the aggregate amount of $690,000 in connection with their
execution of employment agreements to become Executive Vice Presidents of the
Company, payable no later than December 31, 1998. In June 1998, the executive
officers of HTR were paid approximately $270,000 of their bonuses in cash to
satisfy tax obligations and they agreed to convert the remaining approximately
$420,000 of such sign-on bonuses and $320,000 of acquisition-related
indebtedness into 134,447 shares of the Company's Series D convertible Preferred
Stock. In connection with the acquisition, the Company also created a stock
option pool of 180,000 shares of Common Stock and an incentive bonus pool with a
potential payout of up to approximately $3,300,000 over three years to such
officers (and one other executive officer of HTR), contingent upon the financial
performance of HTR. During 1998, none of this payout was made and none of these
option shares were granted to such executive officers. Mr. Callahan's employment
as an executive officer of the Company was terminated in June 1998.
In March 1998, the Company raised approximately $5.3 million in gross
proceeds through a private placement (the "Series C Private Placement") of
626,293 shares of the Company's Series C Preferred Stock (which shares are
convertible into approximately 757,800 shares of Common Stock), together with
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 the closing bid prices
calculated prior to closing of the Private Placement). Barry K. Fingerhut, a
director and one of the largest beneficial stockholders of the Company, and
other investors affiliated with Mr. Fingerhut, purchased an aggregate of 283,604
shares of Series C Preferred Stock and warrants to purchase an aggregate of
283,604 shares of Common Stock in the Series C Private Placement. The Series C
Preferred Stock has a liquidation preference of $12.69 per share upon the sale
or liquidation of the Company. The Common Stock issuable upon conversion of the
Series C Preferred Stock and exercise of the related warrants has certain
registration rights.
In June 1998, the Company raised approximately $5.2 million in gross
proceeds through a private placement (the "Series D Private Placement") of
1,082,625 shares of the Company's Series D Preferred Stock (which shares are
convertible into Common Stock on a one-for-one basis). Barry K. Fingerhut, a
director and one of the largest beneficial stockholders of the Company, and
other investors affiliated with Mr. Fingerhut, purchased an aggregate of 445,452
shares of Series D Preferred Stock in the Series D Private Placement. 137,174
shares of the Series D Preferred Stock 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. Pursuant to the
terms of the Series D Preferred Stock, the Company declared and issued a 5%
Common Stock dividend on the Series D Preferred Stock in December 1998.
In May 1999, the Company raised approximately $1.32 million through a
private placement of 448,297 shares of common stock at a price of $2.9375 per
share. Barry K. Fingerhut, a director and the largest beneficial stockholder of
the Company, purchased an aggregate of 102,127 of such shares for an aggregate
consideration of $300,000. The holders of shares issued in this financing are
entitled to certain registration rights.
In December 1996, the Company loaned Nat Kannan, the Company's founder,
Chief Executive Officer and Chairman, $100,000 to help satisfy Mr. Kannan's
income tax withholding obligations relating to back
22
<PAGE> 25
wages paid to Mr. Kannan by the Company in 1996. The largest outstanding
principal amount under the loan, together with interest accrued thereon, during
1998 was approximately $116,000. The loan bears interest at the prime rate, as
announced from time to time by First Union National Bank, minus one percent with
principal and accrued interest payable in full upon demand.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Exchange Act, directors and executive
officers of the Company are required to file reports with the Securities and
Exchange Commission indicating their holdings of and transactions in the
Company's equity securities. Except as described below, to the Company's
knowledge, based solely on a review of the copies of such reports furnished to
the Company and written representations that no other reports were required,
there were no reports required under Section 16(a) of the Exchange Act which
were not timely filed during the fiscal year ended December 31, 1998:
1. Farzin Arsanjani, an executive officer of the Company, filed a late
Form 4 reporting the sale of 3,853 shares to Daniel J. Callahan, pursuant
to Mr. Callahan's warrant to purchase such shares, and filed a late Form 5
reporting options granted to him in December 1998;
2. Kamyar Kaviani, an executive officer of the Company, filed a late
Form 4 reporting the sale of 3,853 shares to Daniel J. Callahan, pursuant
to Mr. Callahan's warrant to purchase such shares; and
3. Daniel J. Callahan, an executive officer of the Company, filed a
late Form 4 reporting the purchase of the above-referenced shares from each
of Messrs. Arsanjani and Kaviani pursuant to his warrant to purchase such
shares, and also reporting the purchase of 5,779 shares from the Company
pursuant to a warrant.
DEADLINE FOR STOCKHOLDER PROPOSALS
Stockholders having proposals that they desire to present at next year's
annual meeting of stockholders of the Company should, if they desire that such
proposals be included in the Company's Proxy Statement relating to such meeting,
submit such proposals in time to be received by the Company not later than
, 2000. To be so included, all such submissions must comply with the
requirements of Rule 14a-8 promulgated under the Exchange Act and the Board of
Directors directs the close attention of interested stockholders to that Rule.
In addition, management's proxy holders will have discretion to vote proxies
given to them on any stockholder proposal of which the Company does not have
notice prior to , 2000. Proposals may be mailed to the Corporate
Secretary, UOL Publishing, Inc., 8251 Greensboro Drive, Suite 500, McLean,
Virginia 22102.
OTHER MATTERS
The Board of Directors knows of no other business to be brought before the
Meeting, but it is intended that, as to any such other business, the shares will
be voted pursuant to the proxy in accordance with the best judgment of the
person or persons acting thereunder.
23
<PAGE> 26
APPENDIX A
This PRIVATE EQUITY LINE OF CREDIT AGREEMENT (this "Agreement") is entered
into as of the 4th day of May 1999, by and between HAMBRECHT & QUIST GUARANTY
FINANCE, LLC (the "Investor"), a California limited liability company, and UOL
PUBLISHING, INC. (the "Company"), a Delaware corporation.
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investor,
from time to time as provided herein, and the Investor shall purchase, shares of
the Company's Convertible Preferred Stock (as defined below) having an aggregate
purchase price up to $3,000,000; and
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and Regulation D ("Regulation D") of the United
States Securities Act of 1933, as amended and the rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities convertible into the
Company's Common Stock to be made hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 "Average Daily Trading Volume" with respect to any date,
shall be calculated by (a) multiplying the reported trading volume of Common
Stock on each of the Trading Days in the thirty days immediately preceding such
date by the average of the high and low reported share price on such dates, (b)
adding the results together, and (iii) dividing the sum by the number of Trading
Days obtained under Section 1.1(a).
Section 1.2 "Bid Price" shall mean, with respect to any Trading Day, the
closing bid price on such Trading Day of the Common Stock on the Principal
Market.
Section 1.3 "Blackout Shares" shall have the meaning assigned to them in
Section 2.6.
Section 1.4 "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of dividends (as and when declared)
and assets (upon liquidation of the Company).
Section 1.5 "Closing" shall mean one of the closings of a purchase and
sale of the Put Shares pursuant to Section 2.1.
Section 1.6 "Closing Date" shall mean, with respect to a Closing, the
second Trading Day following the Put Notice Date related to such Closing,
provided all conditions to such Closing have been satisfied on or before such
Trading Day.
Section 1.7 "Commitment Period" shall mean the period commencing from the
Subscription Date until the earliest of (a) close of business on December 31,
1999, unless this Agreement is earlier terminated by the Investor pursuant to
Sections 2.4 or 10.8, (b) the date that is 180 days after the effective date of
the Registration Statement, or (c) such earlier date as the Company and the
Investor may mutually agree in writing.
Section 1.8 "Common Stock" shall mean the Company's common stock, $0.01
par value per share.
Section 1.9 "Common Stock Equivalents" shall mean any securities that are
convertible into or exchangeable for Common Stock or any warrants, options or
other rights to subscribe for or purchase Common Stock or any such convertible
or exchangeable securities.
Section 1.10 "Convertible Preferred Stock" shall mean the Company's
Series E Convertible Preferred Stock having an annualized dividend rate of 6.0%
payable monthly in kind in Convertible Preferred Stock at a
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price per share equal to 85% of the closing price of the Common Stock on the
date such dividend is payable, and such other rights, preferences and privileges
as are specified in the form of Certificate of Designation of Rights of the
Series E Convertible Preferred Stock ("Certificate of Designation") attached
hereto as Exhibit A.
Section 1.11 "Condition Satisfaction Date" shall have the meaning set
forth in Section 7.2 of this Agreement.
Section 1.12 "Damages" shall mean any loss, claim, damage, liability,
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements and costs and expenses of expert witnesses and investigation).
Section 1.13 "Dividend Shares" shall mean shares of Convertible Preferred
Stock paid as dividends on Put Shares.
Section 1.14 "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering resale of the
Registrable Securities as set forth in Section 7.2(a).
Section 1.15 "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended and the rules and regulations promulgated thereunder.
Section 1.16 "Investment Amount" shall mean the dollar amount paid by the
Investor to purchase Put Shares as specified in a Put Notice.
Section 1.17 "Legend" shall have the meaning specified in Section 8.1.
Section 1.18 "Market Price" on any given date shall mean the lower of (a)
the average of the lowest intra-day prices of the Common Stock over the
Valuation Period and (b) the closing price of the Common Stock on such date.
"Lowest intra-day price" shall mean the lowest price of the Common Stock (as
reported by Bloomberg L.P.) during any Trading Day.
Section 1.19 "Maximum Commitment Amount" shall mean $3,000,000.
Section 1.20 "Material Adverse Effect" shall mean any effect on the
business, operations, properties or financial condition of the Company that is
material and adverse to the Company and all other entities controlled by the
Company, taken as a whole, and/or any condition, circumstance or situation that
would prohibit or otherwise interfere with the ability of the Company to enter
into and perform its obligations under any of (a) this Agreement, (b) the
Registration Rights Agreement or (c) the Warrant.
Section 1.21 "Maximum Put Amount" shall equal, on any potential Put
Notice Date, the lesser of (i) two (2) times the Average Dollar Trading Volume
at such date or (ii) $500,000.
Section 1.22 "NASD" shall mean the National Association of Securities
Dealers, Inc.
Section 1.23 "Outstanding" when used with reference to Capital Shares,
shall mean, at any date, all issued and outstanding Capital Shares, and shall
include all Capital Shares issuable in respect of outstanding scrip or any
certificates representing fractional interests in Capital Shares; provided,
however, that "Outstanding" shall not refer to any Capital Shares then directly
or indirectly owned or held by or for the account of the Company.
Section 1.24 "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.25 "Principal Market" shall mean the principal trading exchange
or market for the Common Stock, which is currently the Nasdaq SmallCap Market.
Section 1.26 "Purchase Price" shall mean, with respect to a Put, 85% of
the Market Price of the Common Stock on the applicable Closing Date.
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Section 1.27 "Put" shall mean the Company's exercise of its right to
require the Investor to purchase a specified amount of the Put Shares, subject
to the terms and conditions of this Agreement.
Section 1.28 "Put Notice Date" shall mean the Trading Day during the
Commitment Period that a Put Notice to sell Common Stock to the Investor is
deemed delivered pursuant to Section 2.2(b) hereof.
Section 1.29 "Put Notice" shall mean a written notice to the Investor
setting forth the Investment Amount that the Company intends to require the
Investor to purchase pursuant to the terms of this Agreement.
Section 1.30 "Put Shares" shall mean all shares of Convertible Preferred
Stock issued or issuable pursuant to a Put in accordance with the terms and
conditions of this Agreement.
Section 1.31 "Registrable Securities" shall mean the Common Stock
issuable upon the conversion of (a) the Put Shares, (b) the Dividend Shares, (c)
the Warrant Shares, and (d) the Blackout Shares and any securities issued or
issuable with respect to any of the foregoing by way of exchange, stock dividend
or stock split or in connection with a combination of shares, recapitalization,
merger, consolidation or other reorganization or otherwise. As to any particular
Registrable Securities, once issued such securities shall cease to be
Registrable Securities when (w) the Registration Statement has been declared
effective by the SEC and all Registrable Securities have been disposed of
pursuant to the Registration Statement, (x) all Registrable Securities have
been, or could be in any three-month period, sold under circumstances under
which all of the applicable conditions of Rule 144 (or any similar provision
then in force) under the Securities Act ("Rule 144") are met, or (y) such time
as all Registrable Securities have been otherwise transferred to holders who may
trade such shares without restriction under the Securities Act, and the Company
has delivered a new certificate or other evidence of ownership for such
securities not bearing a restrictive legend.
Section 1.32 "Registration Rights Agreement" shall mean the Registration
Rights Agreement of even date herewith entered into between Purchaser and the
Company in the form of Exhibit B hereto.
Section 1.33 "Registration Statement" shall mean a registration statement
on Form S-1 filed by the Company and maintained in full force and effect during
the Commitment Period sufficient to cover registration for resale by the
Investor of the maximum amount of Common Stock issuable upon conversion of (a)
the Put Shares that can be Put to the Investor under this Agreement and (b) the
Warrant Shares, together with a reasonable allowance for the Dividend Shares and
the Blackout Shares, as agreed by the Investor and the Company.
Section 1.34 "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.35 "SEC" shall mean the Securities and Exchange Commission.
Section 1.36 "Section 4(2)" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.37 "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.38 "SEC Documents" shall mean the Company's latest Form 10-K as
of the time in question, all Forms 10-Q and 8-K filed thereafter, and the Proxy
Statement for its latest fiscal year as of the time in question until such time
the Company no longer has an obligation to maintain the effectiveness of a
Registration Statement as set forth herein and in the Registration Rights
Agreement.
Section 1.39 "Subscription Date" shall mean the date on which this
Agreement is executed and delivered by the parties hereto.
Section 1.40 "Special Put" shall mean a Put having an Investment Amount
equal to the lesser of (a) up to four (4) times the Average Dollar Trading
Volume for the Put Notice Date in question or (b) $500,000.
Section 1.41 "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.42 "Valuation Event" shall mean an event in which the Company
at any time during a Valuation Period takes any of the following actions: (a)
subdivides or combines its Common Stock; (b) pays a
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dividend in its capital stock or makes any other distribution of its Capital
Shares, except for dividends paid or distributions made in respect of preferred
stock; (c) issues any additional Capital Shares ("Additional Capital Shares"),
otherwise than as provided in the foregoing Subsections (a) and (b) above or
pursuant to this Agreement, at a price per share less, or for other
consideration lower, than the Purchase Price calculated immediately prior to
such issuance, or without consideration; (d) issues any warrants, options or
other rights to subscribe for or purchase any Additional Capital Shares at a
subscription or purchase price per share less than the Purchase Price calculated
immediately prior to such issuance; (e) issues any securities convertible into
or exchangeable for Capital Shares at a price per underlying Additional Capital
Share less than the Purchase Price calculated immediately prior to such
issuance; (f) makes a distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital, except (i) dividends paid or distributions made in respect of
preferred stock, (ii) as a dividend payable out of earnings or surplus legally
available for dividends under applicable law, or (iii) any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
subsections (a) through (e)); or (g) takes any action affecting the number of
Outstanding Capital Shares, other than an action described in any of the
foregoing subsections (a) through (f) hereof, inclusive, which in the opinion of
the Company's Board of Directors, determined in good faith, would have a
materially adverse effect upon the rights of the Investor at the time of a Put
or exercise of the Warrant.
Section 1.43 "Valuation Period" shall mean the period of five (5) Trading
Days consisting of the relevant Closing Date and the four (4) Trading Days
immediately preceding it; provided, however, that if a Valuation Event occurs
during any Valuation Period, a new Valuation Period shall begin on the Trading
Day immediately after the occurrence of such Valuation Event and end on the
fifth Trading Day thereafter.
Section 1.44 "Warrant" shall mean the Warrant in the form of Exhibit C
hereto issued pursuant to Section 2.5 of this Agreement, entitling Investor to
purchase up to 100,000 shares of Convertible Preferred Stock at the exercise
price described therein.
Section 1.45 "Warrant Shares" shall mean all shares of Convertible
Preferred Stock issued or issuable pursuant to exercise of the Warrant.
ARTICLE II
PURCHASE AND SALE OF PUT SHARES;
TERMINATION OF OBLIGATIONS; WARRANT; BLACKOUT SHARES
Section 2.1 Investments. (a) Puts. Upon the terms and conditions set
forth herein (including, without limitation, the provisions of Article VII
hereof), the Company may exercise a Put by the delivery of a Put Notice to the
Investor. The number of Put Shares that the Investor shall receive pursuant to
such Put shall be determined by dividing the Investment Amount specified in the
Put Notice by the Purchase Price on the Closing Date. The Investment Amount
specified in any Put Notice shall not exceed $500,000 and the total of all
Investment Amounts in Put Notices submitted by the Company shall not exceed the
Maximum Commitment Amount. No Put Notice may be delivered on any Trading Day
that is within fifteen (15) Trading Days or less of the Trading Day on which a
Put Notice was last delivered.
(b) Special Put. On a one time basis, and provided that as of such date,
the Company would otherwise be entitled to deliver a Put Notice, the Company may
exercise the Special Put.
Section 2.2 Put Notice Date. A Put Notice shall be deemed delivered on
(a) the Trading Day it is received by facsimile or otherwise by the Investor if
such notice is received prior to 12:00 noon New York time, or (b) the
immediately succeeding Trading Day if it is received by facsimile or otherwise
after 12:00 New York time on a Trading Day or at any time on a day which is not
a Trading Day. No Put Notice may be deemed delivered on a day that is not a
Trading Day.
Section 2.3 Closings. Following the determination of the Purchase Price
on a Closing Date for a Put, (a) the Company shall deliver to the Investor one
or more certificates representing the Put Shares, registered
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in the name of the Investor, or such other evidence of the issuance of the Put
Shares to the Investor as the parties may agree is appropriate and (b) the
Investor shall wire transfer to the Company the Investment Amount specified in
the Put Notice in immediately available funds to the account specified by the
Company, it being understood that the wire transfer might not be actually
received until the next business day. In addition, on or prior to such Closing
Date, each of the Company and the Investor shall deliver to the other all
documents, instruments and writings required to be delivered or reasonably
requested by either of them pursuant to this Agreement in order to implement and
effect the transactions contemplated herein.
Section 2.4 Termination of Investment Obligation. This Agreement and the
Investor's obligation to purchase Put Shares hereunder shall automatically
terminate (including with respect to any Put, notice of which has been given but
the applicable Closing Date has not yet occurred) and the Investor may, at its
sole discretion, terminate this Agreement in the event that: (a) there shall
occur any stop order or suspension of the effectiveness of the Registration
Statement for an aggregate of thirty (30) Trading Days during the Commitment
Period, for any reason other than deferrals or suspension during a Blackout
Period in accordance with the Registration Rights Agreement as a result of
corporate developments subsequent to the Subscription Date that would require
such Registration Statement to be amended to reflect such event in order to
maintain its compliance with the disclosure requirements of the Securities Act;
or (b) the Company shall at any time fail to comply with the requirements of
Sections 6.3, 6.4, 6.5 or 6.6.
Section 2.5 The Warrant. On the Subscription Date, the Company shall
issue and deliver the Warrant to the Investor. The Common Stock issuable upon
conversion of the Warrant Shares shall be registered for resale pursuant to the
Registration Rights Agreement.
Section 2.6 Blackout Shares. In the event that, (a) within five (5)
Trading Days following any Closing Date, the Company gives a Blackout Notice to
the Investor of a Blackout Period in accordance with the Registration Rights
Agreement, and (b) the Bid Price on the Trading Day immediately preceding such
Blackout Period ("Old Bid Price") is greater than the Bid Price on the first
Trading Day following such Blackout Period that the Investor may sell its
Registrable Securities pursuant to an effective Registration Statement ("New Bid
Price"), then the Company shall issue to the Investor the number of additional
shares of Registrable Securities (the "Blackout Shares") equal to the difference
between (x) the product of the number of Registrable Securities held by Investor
immediately prior to the Blackout Period multiplied by the Old Bid Price,
divided by the New Bid Price, and (y) the number of Registrable Securities held
by Investor immediately prior to the Blackout Period.
Section 2.7 Liquidated Damages. The parties hereto acknowledge and agree
that the requirement to issue Blackout Shares under Section 2.6 above shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (b) the amounts specified in such section bear
a reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investor in connection with a
Blackout Period, and (c) the parties are sophisticated business parties and have
been represented by sophisticated and able legal and financial counsel and
negotiated this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
The Investor represents and warrants to the Company that:
Section 3.1 Intent. The Investor is entering into this Agreement for its
own account and the Investor has no present arrangement (whether or not legally
binding) at any time to sell any of the Company's securities to be acquired
hereunder to or through any person or entity; provided, however, that by making
the representations herein, the Investor does not agree to hold those securities
for any minimum or other specific term and reserves the right to dispose of them
at any time in accordance with federal and state securities laws applicable to
such disposition.
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Section 3.2 A Credited Investor. The Investor is an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that make it capable of evaluating the merits and
risks of an investment in the securities to be issued hereunder. The Investor
acknowledges that an investment in the securities to be issued hereunder is
speculative and involves a high degree of risk.
Section 3.3 Authority. Each of this Agreement and the Registration Rights
Agreement was validly executed and delivered by the Investor and each is a valid
and binding agreement of the Investor enforceable against it in accordance with
its terms, subject to applicable bankruptcy, insolvency or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4 Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
Section 3.5 Organization and Standing. Investor is duly organized,
validly existing, and in good standing under the laws of the state of its
organization.
Section 3.6 Disclosure; Access to Information. Investor has received all
documents, records, books and other information pertaining to Investor's
investment in the Company that have been requested by Investor. The Investor has
reviewed or received copies of the SEC Documents.
Section 3.7 Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Investor that:
Section 4.1 Organization of the Company. 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 power and authority to own, lease and
operate its properties and to carry on its business as now being conducted. The
Company is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, other than those in
which the failure so to qualify would not have a Material Adverse Effect.
Section 4.2 Authority. (a) The Company has the requisite corporate power
and authority to enter into and perform its obligations under this Agreement,
the Registration Rights Agreement and the Warrant and to issue the Put Shares,
the Warrant, the Warrant Shares and the Blackout Shares; (b) the execution and
delivery of this Agreement and the Registration Rights Agreement, and the
execution, issuance and delivery of the Warrant by the Company and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors, other than approval of
its stockholders, is required; and (c) each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered and the
Warrant has been duly executed, issued and delivered by the Company and
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their respective terms, except as such enforceability
may be limited by applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 4.3 Capitalization. As of May 11, 1999 the authorized capital
stock of the Company consisted of (i) 36,000,000 shares of Common Stock, of
which 4,728,909 shares were issued and outstanding; (ii) 10,000,000 shares of
Preferred Stock, of which 1,000,000 shares were designated Series C Convertible
Preferred Stock, of which 626,293 shares were issued and outstanding, and
1,200,000 shares were designated
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Series D Convertible Preferred Stock, of which 1,082,625 shares were issued and
outstanding. Except as set forth on Schedule 4.3 hereof, there are no options,
warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe for any
shares of capital stock of the Company. All of the outstanding shares of Common
Stock of the Company have been duly and validly authorized and issued and are
fully paid and nonassessable.
Section 4.4 Common Stock. The Company has registered its Common Stock
pursuant to Section 12(g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company has maintained all
requirements for the continued quotation of its Common Stock and such Common
Stock is currently quoted, on the Nasdaq SmallCap Market ("Nasdaq").
Section 4.5 SEC Documents. The Company has delivered or made available to
the Investor true and complete copies of the SEC Documents (including, without
limitation, proxy information and solicitation materials). The Company has not
provided to the Investor any information that, according to applicable law, rule
or regulation, should have been disclosed publicly prior to the date hereof by
the Company, but which has not been so disclosed. As of their respective dates,
the SEC Documents complied in all material respects with the requirements of the
Securities Act or the Exchange Act, as the case may be, and other federal, state
and local laws, rules and regulations applicable to such SEC Documents, and none
of the SEC Documents, when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the SEC Documents complied, when filed, as to form and
substance in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC or other applicable rules and
regulations with respect thereto. Such financial statements were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they may not include footnotes or may be
condensed or summary statements) and fairly present in all material respects the
financial position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments).
Section 4.6 Exemption from Registration; Valid Issuances. The sale and
issuance of the Warrant, the Warrant Shares, the Put Shares and any Blackout
Shares in accordance with the terms and on the basis of the representations and
warranties set forth in this Agreement, may and shall be properly issued
pursuant to Section 4(2), Regulation D and/or any applicable state law. When
issued and paid for as herein provided, the Put Shares, the Warrant Shares and
any Blackout Shares shall be duly and validly issued, fully paid and
nonassessable. Neither the sales of the Put Shares, the Warrant, the Warrant
Shares, the Dividend Shares, or any Blackout Shares pursuant to, nor the
Company's performance of its obligations under, this Agreement, the Registration
Rights Agreement or the Warrant shall (i) be subject to or result in the
creation or imposition of any liens, charges, claims or other encumbrances upon
the Put Shares, the Warrant Shares, the Dividend Shares, any Blackout Shares or
any of the assets of the Company, or (ii) be subject to or entitle the holders
of Outstanding Capital Shares or preferred shares to preemptive or other rights
to subscribe to or acquire the Put Shares, the Warrant Shares, the Dividend
Shares, any Blackout Shares or Registrable Securities. The Put Shares, the
Warrant Shares and any Blackout Shares shall not subject the Investor to
personal liability by reason of the ownership thereof.
Section 4.7 No General Solicitation or Advertising in Regard to This
Transaction. Neither the Company nor any of its affiliates nor any distributor
or any person acting on its or their behalf (i) has conducted or will conduct
any general solicitation (as that term is used in Rule 502(c) of Regulation D)
or general advertising with respect to any of the Put Shares, the Warrant, the
Warrant Shares or any Blackout Shares, or (ii) made any offers or sales of any
security or solicited any offers to buy any security under any circumstances
that would require registration of any of them under the Securities Act.
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Section 4.8 Corporate Documents. The Company has furnished or made
available to the Investor true and correct copies of the Company's Certificate
of Incorporation, as in effect on the date hereof (the "Certificate"), and the
Company's By-Laws, as in effect on the date hereof (the "By-Laws").
Section 4.9 No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of the Put
Shares, the Warrant, the Warrant Shares and the Blackout Shares do not and will
not (i) result in a violation of the Certificate or By-Laws or (ii) conflict
with, or constitute a material default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture, instrument or any "lock-up" or similar provision of any underwriting
or similar agreement to which the Company is a party, or (iii) result in a
violation of any federal, state, local or foreign law, rule, regulation, order,
judgment or decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the Company is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect) nor is the
Company otherwise in violation of, conflict with or in default under any of the
foregoing (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in the
aggregate, have a Material Adverse Effect). The business of the Company is not
being conducted in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations that either singly or in the
aggregate do not and will not have a Material Adverse Effect. The Company is not
required under federal, state or local law, rule or regulation to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency in order for it to execute, deliver or perform any
of its obligations under this Agreement or issue and sell the Put Shares or the
Warrant Shares in accordance with the terms hereof (other than any SEC, Nasdaq
or state securities filings that may be required to be made by the Company, any
registration statement that may be filed pursuant hereto, and any shareholder
approval required by the rules applicable to companies whose common stock trades
on Nasdaq); provided that, for purposes of the representation made in this
sentence, the Company is assuming and relying upon the accuracy of the relevant
representations and agreements of the Investor herein.
Section 4.10 No Material Adverse Change. Since December 31, 1998, no
event has occurred that would have a Material Adverse Effect, except as
disclosed in the SEC Documents.
Section 4.11 No Undisclosed Liabilities. The Company has no liabilities
or obligations that are material, individually or in the aggregate, and that are
not disclosed in the SEC Documents or otherwise publicly announced, other than
those incurred in the ordinary course of the Company's businesses since December
31, 1998 and which, individually or in the aggregate, do not or would not have a
Material Adverse Effect.
Section 4.12 No Undisclosed Events or Circumstances. Since December 31,
1998, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial condition, that,
under applicable law, rule or regulation, requires public disclosure or
announcement prior to the date hereof by the Company but which has not been so
publicly announced or disclosed in the SEC Documents.
Section 4.13 Litigation and Other Proceedings. Except as may be set forth
in the SEC Documents, there are no lawsuits or proceedings pending or to the
best knowledge of the Company threatened, against the Company, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which might have a Material Adverse Effect. Except as set
forth in the SEC Documents, no judgment, order, writ, injunction or decree or
award has been issued by or, so far as is known by the Company, requested of any
court, arbitrator or governmental agency which might result in a Material
Adverse Effect.
Section 4.14 No Misleading or Untrue Communication. The Company has not
made, at any time, any oral communication in connection with the offer or sale
of securities hereunder which contained any untrue statement of a material fact
or omitted to state any material fact necessary in order to make the statements,
in the light of the circumstances under which they were made, not misleading.
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ARTICLE V
COVENANTS OF THE INVESTOR
Section 5.1 Compliance With Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and the
rules and regulations of the Principal Market.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1 Registration Rights. The Company shall use its best efforts
to cause the Registration Rights Agreement to remain in full force and effect
and the Company shall comply in all respects with the terms thereof.
Section 6.2 Reservation of Common Stock. As of the date hereof, the
Company has available and the Company shall reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to satisfy any obligation to issue Common Stock upon
conversion of the Put Shares, the Warrant Shares, the Dividend Shares, and the
Blackout Shares; such amount of shares of Common Stock to be reserved shall be
calculated based upon the minimum Purchase Price for the Put Shares under the
terms and conditions of this Agreement and the exercise price of the Warrant and
a good faith estimate by the Company in consultation with the Investor of the
number of Blackout Shares that will need to be issued. The number of shares so
reserved from time to time, as theretofore increased or reduced as hereinafter
provided, may be reduced by the number of shares actually delivered hereunder.
Section 6.3 Listing of Common Stock. The Company shall use its best
efforts to maintain the listing of the Common Stock on a Principal Market or
other exchange acceptable to the Investor. The Company shall use its best
efforts to continue the listing and trading of its Common Stock on the Principal
Market (including, without limitation, maintaining sufficient net tangible
assets) and will comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the NASD and the Principal
Market.
Section 6.4 Exchange Act Registration. The Company shall cause its Common
Stock to continue to be registered under Section 12(g) or 12(b) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting and
filing obligations under said Act, and will not take any action or file any
document (whether or not permitted by said Act or the rules thereunder) to
terminate or suspend such registration or to terminate or suspend its reporting
and filing obligations under said Act.
Section 6.5 Legends. The certificates evidencing the Put Shares, the
Warrant Shares, the Dividend Shares and the Blackout Shares shall be free of
legends, except as provided for in Article VIII.
Section 6.6 Corporate Existence. The Company shall take all steps
necessary to preserve and continue the corporate existence of the Company.
Section 6.7 Additional SEC Documents. The Company shall deliver to the
Investor, as and when the originals thereof are submitted to the SEC for filing,
copies of all SEC Documents so furnished or submitted to the SEC.
Section 6.8 Notice of Certain Events Affecting Registration; Suspension of
Right to Make a Put. The Company shall immediately notify the Investor upon the
occurrence of any of the following events in respect of a registration statement
or related prospectus in respect of an offering of Registrable Securities: (i)
receipt by the Company of any request for additional information by the SEC or
any other federal or state governmental authority during the period of
effectiveness of the Registration Statement or for amendments or supplements to
the registration statement or related prospectus; (ii) receipt by the Company of
notice of the issuance by the SEC or any other federal or state governmental
authority of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose; (iii) receipt
by the Company of any notification with respect to the suspension of the
qualification or exemption from
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qualification of any of the Registrable Securities for sale in any jurisdiction
or the initiation or threatening of any proceeding for such purpose; (iv) the
happening of any event that makes any statement made in such Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the registration statement, related
prospectus or documents so that, in the case of the Registration Statement, it
will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and that in the case of the related prospectus, it will
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; and (v) the Company's reasonable determination that a post-
effective amendment to the registration statement would be appropriate, and the
Company shall promptly make available to the Investor any such supplement or
amendment to the related prospectus. The Company shall not deliver to the
Investor any Put Notice during the continuation of any of the foregoing events.
Section 6.9 Expectations Regarding Put Notices. Within ten (10) days
after the commencement of each calendar quarter occurring subsequent to the
commencement of the Commitment Period, the Company undertakes to notify the
Investor as to its reasonable expectations as to the dollar amount it intends to
raise during such calendar quarter, if any, through the issuance of Put Notices.
Such notification shall constitute only the Company's good faith estimate with
respect to such calendar quarter and shall in no way obligate the Company to
raise such amount during such calendar quarter or otherwise limit its ability to
deliver Put Notices during such calendar quarter. The failure by the Company to
comply with this provision can be cured by the Company's notifying the Investor
at any time as to its reasonable expectations with respect to the current
calendar quarter.
Section 6.10 Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity unless the resulting successor or acquiring entity (if not the
Company) assumes by written instrument this Agreement and the Registration
Rights Agreement and the obligations attendant to the Company's right to Put its
securities to the Investor pursuant hereto.
Section 6.11 Issuance of Put Shares, Warrant Shares, Dividend Shares, and
Blackout Shares. The sale of the Put Shares, the issuance of the Warrant Shares
pursuant to exercise of the Warrant and the issuance of any Dividend Shares or
Blackout Shares shall be made in accordance with the provisions and requirements
of Section 4(2), Regulation D and/or any applicable state law. Issuance of the
Warrant Shares pursuant to exercise of the Warrant through a cashless exercise
shall be made in accordance with the provisions and requirements of Section
3(a)(9), Section 4(2), Regulation D and/or any applicable state law.
Section 6.12 Legal Opinion on Subscription Date. The Company's general or
outside counsel shall deliver to the Investor on the Subscription Date an
opinion in the form of Exhibit D.
Section 6.13 Filing of Certificate of Designation. The Company shall have
filed the Certificate of Designation with the Secretary of State of the State of
Delaware and such certificate shall have been accepted and approved.
Section 6.14 No Other Equity Lines. While this Agreement is in effect,
the Company shall refrain from entering into any other agreements, arrangements
or understandings granting to the Company the right to put shares of its
securities to one or more investors through private placements, except in
connection with strategic partnership or joint venture arrangements.
Section 6.15 Retention of Financial Services of Hambrecht & Quist. In the
event the Company desires to retain Hambrecht and Quist Group or any of its
wholly-owned subsidiaries ("H&Q") for additional financial services, and to the
extent the Company's retention of H&Q would potentially restrict the Investor's
resale of the Put Shares or Common Stock issuable upon conversion thereof, the
retention of H&Q must be approved by the Investor. If H&Q is retained by the
Company as an underwriter in a follow-on offering of the Company's securities,
and as a result, the Investor is required to modify the terms of the Warrant and
other compensation received by the Investor from the Company, to comply with the
NASD's prohibitions on excess
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underwriter compensation, the Company shall compensate the Investor for any
economic loss suffered by the Investor, to the extent that such compensation
would not result in excess underwriter's compensation in breach of the rules and
regulations of the NASD or other applicable law.
ARTICLE VII
CONDITIONS TO DELIVERY OF PUT NOTICES AND CONDITIONS TO CLOSING
Section 7.1 Conditions Precedent to the Obligation of the Company to Issue
and Sell Put Shares. The obligation hereunder of the Company to issue and sell
the Put Shares to the Investor incident to each Closing is subject to the
satisfaction, at or before each such Closing, of each of the conditions set
forth below.
(a) Accuracy of the Investor's Representation and Warranties. The
representations and warranties of the Investor shall be true and correct in
all material respects as of the date of this Agreement and as of the date
of each such Closing as though made at each such time.
(b) Performance by the Investor. The Investor shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Investor at or prior to such Closing.
(c) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or adopted by any court or governmental authority of competent jurisdiction
that prohibits the transactions contemplated by this Agreement, and no
actions, suits or proceedings shall be in progress, pending or threatened
by any Person, that seek to enjoin or prohibit the transactions
contemplated by this Agreement. For purposes of this paragraph (c), no
proceeding shall be deemed pending or threatened unless one of the parties
has received written or oral notification thereof prior to the applicable
Closing Date.
(d) Other. The Company shall have received and been reasonably
satisfied with such other certificates and documents as shall have been
reasonably requested by it in order to confirm the Investor's satisfaction
of the conditions set forth in this Section 7.1.
Section 7.2 Conditions Precedent to the Right of the Company to Deliver a
Put Notice and the Obligation of the Investor to Purchase Put Shares. The right
of the Company to deliver a Put Notice and the obligation of the Investor
hereunder to acquire and pay for the Put Shares incident to a Closing is subject
to the satisfaction, on (i) the applicable Put Date and (ii) the applicable
Closing Date (each a "Condition Satisfaction Date"), of each of the following
conditions:
(a) Registration of the Registrable Securities with the SEC. As set
forth in the Registration Rights Agreement, the Company shall have
previously filed with the SEC a Registration Statement with respect to the
resale of the Registrable Securities by the Investor that shall have been
declared effective by the SEC prior to the first Put Date.
(b) Effective Registration Statement. As set forth in the
Registration Rights Agreement, the Registration Statement shall have
previously become effective and shall remain effective on each Condition
Satisfaction Date and (i) neither the Company nor the Investor shall have
received notice that the SEC has issued or intends to issue a stop order
with respect to the Registration Statement or that the SEC otherwise has
suspended or withdrawn the effectiveness of the Registration Statement,
either temporarily or permanently, or intends or has threatened to do so
(unless the SEC's concerns have been addressed and the Investor is
reasonably satisfied that the SEC no longer is considering or intends to
take such action), and (ii) no other suspension of the use or withdrawal of
the effectiveness of the Registration Statement or related prospectus shall
exist, and (iii) the Investor shall not have advised the Company that, in
its reasonable opinion, the Registration Statement contains an untrue
statement of a material fact or omits a material fact required to be stated
in the Registration Statement or necessary to make the statements contained
therein, in light of the circumstances in which they were made, not
misleading, and such allegedly untrue statement or omission shall not have
been addressed to the reasonable satisfaction of the Investor.
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(c) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company shall be true and correct in
all material respects as of each Condition Satisfaction Date as though made
at each such time (except for representations and warranties specifically
made as of a particular date).
(d) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement, the Registration
Rights Agreement and the Warrant to be performed, satisfied or complied
with by the Company at or prior to each Condition Satisfaction Date.
(e) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated
or adopted by any court or governmental authority of competent jurisdiction
that prohibits the transactions contemplated by this Agreement or otherwise
has a Material Adverse Effect, and no actions, suits or proceedings shall
be in progress, pending or threatened by any Person, that seek to enjoin or
prohibit the transactions contemplated by this Agreement or otherwise could
reasonably be expected to have a Material Adverse Effect. For purposes of
this paragraph (e), no proceeding shall be deemed pending or threatened
unless one of the parties has received written or oral notification thereof
prior to the applicable Closing Date.
(f) No Suspension of Trading in or Delisting of Common Stock. The
trading of the Common Stock shall not have been suspended by the SEC, the
Principal Market or the NASD and the Common Stock shall have been approved
for listing or quotation on and shall not have been delisted from all
Principal Markets (including, without limitation, delisted to the Nasdaq
Bulletin Board). The issuance of Put Shares with respect to the applicable
Closing, if any, shall not violate the shareholder approval requirements of
the Principal Market.
(g) Legal Opinion. The Company shall have caused to be delivered to
the Investor, within five (5) Trading Days of the Effective Date, an
opinion of the Company's independent or general counsel in the form of
Exhibit E hereto, addressed to the Investor.
(h) Ten Percent Limitation. On each Closing Date, the number of Put
Shares then to be purchased by the Investor shall not exceed the number of
such shares that, when aggregated with all other shares of Registrable
Securities then owned by the Investor beneficially or deemed beneficially
owned by the Investor, would result in the Investor owning no more than
9.9% of all of such Common Stock as would be outstanding on such Closing
Date, as determined in accordance with Section 16 of the Exchange Act and
the regulations promulgated thereunder. For purposes of this Section, in
the event that the amount of Common Stock outstanding as determined in
accordance with Section 16 of the Exchange Act and the regulations
promulgated thereunder is greater on a Closing Date than on the date upon
which the Put Notice associated with such Closing Date is given, the amount
of Common Stock outstanding on such Closing Date shall govern for purposes
of determining whether the Investor, when aggregating all purchases of
Common Stock made pursuant to this Agreement and, if any, Warrant Shares
and Blackout Shares, would own more than 9.9% of the Common Stock following
such Closing Date.
(i) No Knowledge. The Company shall have no knowledge of any event
more likely than not to have the effect of causing such Registration
Statement to be suspended or otherwise ineffective (which event is more
likely than not to occur within the fifteen Trading Days following the
Trading Day on which such Notice is deemed delivered).
(j) Shareholder Vote. The issuance of Put Shares with respect to the
applicable Closing, if any, shall not violate the shareholder approval
requirements of the Principal Market.
(k) Other. On each Condition Satisfaction Date, the Investor shall
have received and been reasonably satisfied with such other certificates
and documents as shall have been reasonably requested by the Investor in
order for the Investor to confirm the Company's satisfaction of the
conditions set forth in this Section 7.2, including, without limitation, a
certificate in substantially the form and substance of Exhibit F hereto,
executed in either case by an executive officer of the Company and to the
effect that all the conditions to such Closing shall have been satisfied as
at the date of each such certificate.
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Section 7.3 Due Diligence Review. The Company shall make available for
inspection and review by the Investor, advisors to and representatives of the
Investor, any Registration Statement or amendment or supplement thereto or any
blue sky, NASD or other filing, all financial and other records, all SEC
Documents and other filings with the SEC, and all other corporate documents and
properties of the Company as may be reasonably necessary for the purpose of such
review, and cause the Company's officers, directors and employees to supply all
such information reasonably requested by the Investor or any such representative
or advisor in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investor and such representatives and advisors and their respective accountants
and attorneys to conduct initial and ongoing due diligence with respect to the
Company and the accuracy of the Registration Statement.
ARTICLE VIII
LEGENDS
Section 8.1 Legends. Each of the Warrant and, unless otherwise provided
below, each certificate representing Registrable Securities will bear the
following legend (the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE
UPON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
AND SUCH OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED, TRANSFERRED,
PLEDGED, ENCUMBERED, HYPOTHECATED OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO A TRANSACTION THAT IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS CERTIFICATE IS THE BENEFICIARY OF CERTAIN OBLIGATIONS OF
THE COMPANY SET FORTH IN A PRIVATE EQUITY LINE OF CREDIT AGREEMENT BETWEEN
UOL PUBLISHING, INC. AND HAMBRECHT & QUIST GUARANTY FINANCE, LLC DATED AS
OF MAY , 1999. A COPY OF THE PORTION OF THE AFORESAID AGREEMENT
EVIDENCING SUCH OBLIGATIONS MAY BE OBTAINED FROM THE COMPANY'S EXECUTIVE
OFFICES.
As soon as practicable after the execution and delivery hereof, but in any
event within 5 Trading Days hereafter, the Company shall issue to the transfer
agent for its Common Stock (and to any substitute or replacement transfer agent
for its Common Stock upon the Company's appointment of any such substitute or
replacement transfer agent) instructions in substantially the form of Exhibit G
hereto, with a copy to the Investor. Such instructions shall be irrevocable by
the Company from and after the date hereof or from and after the issuance
thereof to any such substitute or replacement transfer agent, as the case may
be, except as otherwise expressly provided in the Registration Rights Agreement.
It is the intent and purpose of such instructions, as provided therein, to
require the transfer agent for the Common Stock from time to time upon transfer
of Registrable Securities by the Investor to issue certificates evidencing such
Registrable Securities free of the Legend during the following periods and under
the following circumstances and without consultation by the transfer agent with
the Company or its counsel and without the need for any further advice or
instruction or documentation to the transfer agent by or from the Company or its
counsel or the Investor:
(a) At any time after the Effective Date, upon surrender of one or
more certificates evidencing the Put Shares that bear the Legend, to the
extent accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered; provided that (i) the
Registration Statement shall then be effective and (ii) if reasonably
requested by the transfer agent the Investor confirms to the transfer agent
that the Investor has complied with the prospectus delivery requirement.
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(b) At any time upon any surrender of one or more certificates
evidencing Registrable Securities that bear the Legend, to the extent
accompanied by a notice requesting the issuance of new certificates free of
the Legend to replace those surrendered and containing representations that
(i) the Investor is permitted to dispose of such Registrable Securities
without limitation as to amount or manner of sale pursuant to Rule 144(k)
under the Securities Act or (ii) the Investor has sold, pledged or
otherwise transferred or agreed to sell, pledge or otherwise transfer such
Registrable Securities in a manner other than pursuant to an effective
registration statement, to a transferee who shall upon such transfer be
entitled to freely tradable securities.
Section 8.2 No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 8.1 has been or shall be placed on the
share certificates representing the Put Shares and no instructions or "stop
transfers orders," so called, "stock transfer restrictions," or other
restrictions have been or shall be given to the Company's transfer agent with
respect thereto other than as expressly set forth in this Article VIII.
Section 8.3 Investor's Compliance. Nothing in this Article VIII shall
affect in any way the Investor's obligations under any agreement to comply with
all applicable securities laws upon resale of the securities issuable hereunder.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Indemnification. (i) The Company agrees to indemnify and hold
harmless the Investor, its partners, affiliates, officers, directors, employees,
and duly authorized agents, and each Person or entity, if any, who controls the
Investor within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, together with the Controlling Persons (as defined in the
Registration Rights Agreement) from and against any Damages, joint or several,
and any action in respect thereof to which the Investor, its partners,
affiliates, officers, directors, employees, and duly authorized agents, and any
such Controlling Person becomes subject to, resulting from, arising out of or
relating to any misrepresentation, breach of warranty or nonfulfillment of or
failure to perform any covenant or agreement on the part of Company contained in
this Agreement, as such Damages are incurred, except to the extent that such
damages result from the Investor's failure to perform any covenant or agreement
contained in this Agreement, provided, however, that the Company shall not be
liable in any such case to the extent that any such Damages arise out of or are
based upon information furnished to the Company by or on behalf of the Investor
in writing.
Section 9.2 Method of Asserting Indemnification Claims. All claims for
indemnification by any Indemnified Party (as defined below) under Section 9.1
shall be asserted and resolved as follows:
(a) In the event any claim or demand in respect of which any person
claiming indemnification under any provision of Section 9.1 (an
"Indemnified Party") might seek indemnity under Section 9.1 is asserted
against or sought to be collected from such Indemnified Party by a person
other than the Company, the Investor or any affiliate of the Company or (a
"Third Party Claim"), the Indemnified Party shall deliver a written
notification, enclosing a copy of all papers served, if any, and specifying
the nature of and basis for such Third Party Claim and for the Indemnified
Party's claim for indemnification against any person (the "Indemnifying
Party"), together with the amount or, if not then reasonably ascertainable,
the estimated amount, determined in good faith, of such Third Party Claim
(a "Claim Notice") with reasonable promptness to the Indemnifying Party. If
the Indemnified Party fails to provide the Claim Notice with reasonable
promptness after the Indemnified Party receives notice of such Third Party
Claim, the Indemnifying Party shall not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim to the extent that
the Indemnifying Party's ability to defend has been materially prejudiced
by such failure of the Indemnified Party. The Indemnifying Party shall
notify the Indemnified Party as soon as practicable within the period
ending fifteen (15) calendar days following receipt by the Indemnifying
Party of either a Claim Notice or an Indemnity Notice (as defined below)
(the "Dispute Period") whether the Indemnifying Party disputes its
liability or the amount of its liability
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to the Indemnified Party under Section 9.1 and whether the Indemnifying
Party desires, at its sole cost and expense, to defend the Indemnified
Party against such Third Party Claim.
(i) If the Indemnifying Party notifies the Indemnified Party within
the Dispute Period that the Indemnifying Party desires to defend the
Indemnified Party with respect to the Third Party Claim pursuant to this
Section 9.2(a), then the Indemnifying Party shall have the right to
defend, with counsel reasonably satisfactory to the Indemnified Party,
at the sole cost and expense of the Indemnifying Party, such Third Party
Claim by all appropriate proceedings, which proceedings shall be
vigorously and diligently prosecuted by the Indemnifying Party to a
final conclusion or will be settled at the discretion of the
Indemnifying Party (but only with the consent of the Indemnified Party
in the case of any settlement that provides for any relief other than
the payment of monetary damages or that provides for the payment of
monetary damages as to which the Indemnified Party shall not be
indemnified in full pursuant to Section 9.1). The Indemnifying Party
shall have full control of such defense and proceedings, including any
compromise or settlement thereof; provided, however, that the
Indemnified Party may at any time prior to the Indemnifying Party's
delivery of the notice referred to in the first sentence of this clause
(i), file any motion, answer or other pleadings or take any other action
that the Indemnified Party reasonably believes to be necessary or
appropriate to protect its interests at the expense of the Indemnifying
Party; and provided further, that if requested by the Indemnifying
Party, the Indemnified Party will, at the sole cost and expense of the
Indemnifying Party, provide reasonable cooperation to the Indemnifying
Party in contesting any Third Party Claim that the Indemnifying Party
elects to contest. The Indemnified Party may participate in, but not
control, any defense or settlement of any Third Party Claim controlled
by the Indemnifying Party pursuant to this clause (i), and shall bear
its own costs and expenses with respect to such participation unless, in
the reasonable judgment of counsel to the Indemnified Party the
Indemnified Party shall have defenses to the Third Party Claim in
addition to or different from the defenses available to the Indemnifying
Party, in which case the costs and expenses of the Indemnified Party's
participation shall be paid by the Indemnifying Party. Notwithstanding
the foregoing, the Indemnified Party may take over the control of the
defense or settlement of a Third Party Claim at any time if it
irrevocably waives its right to indemnity under Section 9.1 with respect
to such Third Party Claim.
(ii) If the Indemnifying Party fails to notify the Indemnified
Party within the Dispute Period that the Indemnifying Party desires to
defend the Third Party Claim pursuant to Section 9.2(a), or if the
Indemnifying Party gives such notice but fails to prosecute vigorously
and diligently or settle the Third Party Claim, then the Indemnified
Party shall have the right to defend, at the sole cost and expense of
the Indemnifying Party, the Third Party Claim by all appropriate
proceedings, which proceedings shall be prosecuted by the Indemnified
Party in a reasonable manner and in good faith or will be settled at the
discretion of the Indemnified Party (with the consent of the
Indemnifying Party, which consent will not be unreasonably withheld).
The Indemnified Party will have full control of such defense and
proceedings, including any compromise or settlement thereof; provided,
however, that if requested by the Indemnified Party, the Indemnifying
Party will, at the sole cost and expense of the Indemnifying Party,
provide reasonable cooperation to the Indemnified Party and its counsel
in contesting any Third Party Claim which the Indemnified Party is
contesting.
(b) In the event any Indemnified Party should have a claim under
Section 9.1 against the Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver to the Indemnifying Party
a written notification of a claim for indemnity under Section 9.1
specifying the nature of and basis for such claim, together with the amount
or, if not then reasonably ascertainable, the estimated amount, determined
in good faith, of such claim (an "Indemnity Notice") with reasonable
promptness to the Indemnifying Party. The failure by any Indemnified Party
to give the Indemnity Notice shall not impair such party's rights hereunder
except to the extent that the Indemnifying Party has been materially
prejudiced thereby. If the Indemnifying Party notifies the Indemnified
Party that it does not dispute the claim or the amount of the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period whether the Indemnifying Party disputes the claim
or the
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amount of the claim described in such Indemnity Notice, the Loss in the
amount specified in the Indemnity Notice will be conclusively deemed a
liability of the Indemnifying Party under Section 9.1 and the Indemnifying
Party shall pay the amount of such Loss to the Indemnified Party on demand.
If the Indemnifying Party has timely disputed its liability or the amount
of its liability with respect to such claim, the Indemnifying Party and the
Indemnified Party shall proceed in good faith to negotiate a resolution of
such dispute.
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses. The Company and the Investor agree to pay
their own expenses incident to the performance of their obligations hereunder,
except that the Company shall pay all the reasonable out-of-pocket expenses of
Investor, including expenses of Investor's counsel, incurred in the preparation,
negotiation, execution and delivery of this Agreement, the Registration Rights
Agreement and the Warrant, and in any participation by such counsel in the
preparation of the Registration Statement. In addition, the Company shall pay
the Investor (a) a one-time fee of $30,000 payable on the Subscription Date, and
(b) a quarterly fee equal to .002 times the maximum aggregate consideration
still available after giving effect to all limitations contained in this
Agreement on the Company's right to Put Shares to the Investor, including,
without limitation, Section 7.2(h) hereof, if any, for purchase of Put Shares
under this Agreement (the "Unused Commitment") on the 90th day after the
Subscription Date, and (iii) a prorated fee on the day following the end of the
Commitment Period equal to the Unused Commitment as of such date times .002
times the number of days after such 90th day until the end of the Commitment
Period divided by 90.
Section 10.2 Brokerage. Each of the parties hereto represents that,
except as set forth in Section 10.1, it has had no dealings in connection with
this transaction with any finder or broker who will demand payment of any fee or
commission from the other party. The Company on the one hand, and the Investor,
on the other hand, agree to indemnify the other against and hold the other
harmless from any and all liabilities to any persons claiming brokerage
commissions or finder's fees on account of services purported to have been
rendered on behalf of the indemnifying party in connection with this Agreement
or the transactions contemplated hereby.
Section 10.3 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice given in accordance herewith. Any notice or
other communication required or permitted to be given hereunder shall be deemed
effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the second business day
following the
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date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
If to the Company:
UOL Publishing, Inc.
8251 Greensboro Drive, Suite 500
McLean,VA 22101
Attention: Mr. Nat Kannan, Chairman and CEO
Telephone: (703) 893-7800
Facsimile: (703) 893-1905
with a copy to Donald R. Reynolds, Esq.
Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, NC 27607
Telephone: (919) 781-4000
Facsimile: (919) 781-4865
if to the Investor:
Hambrecht & Quist Guaranty Finance, LLC
One Bush Street
San Francisco, CA 94101
Attention: Mr. Andrew Kahn
Telephone: (415) 576 3300
Facsimile: (415) 677 7796
with a copy (which shall not constitute notice) to:
Morrison & Foerster LLP
425 Market Street
San Francisco, CA 94105-2482
Attention: John W. Campbell III, Esq.
Telephone: (415) 268-7000
Facsimile: (415) 268-7522
Either party hereto may from time to time change its address or facsimile number
for notices under this Section by giving written notice of such changed address
or facsimile number to the other party hereto.
Section 10.4 Assignment. Neither this Agreement nor any rights of the
Investor or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any transferee of any of
the Put Shares purchased or acquired by the Investor hereunder with respect to
the Put Shares held by such person, and (b) the Investor's interest in this
Agreement may be assigned at any time, in whole or in part, to any other person
or entity (including any affiliate of the Investor).
Section 10.5 Amendment; No Waiver. 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 in this Agreement or therein. Except as
expressly provided in this Agreement, neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated other than by a written
instrument signed by both parties hereto. The failure of the either party to
insist on strict compliance with this Agreement, or to exercise any right or
remedy under this Agreement, shall not constitute a waiver of any rights
provided under this Agreement, nor estop the parties from thereafter demanding
full and complete compliance nor prevent the parties from exercising such a
right or remedy in the future.
Section 10.6 Annexes and Exhibits; Entire Agreement. All annexes and
exhibits to this Agreement are incorporated herein by reference and shall
constitute part of this Agreement. This Agreement, the Warrant and the
Registration Rights Agreement set forth the entire agreement and understanding
of the parties
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relating to the subject matter hereof and thereof and supersede all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written, relating to the subject matter hereof.
Section 10.7 Termination; Survival. This Agreement shall terminate on the
earlier of: (i) December 31, 1999; (ii) such date that the Investor terminates
this Agreement pursuant to Section 2.4 hereof; and (iii) the date on which the
Company has made Puts with an aggregate Investment Amount equal to the Maximum
Commitment Amount; provided, however, that the provisions of Articles V, VI,
VIII, IX and X, and of Section 2.1(b) and Section 7.3, shall survive the
termination of this Agreement.
Section 10.8 Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 10.9 Title and Subtitles. The titles and subtitles used in this
Agreement are used for the convenience of reference and are not to be considered
in construing or interpreting this Agreement.
Section 10.10 Counterparts. This Agreement may be executed in multiple
counterparts, each of which may be executed by less than all of the parties and
shall be deemed to be an original instrument which shall be enforceable against
the parties actually executing such counterparts and all of which together shall
constitute one and the same instrument.
Section 10.11 Choice of Law. This Agreement shall be construed under the
laws of the State of Delaware, without regard to choice of law provisions The
parties agree to submit to the jurisdiction of the Delaware courts for the
purpose of resolving any such disputes, and further agree that venue for any
action brought hereunder shall lie exclusively in such courts.
IN WITNESS WHEREOF, the parties hereto have caused this Private Equity
Credit Line Agreement to be executed by the undersigned, thereunto duly
authorized, as of the date first set forth above.
HAMBRECHT & QUIST GUARANTY
FINANCE, LLC
By:
Name:
Title:
UOL PUBLISHING, INC.
By:
Name:
Title:
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<PAGE> 44
APPENDIX B
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS OF
SERIES E CONVERTIBLE PREFERRED STOCK
OF
UOL PUBLISHING, INC.
I. CREATION OF SERIES E 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 E 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 (i) 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 and (ii) 1,200,000 of
which are designated Series D Convertible Preferred Stock, par value $0.01 per
share, (the "Series D Preferred Stock") 1,082,625 of which are currently 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 3,000,000 shares to be designated Series E Convertible Preferred Stock, par
value $0.01 per share, to be issued in consecutively numbered subseries
beginning with Subseries E-1 (collectively, the "Series E Preferred Stock"); and
RESOLVED, that the Series E 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 E 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 the Series D Preferred Stock
and senior and prior in right to (a) each class of common stock of the
Corporation ("Common Stock"), (b) any series of preferred stock either
previously or hereafter created (except Series C and 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 E 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 E Preferred Stock shall be
entitled to receive a 6% annual dividend, payable on the last day of each
calendar month in Series E Preferred Stock at 85% of the closing price of the
Common Stock on the principal market or exchange therefor on the date of payment
of the dividend.
(b) So long as any shares of Series E Preferred Stock are outstanding, the
Corporation will not declare, pay or set apart for payment any dividends (except
dividends payable on the Series C, D and E Preferred
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Stock or 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 (as defined in Section 6)
to use 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 E Preferred Stock shall be entitled, pari
passu with the liquidation preference payable to the holders of the Series C and
D Preferred Stock (respectively, the "Series C Liquidation Preference" and 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 for each successively numbered
subseries of the Series E Preferred Stock, the per share price paid for any
subseries of the Series E Preferred Stock pursuant to that Private Equity Line
of Credit Agreement dated May 4, 1999 entered into between the Corporation and
Hambrecht & Quist Guaranty Finance, LLC, 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 E Preferred
Stock occurring after the Issue Date (as defined in Section 6) of any subseries
of Series E Preferred Stock plus all declared but unpaid dividends (as adjusted,
the "Series E 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, the Series D Preferred Stock and
the Series E Preferred Stock of the Series C, Series D and Series E Liquidation
Preferences, then the entire assets of the Corporation legally available for
distribution shall be distributed ratably in accordance with the Series C,
Series D and E Liquidation Preferences among such holders. 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 of
the Corporation immediately prior to such transaction or series of related
transactions holding securities representing less than forty percent (40%) 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 E 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 E Preferred Stock entitled to one vote for each share
of Series E Preferred Stock held by such holder at the time the vote is taken.
(b) The holders of the Series E 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 E Preferred Stock.
5. Conversion of Series E Preferred Stock into Common Stock.
(a) Conversion Procedure.
(i) At any time, any holder of Series E Preferred Stock may convert
all or any portion of the Series E Preferred Stock held by such holder
into a number of shares of Conversion Stock (as defined in Section 6)
computed by multiplying the number of shares to be converted by the
purchase
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price thereof and dividing the result by the Conversion Price (as
defined in subsection 5(b) then in effect.
(ii) Each conversion of Series E 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 E
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 E 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 E
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 (as defined
in Section 6), 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 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 E Preferred Stock shall be made without charge
to the holders of such Series E 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 E
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 E Preferred Stock or of Conversion Stock issued or issuable
upon conversion of Series E Preferred Stock in any manner which
interferes with the timely conversion of Series E Preferred Stock. The
Corporation shall assist and cooperate with any holder of shares of
Series E 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 E Preferred Stock. If more than one share of Series E
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 E 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 E 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.
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(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 E Preferred Stock, such number of shares of Conversion
Stock as are issuable upon the conversion of all outstanding Series E
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).
(b) Conversion Price.
(i) "Conversion Price" for the Series E 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 the Liquidation
Preference of each subseries of Series E Preferred Stock.
(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 ("Sale
Consideration") 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 E 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 E Preferred Stock, such Sale Consideration as such holder would have
received in connection with such Fundamental Change if such holder had
converted its Series E 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 5 occurs which has substantially the same economic effect on the
Series E Preferred Stock as those specifically enumerated shall occur, then
this Section 5 shall be construed liberally, mutatis mutandis, in order to
give the Series E Preferred Stock the benefit of the protections provided
under this Section 5. The Board of Directors shall make an appropriate
adjustment in the applicable Conversion Price so as to protect the rights
of the holders of Series E Preferred Stock.
(f) Notices.
(i) Promptly upon any adjustment of the applicable Conversion
Price, the Corporation shall give written notice thereof to all holders
of Series E Preferred Stock, setting forth in reasonable detail and
certifying the calculation of such adjustment.
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(ii) The Corporation shall give written notice to all holders of
Series E 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 E 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 the Corporation's 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 E
Preferred Stock; provided that if there is a change such that the
securities issuable upon conversion of the Series E 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 E
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.
(e) Issue Date. The term "Issue Date" shall mean the date on which a
share of Series E 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
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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 1999.
UOL PUBLISHING, INC.
By:
Name:
Title:
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<PAGE> 50
APPENDIX C
CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT
BETWEEN
UOL PUBLISHING, INC.
AND
THE INVESTORS SIGNATORY HERETO
CONVERTIBLE DEBENTURE AND WARRANTS PURCHASE AGREEMENT dated as of June 4,
1999 (the "Agreement"), between the Investors signatory hereto (each an
"Investor" and together the "Investors"), and UOL Publishing, Inc., a
corporation organized and existing under the laws of the State of Delaware (the
"Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) $2,500,000 principal
amount of Convertible Debentures (as defined below) and (ii) Warrants (as
defined below) to purchase shares of the Common Stock (as defined below);
WHEREAS, such investments will be made in reliance upon the provisions of
Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares
of any other class of common stock whether now or hereafter authorized, having
the right to participate in the distribution of earnings and assets of the
Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities,
rights, or obligations that are convertible into or exchangeable for or give any
right to subscribe for any Capital Shares of the Company or any Warrants,
options or other rights to subscribe for or purchase Capital Shares or any such
convertible or exchangeable securities.
Section 1.3. "Closing" shall mean the closing of the purchase and sale of
the Convertible Debentures and Warrants pursuant to Section 2.1.
Section 1.4. "Closing Date" shall mean the date on which all conditions
to the Closing have been satisfied or waived by the appropriate party or parties
(as defined in Section 2.1 (b) hereto) and the Closing shall have occurred.
Section 1.5. "Common Stock" shall mean the Company's common stock, $0.01
par value per share.
Section 1.6. "Conversion Shares" shall mean the shares of Common Stock
issuable upon conversion of the Convertible Debentures and any shares of Common
Stock issued as interest upon the Convertible Debentures.
Section 1.7. "Convertible Debentures" shall mean the $2,500,000 principal
amount of 9% Subordinated Convertible Debentures, substantially in the form
attached hereto as Exhibit A.
Section 1.8. "Damages" shall mean any loss, claim, damage, judgment,
penalty, deficiency or liability, including reasonable out-of-pocket costs and
expenses (including, without limitation, reasonable attorney's fees and
disbursements and reasonable costs and expenses of expert witnesses and
investigation).
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Section 1.9. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.10. "Escrow Agent" shall have the meaning set forth in the
Escrow Agreement.
Section 1.11. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.12. "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder.
Section 1.13. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.14. "Market Price" on any given date shall mean the average
closing bid price on the Principal Market (as reported by such Principal Market)
of the Common Stock during the five Trading Day period ending on the Trading Day
immediately prior to the date for which the Market Price is to be determined.
Section 1.15. "Material Adverse Effect" shall mean any effect on the
business, operations, properties, prospects, stock price or financial condition
of the Company that is material and adverse to the Company and its subsidiaries
and affiliates, taken as a whole, and/or any condition, circumstance, or
situation that would prohibit or otherwise interfere with the ability of the
Company to enter into and perform any of its obligations under this Agreement,
the Registration Rights Agreement, the Escrow Agreement, the Convertible
Debenture or the Warrants in any material respect.
Section 1.16. "Outstanding" when used with reference to shares of Common
Stock or Capital Shares (collectively the "Shares"), shall mean, at any date as
of which the number of such Shares is to be determined, all issued and
outstanding Shares, and shall include all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that "Outstanding" shall not mean any such Shares
then directly or indirectly owned or held by or for the account of the Company.
Section 1.17. "Person" shall mean an individual, a corporation, a
partnership, an association, a trust or other entity or organization, including
a government or political subdivision or an agency or instrumentality thereof.
Section 1.18. "Principal Market" shall mean the American Stock Exchange,
the New York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap
Market, whichever is at the time the principal trading exchange or market for
the Common Stock, based upon share volume.
Section 1.19. "Purchase Price" shall mean the principal amount of the
Convertible Debentures.
Section 1.20. "Registrable Securities" shall mean the Conversion Shares
and the Warrant Shares until (i) the Registration Statement has been declared
effective by the SEC, and all Conversion Shares and Warrant Shares have been
disposed of pursuant to the Registration Statement, (ii) all Conversion Shares
and Warrant Shares have been sold under circumstances under which all of the
applicable conditions of Rule 144 (or any similar provision then in force) under
the Securities Act ("Rule 144") are met, (iii) all Conversion Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Conversion Shares and Warrant Shares may be sold within a
three-month period pursuant to Rule 144 (or any similar provision then in
effect) under the Securities Act.
Section 1.21. "Registration Rights Agreement" shall mean the agreement
regarding the filing of the Registration Statement for the resale of the
Registrable Securities, entered into between the Company and the Investors as of
the Closing Date substantially in the form annexed hereto as Exhibit C.
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Section 1.22. "Registration Statement" shall mean a registration
statement on Form S-3 (if use of such form is then available to the Company
pursuant to the rules of the SEC and, if not, on such other form promulgated by
the SEC for which the Company then qualifies and which counsel for the Company
shall deem appropriate, and which form shall be available for the resale by the
Investors of the Registrable Securities to be registered thereunder in
accordance with the provisions of this Agreement, the Registration Rights
Agreement and in accordance with the intended method of distribution of such
securities), for the registration of the resale by the Investor of the
Registrable Securities under the Securities Act.
Section 1.23. "Regulation D" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.24. "SEC" shall mean the Securities and Exchange Commission.
Section 1.25. "Section 4(2)" and "Section 4(6)" shall have the meanings
set forth in the recitals of this Agreement.
Section 1.26. "Securities Act" shall have the meaning set forth in the
recitals of this Agreement.
Section 1.27. "Security Agreement" shall mean the Security Agreement and
the Security Agreement in Copyrighted Works with respect to the Convertible
Debentures substantially in the forms attached hereto as Exhibits G-1 and G-2.
Section 1.28. "SEC Documents" shall mean the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof.
Section 1.29. "Shares" shall have the meaning set forth in Section 1.16.
Section 1.30. "Trading Day" shall mean any day during which the Principal
Market shall be open for business.
Section 1.31. "Warrants" shall mean the Warrants substantially in the
form of Exhibit B to be issued to the Investors hereunder.
Section 1.32. "Warrant Shares" shall mean all shares of Common Stock or
other securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF CONVERTIBLE DEBENTURES AND WARRANTS
Section 2.1. Investment. (a) Upon the terms and subject to the conditions
set forth herein, the Company agrees to sell, and the Investors agree to
purchase the Convertible Debentures together with the Warrants at the Purchase
Price on the Closing Date as follows:
(i) Upon execution and delivery of this Agreement, each Investor shall
deliver to the Escrow Agent immediately available funds in their
proportionate amount of the Purchase Price as set forth on the signature
pages hereto, and the Company shall deliver the Convertible Debenture
certificates and the Warrants to the Escrow Agent, in each case to be held
by the Escrow Agent pursuant to the Escrow Agreement.
(ii) Upon satisfaction or waiver by the appropriate party or parties
of the conditions set forth in Section 2.1(b), the Closing ("Closing")
shall occur at the offices of the Escrow Agent at which the Escrow Agent
(x) shall release the Convertible Debentures and the Warrants to the
Investors and (y) shall release the Purchase Price (after all fees have
been paid as set forth in the Escrow Agreement), pursuant to the terms of
the Escrow Agreement.
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(b) The Closing is subject to the satisfaction or waiver by the appropriate
party or parties of the following conditions:
(i) acceptance and execution by the Company and by the Investors, of
this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately available
funds in the amount of the Purchase Price of the Convertible Debentures and
the Warrants, as more fully set forth in the Escrow Agreement;
(iii) all representations and warranties of the Investors contained
herein shall remain true and correct as of the Closing Date (as a condition
to the Company's obligations);
(iv) all representations and warranties of the Company contained
herein shall remain true and correct as of the Closing Date (as a condition
to the Investors' obligations);
(v) the Company shall have obtained all permits and qualifications
required by any state for the offer and sale of the Convertible Debentures
and Warrants, or shall have the availability of exemptions therefrom;
(vi) the sale and issuance of the Convertible Debentures and the
Warrants hereunder, and the proposed issuance by the Company to the
Investors of the Common Stock underlying the Convertible Debentures and the
Warrants upon the conversion or exercise thereof shall be legally permitted
by all laws and regulations to which the Investors and the Company are
subject and there shall be no ruling, judgment or writ of any court
prohibiting the transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Convertible Debenture
certificates and Warrants to the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Wyrick Robbins
Yates & Ponton LLP, counsel to the Company, substantially in the form of
Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable Instructions to
Transfer Agent substantially in the form attached hereto as Exhibit F;
(x) delivery to the Escrow Agent of the Security Agreement
substantially in the forms attached hereto as Exhibit G-1 and G-2, together
with a UCC-1 Financing Statement with respect thereto in form satisfactory
for filing under the Virginia Uniform Commercial Code;
(xi) delivery to the Escrow Agent of the Registration Rights
Agreement; and
(xii) delivery to the Escrow Agent of the written agreements of each
officer and director of the Company addressed to the Investors, agreeing to
vote all shares of Common Stock over which they have voting control in
favor of a shareholder proposal permitting the issuance of a number of
Conversion Shares in excess of 19.9% of the number of shares of Common
Stock issued and outstanding on the Closing Date.
(c) The number of Warrants to be issued at Closing shall be determined by
dividing 25% of the principal amount of the Convertible Debentures issued at
Closing by the Market Price of the Common Stock on the Closing Date, and the
exercise price of the Warrants shall be 115% of the Market Price on the Closing
Date. It is agreed that the aggregate number of Warrants shall be 112,600 and
the exercise price shall be $6.38 per share, based upon the Market Price of the
Common Stock on June 4, 1999.
Section 2.2. Liquidated Damages. The parties hereto acknowledge and agree
that the sums payable pursuant to the Registration Rights Agreement shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (b) the amounts specified in such Sections bear
a reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the
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parties are sophisticated business parties and have been represented by
sophisticated and able legal and financial counsel and negotiated this Agreement
at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor, severally and not jointly, represents and warrants to the
Company that:
Section 3.1. Intent. The Investor is entering into this Agreement for its
own account and not with a view to or for sale in connection with any
distribution of the Convertible Debentures, the Warrants or the Common Stock
issuable upon conversion or exercise thereof. The Investor has no present
arrangement (whether or not legally binding) at any time to sell the Convertible
Debentures, the Warrants, any Conversion Shares or Warrant Shares to or through
any person or entity; provided, however, that by making the representations
herein, the Investor does not agree to hold such securities for any minimum or
other specific term and reserves the right to dispose of the Conversion Shares
and Warrant Shares at any time in accordance with federal and state securities
laws applicable to such disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited
investor (as defined in Rule 501 of Regulation D), and Investor has such
experience in business and financial matters that it has the capacity to protect
its own interests in connection with this transaction and is capable of
evaluating the merits and risks of an investment in the Convertible Debentures,
the Warrants and the underlying Common Stock. The Investor acknowledges that an
investment in the Convertible Debentures, the Warrants and the underlying Common
Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an
Exhibit hereto that is required to be executed by Investor has been duly
authorized and validly executed and delivered by the Investor and is a valid and
binding agreement of the Investor enforceable against it in accordance with its
terms, subject to applicable bankruptcy, insolvency, or similar laws relating
to, or affecting generally the enforcement of, creditors' rights and remedies or
by other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director
or "affiliate" (as that term is defined in Rule 405 of the Securities Act) of
the Company.
Section 3.5. Absence of Conflicts. The execution and delivery of this
Agreement and each agreement which is attached as an Exhibit hereto and executed
by the Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has received
all documents, records, books and other publicly available information
pertaining to Investor's investment in the Company that have been requested by
the Investor. The Company is subject to the periodic reporting requirements of
the Exchange Act, and the Investor has reviewed copies of all SEC Documents
deemed relevant by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or
solicited by or through any leaflet, public promotional meeting, television
advertisement or any other form of general solicitation or advertising. No
actions were required to be taken in Canada before the date hereof in order to
comply with Canadian securities laws. The Investor undertakes to timely file all
necessary forms with respect to this
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investment which are required to be filed by the Investor for itself or on
behalf of the Company with any Canadian securities regulatory authorities.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and Warrants to the Investors that, except as set
forth on the Disclosure Schedule prepared by the Company and delivered herewith:
Section 4.1. Organization of the Company. The Company is a corporation
duly incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power
and corporate authority to enter into and perform its obligations under this
Agreement, the Security Agreement, the Registration Rights Agreement, the Escrow
Agreement, and the Warrants and to issue the Convertible Debentures, the
Conversion Shares, the Warrants and the Warrant Shares pursuant to their
respective terms, (ii) the execution, issuance and delivery of this Agreement,
the Security Agreement, the Registration Rights Agreement, the Escrow Agreement,
the Convertible Debenture certificates and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Security Agreement, the Registration
Rights Agreement, the Escrow Agreement, the Convertible Debenture certificates
and the Warrants have been duly executed and delivered by the Company and at the
Closing shall constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws relating to, or affecting generally the enforcement of, creditors' rights
and remedies or by other equitable principles of general application. The
Company has duly and validly authorized and reserved for issuance shares of
Common Stock sufficient in number for the conversion of the Convertible
Debentures and for the exercise of the Warrants. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Conversion Shares. The Company further acknowledges that its obligation
to issue Conversion Shares upon conversion of the Convertible Debentures and
Warrant Shares upon exercise of the Warrants in accordance with this Agreement
is absolute and unconditional regardless of the dilutive effect that such
issuance may have on the ownership interests of other stockholders of the
Company and notwithstanding the commencement of any case under 11 U.S.C. sec.
101 et seq. (the "Bankruptcy Code"). The Company shall not seek judicial relief
from its obligations hereunder except pursuant to the Bankruptcy Code. In the
event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. sec. 362 in respect of the conversion of the Convertible Debentures and
the exercise of the Warrants. The Company agrees, without cost or expense to the
Investors, to take or consent to any and all action necessary to effectuate
relief under 11 U.S.C. sec. 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 36,000,000 shares of Common Stock, $0.01 par value per share, of
which 4,754,061 shares were issued and outstanding as of June 1, 1999 and
10,000,000 shares of preferred stock, par value $0.01 per share, of which
1,000,000 have been designated as Series C Convertible Preferred Stock, of which
626,293 were issued and outstanding as of June 1, 1999 and 1,200,000 have been
designated as Series D Convertible Preferred Stock, of which 1,082,625 were
issued and outstanding as of June 1, 1999. Except for (i) the outstanding Series
C and Series D Convertible Preferred Stock and (ii) outstanding options and
warrants as set forth in the SEC Documents, there are no outstanding Capital
Shares Equivalents nor any agreements or understandings
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pursuant to which any Capital Shares Equivalents may become outstanding. The
Company is not a party to any agreement granting registration or anti-dilution
rights to any person with respect to any of its equity or debt securities. All
of the outstanding shares of Common Stock of the Company have been duly and
validly authorized and issued and are fully paid and non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock
pursuant to Section 12(b) or (g) of the Exchange Act and is in full compliance
with all reporting requirements of the Exchange Act, and the Company is in
compliance with all requirements for the continued listing or quotation of its
Common Stock, and such Common Stock is currently listed or quoted on, the
Principal Market. As of the date hereof, the Principal Market is the Nasdaq
SmallCap Market and the Company has not received any notice regarding, and to
its knowledge there is no threat of, the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the
Investors true and complete copies of the SEC Documents. The Company has not
provided to the Investors any information that, according to applicable law,
rule or regulation, should have been disclosed publicly prior to the date hereof
by the Company, but which has not been so disclosed. As of their respective
dates, the SEC Documents (a) complied in all material respects with the
requirements of the Exchange Act, and rules and regulations of the SEC
promulgated thereunder, and (b) did not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. The financial statements of the
Company included in the SEC Documents complied in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC or other applicable rules and regulations with respect thereto at the
time of such inclusion. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except (i) as may be otherwise indicated in
such financial statements or the notes thereto or (ii) in the case of unaudited
interim statements, to the extent they exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of operations
and cash flows for the periods then ended (subject, in the case of unaudited
interim statements, to normal year-end audit adjustments). Neither the Company
nor any of its subsidiaries has any material indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due) that would have been required to be reflected in,
reserved against or otherwise described in the financial statements or in the
notes thereto in accordance with GAAP, which was not fully reflected in,
reserved against or otherwise described in the financial statements or the notes
thereto included in the SEC Documents or was not incurred in the ordinary course
of business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Convertible Debentures, the Conversion Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with the
Warrants and validly converted in accordance with the terms of the Convertible
Debentures, the Conversion Shares and the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the
Convertible Debentures, the Conversion Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Convertible Debentures or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Convertible Debentures, the Conversion Shares, the Warrants or the
Warrant Shares or, except as contemplated herein, any of the assets of the
Company, or (ii) entitle the holders of Outstanding Capital Shares to preemptive
or other rights to subscribe for or acquire the Capital Shares or other
securities of the Company. The Convertible Debentures, the Conversion Shares,
the Warrants and the Warrant Shares shall not subject the Investors to personal
liability to the Company or its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the
knowledge of the Company, any person acting on its or their
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behalf (i) has conducted or will conduct any general solicitation (as that term
is used in Rule 502(c) of Regulation D) or general advertising with respect to
the sale of the Convertible Debentures or the Warrants, or (ii) made any offers
or sales of any security or solicited any offers to buy any security under any
circumstances that would require registration of the sale of the Convertible
Debentures, the Conversion Shares, the Warrants or the Warrant Shares under the
Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby, including without limitation the issuance of
and payment of interest upon the Convertible Debentures, the Conversion Shares,
the Warrants and the Warrant Shares, and the grant of the security interest
created by the Security Agreement, do not and will not (i) result in a violation
of the Company's Certificate of Incorporation or By-Laws or (ii) conflict with,
or constitute a material default (or an event that with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument, or any "lock-up" or similar provision of any
underwriting or similar agreement to which the Company is a party, or (iii)
result in a violation of any federal, state or local law, rule, regulation,
order, judgment or decree (including federal and state securities laws and
regulations) applicable to the Company or by which any material property or
asset of the Company is bound or affected, nor is the Company otherwise in
violation of, conflict with or default under any of the foregoing (except in
each case for such conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not have, individually or in the
aggregate, a Material Adverse Effect). The business of the Company is not being
conducted in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations that either singly or in the aggregate
would not have a Material Adverse Effect. The Company is not required under any
Federal, state or local law, rule or regulation to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency in order for it to execute, deliver or perform any of its
obligations under this Agreement or issue and sell the Convertible Debentures or
the Warrants in accordance with the terms hereof (other than any SEC, Principal
Market or state securities filings that may be required to be made by the
Company subsequent to Closing, any registration statement that may be filed
pursuant hereto, and any shareholder approval required by the rules applicable
to companies whose common stock trades on the Principal Market); provided that,
for purposes of the representation made in this sentence, the Company is
assuming and relying upon the accuracy of the relevant representations and
agreements of the Investors herein.
Section 4.9. No Material Adverse Change. Since March 31, 1999, no
Material Adverse Effect has occurred or exists with respect to the Company,
except as disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since March 31,
1999, no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, that, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but which has
not been so publicly announced or disclosed in the SEC Documents.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, (a) the
Company has not issued, offered or sold the Convertible Debentures, the Warrants
or any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Convertible Debentures, the Warrants or Common
Stock, or any securities convertible into or exchangeable or exercisable for the
Convertible Debentures or Common Stock or any such other securities) within the
six-month period next preceding the date hereof, and (b) the Company shall not
permit any of its directors, officers or affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
Person of the Convertible Debentures, Warrants or shares of Common Stock), so as
in either (a) or (b) or both to make unavailable the exemption from Securities
Act registration being relied upon by the Company for the offer and sale to
Investors of the Convertible Debentures (and the Conversion Shares) or the
Warrants (and the Warrant Shares) as contemplated by this Agreement.
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Section 4.12. Litigation and Other Proceedings. Except as disclosed in
the SEC Documents, there are no lawsuits or proceedings pending or, to the
knowledge of the Company, threatened, against the Company or any subsidiary, nor
has the Company received any written or oral notice of any such action, suit,
proceeding or investigation, which could reasonably be expected to have a
Material Adverse Effect. Except as set forth in the SEC Documents, no judgment,
order, writ, injunction or decree or award has been issued by or, to the
knowledge of the Company, requested of any court, arbitrator or governmental
agency which could result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to
the knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Convertible Debentures or the Warrants in
connection with the transaction contemplated by this Agreement, have not made,
at any time, any oral communication in connection with the offer or sale of the
same which, together with all such communications, including the SEC Documents,
taken as a whole, contained any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not
disclosed to the Investors any material non-public information that (i) if
disclosed, would reasonably be expected to have a material effect on the price
of the Common Stock or (ii) according to applicable law, rule or regulation,
should have been disclosed publicly by the Company prior to the date hereof but
which has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, consistent with industry
standards and the Company's historical claims experience. The Company has not
received notice from, and has no knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company) that such insurer intends to
deny coverage under or cancel, discontinue or not renew any insurance policy
presently in force.
Section 4.16. Tax Matters. (a) The Company and each subsidiary has filed
all Tax Returns which it is required to file under applicable laws; all such Tax
Returns are true and accurate in all material respects and have been prepared in
compliance with all applicable laws; the Company has paid all Taxes due and
owing by it or any subsidiary (whether or not such Taxes are required to be
shown on a Tax Return) and have withheld and paid over to the appropriate taxing
authorities all Taxes which it is required to withhold from amounts paid or
owing to any employee, stockholder, creditor or other third parties; and since
December 31, 1998, the charges, accruals and reserves for Taxes with respect to
the Company (including any provisions for deferred income taxes) reflected on
the books of the Company are adequate to cover any Tax liabilities of the
Company if its current tax year were treated as ending on the date hereof.
(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested from the Company by any foreign,
federal, state or local taxing authority; and no written notice indicating an
intent to open an audit or other review has been received by the Company or any
subsidiary from any foreign, federal, state or local taxing authority. There are
no material unresolved questions or claims concerning the Company's Tax
liability. The Company (A) has not executed or entered into a closing agreement
pursuant to sec. 7121 of the Internal Revenue Code or any predecessor provision
thereof or any similar provision of state, local or foreign law; or (B) has not
agreed to or is required to make any adjustments pursuant to sec. 481 (a) of the
Internal Revenue Code or any similar provision of state, local or foreign law by
reason of a change in accounting method initiated by the Company or any of its
subsidiaries or has any knowledge that the IRS has proposed any such adjustment
or change in accounting method, or has any application pending with any taxing
authority requesting permission for any changes in accounting methods that
relate to the business or operations of the Company. The Company has not been a
United States real property holding corporation within the meaning of sec.
897(c)(2) of the Internal Revenue Code during the applicable period specified in
sec. 897(c)(1)(A)(ii) of the Internal Revenue Code.
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(c) The Company has not made an election under sec. 341(f) of the Internal
Revenue Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company (A) under Treas. Reg. sec. 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee or
successor, (C) by contract or indemnity or (D) otherwise. The Company is not a
party to any tax sharing agreement. The Company has not made any payments, is
not obligated to make payments nor is the Company a party to an agreement that
could obligate it to make any payments that would not be deductible under sec.
280G of the Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications,
real or personal property, capital stock, license, payroll, wage or other
withholding, employment, social security, severance, stamp, occupation,
alternative or add-on minimum, estimated and other taxes of any kind
whatsoever (including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether disputed or
not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including
any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries
owns any real property. Each of the Company and its subsidiaries has good and
marketable title to all personal property owned by it, free and clear of all
liens, encumbrances and defects except such as do not materially affect the
value of such property and do not materially interfere with the use made and
proposed to be made of such property by the Company; and to the Company's
knowledge any real property, mineral or water rights, and buildings held under
lease by the Company as tenant are held by it under valid, subsisting and
enforceable leases with such exceptions as are not material and do not interfere
with the use made and intended to be made of such property, mineral or water
rights, and buildings by the Company.
Section 4.18. Intellectual Property. Each of the Company and its
subsidiaries owns or possesses adequate and enforceable rights to use all
patents, patent applications, trademarks, trademark applications, trade names,
service marks, copyrights, copyright applications, licenses, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company or any subsidiary is a
party or by which its properties are bound are executed with management's
authorization; (ii) the recorded accounting of the Company's consolidated assets
is compared with existing assets at regular intervals; (iii) access to the
Company's consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any
subsidiary, nor any of its directors, officers or, to its knowledge, other
employees has (i) used any Company funds for any unlawful contribution,
endorsement, gift, entertainment or other unlawful expense relating to political
activity; (ii) made any direct or indirect unlawful payment of Company funds to
any foreign or domestic government official or employee; (iii) violated or is in
violation of any provision of the Foreign Corrupt Practices Act of
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1977, as amended; or (iv) made any bribe, rebate, payoff, influence payment,
kickback or other similar payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties of
the Company contained in this Agreement, any schedule, annex or exhibit hereto
and any agreement, instrument or certificate furnished by the Company to the
Investors pursuant to this Agreement, do not contain any untrue statement of a
material fact or omit to state 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.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company that:
Section 5.1. Compliance with Law. The Investor's trading activities with
respect to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the
Registration Rights Agreement to remain in full force and effect and the Company
shall comply in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and keep
available at all times, free of preemptive rights, shares of Common Stock for
the purpose of enabling the Company to issue the Conversion Shares and the
Warrant Shares pursuant to any conversion of the Convertible Debentures or
exercise of the Warrants. The number of shares so reserved from time to time, as
theretofore increased or reduced as hereinafter provided, may be reduced by the
number of shares actually delivered pursuant to any conversion of the
Convertible Debentures or exercise of the Warrants and the number of shares so
reserved shall be increased or decreased to reflect potential increases or
decreases in the Common Stock that the Company may thereafter be obligated to
issue by reason of adjustments to the Warrants. The Company further agrees that
if at any time 200% of the number of shares of Common Stock issuable upon
conversion of the Convertible Debentures and exercise of the Warrants would
cause the Company to be obligated to issue a number of shares of Common Stock in
excess of its authorized capital (after taking into account all other Capital
Shares Equivalents then existing), it shall promptly commence all necessary
corporate and shareholder action necessary to increase its authorized capital so
as to eliminate the aforesaid condition.
Section 6.3. Listing of Common Stock. The Company hereby agrees to
maintain the listing of the Common Stock on a Principal Market, and as soon as
reasonably practicable following the Closing to list the Conversion Shares and
the Warrant Shares on the Principal Market. The Company further agrees, if the
Company applies to have the Common Stock traded on any other Principal Market,
it will include in such application the Conversion Shares and the Warrant
Shares, and will take such other action as is necessary or desirable in the
opinion of the Investors to cause the Conversion Shares and Warrant Shares to be
listed on such other Principal Market as promptly as possible. The Company will
take all action to continue the listing and trading of its Common Stock on a
Principal Market (including, without limitation, maintaining sufficient net
tangible assets) and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Principal Market
and shall provide Investors with copies of any correspondence to or from such
Principal Market which questions or threatens delisting of the Common Stock,
within three (3) Trading Days of the Company's receipt thereof, until the
Investors have disposed of all of their Registrable Securities. The Company
agrees to present a proposal for stockholder approval at its next meeting of
stockholders, which shall be scheduled to be held no later than seventy-five
(75) days after the Closing,
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subject only to SEC review of the proxy statement with respect thereto, to
permit the Company to issue a number of Conversion Shares and Warrant Shares
which is in excess of 19.9% of the number of the Company's issued and
outstanding shares of Common Stock on the Closing Date, with the recommendation
of the Board of Directors that such proposal be approved.
Section 6.4. Exchange Act Registration. The Company will cause its Common
Stock to continue to be registered under Section 12(b) or (g) of the Exchange
Act, will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Investors have
disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable
Securities shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company
will take all steps necessary to preserve and continue the corporate existence
of the Company. The Company shall not enter into any agreement, the terms of
which agreement would restrict or impair the right or ability of the Company to
perform any of its obligations under this Agreement or any of the other
agreements attached as exhibits hereto.
Section 6.7. Consolidation; Merger. The Company shall not, at any time
after the date hereof, effect any merger or consolidation of the Company with or
into, or a transfer of all or substantially all of the assets of the Company to,
another entity (a "Consolidation Event") unless the resulting successor or
acquiring entity (if not the Company) assumes by written instrument or by
operation of law the Company's obligations under this Agreement, including the
obligation to deliver to the Investors such shares of stock and/or securities as
the Investors are entitled to receive pursuant to this Agreement and the
Convertible Debentures.
Section 6.8. Issuance of Convertible Debentures and Warrant Shares. The
sale of the Convertible Debentures and the Warrants and the issuance of the
Warrant Shares pursuant to exercise of the Warrants and the Conversion Shares
upon conversion of the Convertible Debentures shall be made in accordance with
the provisions and requirements of Section 4(2), 4(6) or Regulation D and any
applicable state securities law. The Company shall make any necessary SEC and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Investors as required by all applicable laws, and
shall provide a copy thereof to the Investors promptly after such filing.
Section 6.9. Right to Participate in Future Financing. The Company agrees
that it will not enter into any sale of Capital Shares Equivalents until one
year after the Effective Date of the Registration Statement without offering
each Investor, severally and not jointly, the right to participate in such sale
to the extent of the Investor's pro-rata interest in the Company at such time,
assuming conversion of the Convertible Debenture at that time. This right shall
not apply to the current Hambrecht & Quist equity line or the contemplated
Vector or Boles financing transactions.
Section 6.10. Use of Proceeds. The Company agrees to use the entire net
proceeds from the sale of the Convertible Debentures to repay existing secured
indebtedness of the Company.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations, warranties and covenants made
by each of the Company and each Investor in this Agreement, the annexes,
schedules and exhibits hereto and in each instrument, agreement and certificate
entered into and delivered by them pursuant to this Agreement, shall survive the
Closing and the consummation of the transactions contemplated hereby. In the
event of a breach or violation of any of such representations, warranties or
covenants, the party to whom such representations, warranties or covenants have
been made shall have all rights and remedies for such breach or violation
available to it under
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the provisions of this Agreement, irrespective of any investigation made by or
on behalf of such party on or prior to the Closing Date.
Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and
hold harmless the Investors, their respective Affiliates (as defined in SEC Rule
405) and their respective officers, directors, partners and members
(collectively, the "Investor Indemnitees"), from and against any and all
Damages, in each case promptly as incurred by the Investor Indemnitees and to
the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact or breach of any of the
Company's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company pursuant to this
Agreement; or
(ii) any failure by the Company to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto or any instrument,
agreement or certificate entered into or delivered by the Company pursuant
to this Agreement; or
(iii) any action instituted against the Investors, or any of them, by
any stockholder of the Company who is not an Affiliate of an Investor, with
respect to any of the transactions contemplated by this Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, in each case promptly as incurred by the
Company Indemnitees and to the extent arising out of or in connection with:
(i) any misrepresentation, omission of fact, or breach of any of the
Investor's representations or warranties contained in this Agreement, the
annexes, schedules or exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Investor pursuant to this
Agreement; or
(ii) any failure by the Investor to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth in
this Agreement or any instrument, certificate or agreement entered into or
delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto
seeking indemnification pursuant to Section 7.2 (an "Indemnified Party") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party from whom indemnification
pursuant to Section 7.2 is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is actually prejudiced
by such omission or delay. In connection with any Claim as to which both the
Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party
shall be entitled to assume the defense thereof. Notwithstanding the assumption
of the defense of any Claim by the Indemnifying Party, the Indemnified Party
shall have the right to employ separate legal counsel and to participate in the
defense of such Claim, and the Indemnifying Party shall bear the reasonable
fees, out-of-pocket costs and expenses of such separate legal counsel to the
Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed
to pay such fees, out-of-pocket costs and expenses, (y) the Indemnified Party
reasonably shall have concluded that representation of the Indemnified Party and
the Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall
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not, in connection with any Claim in the same jurisdiction, be liable for the
fees and expenses of more than one firm of legal counsel for the Indemnified
Party (together with appropriate local counsel). The Indemnifying Party shall
not, without the prior written consent of the Indemnified Party (which consent
shall not unreasonably be withheld), settle or compromise any Claim or consent
to the entry of any judgment that does not include an unconditional release of
the Indemnified Party from all liabilities with respect to such Claim or
judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have
a claim for indemnification that does not involve a claim or demand being
asserted by a third party, the Indemnified Party promptly shall deliver notice
of such claim to the Indemnifying Party. If the Indemnified Party disputes the
claim, such dispute shall be resolved by mutual agreement of the Indemnified
Party and the Indemnifying Party or by binding arbitration conducted in
accordance with the procedures and rules of the American Arbitration Association
as set forth in Article X. Judgment upon any award rendered by any arbitrators
may be entered in any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company
shall make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other filings with the SEC, and all other publicly
available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such publicly available information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. Non-Disclosure of Non-Public Information. (a) The Company
shall not disclose material non-public information to the Investors, advisors to
or representatives of the Investors unless prior to disclosure of such
information the Company identifies such information as being non-public
information and provides the Investors, such advisors and representatives with
the opportunity to accept or refuse to accept such non-public information for
review. Other than disclosure of any comment letters received from the SEC staff
with respect to the Registration Statement, the Company may, as a condition to
disclosing any non-public information hereunder, require the Investors' advisors
and representatives to enter into a confidentiality agreement in form and
content reasonably satisfactory to the Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
and the Company represents that it does not disseminate material non-public
information to any investors who purchase stock in the Company in a public
offering, to money managers or to securities analysts, provided, however, that
notwithstanding anything herein to the contrary, the Company will, as
hereinabove provided, promptly notify the advisors and representatives of the
Investors and, if any, underwriters, of any event or the existence of any
circumstance (without any obligation to disclose the specific event or
circumstance) of which it becomes aware, constituting material non-public
information (whether or not requested of the Company specifically or generally
during the course of due diligence by such persons or entities), which, if not
disclosed in the prospectus included in the Registration Statement would cause
such prospectus to include a material misstatement or to omit a material fact
required to be stated therein in order to make the statements, therein in light
of the circumstances in which they were made, not misleading. Nothing contained
in this Section 8.2 shall be construed to mean that such persons or
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entities other than the Investors (without the written consent of the Investors
prior to disclosure of such information as set forth in Section 8.2(a)) may not
obtain non-public information in the course of conducting due diligence in
accordance with the terms of this Agreement and nothing herein shall prevent any
such persons or entities from notifying the Company of their opinion that based
on such due diligence by such persons or entities, that the Registration
Statement contains an untrue statement of a material fact or omits a material
fact required to be stated in the Registration Statement or necessary to make
the statements contained therein, in light of the circumstances in which they
were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY
OTHER APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH
OTHER SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR
PARTICIPATION HEREIN MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED,
ENCUMBERED, OR OTHERWISE DISPOSED OF, EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO A
TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon Closing, the Company will
issue to the transfer agent for its Common Stock (and to any substitute or
replacement transfer agent for its Common Stock upon the Company's appointment
of any such substitute or replacement transfer agent) instructions substantially
in the form of Exhibit F hereto. Such instructions shall be irrevocable by the
Company from and after the date hereof or from and after the issuance thereof to
any such substitute or replacement transfer agent, as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend
other than the one specified in Section 9.1 has been or shall be placed on the
share certificates representing the Registrable Securities and no instructions
or "stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Nothing in this Article shall affect
in any way each Investor's obligations to comply with all applicable securities
laws upon resale of the Common Stock.
ARTICLE X
CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York applicable
to contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the
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corporation law of the company's state of incorporation, in which event the
corporation law of such jurisdiction shall govern such issue. To the extent
practical, decisions of the Board of Arbitration shall be rendered no more than
thirty (30) calendar days following commencement of proceedings with respect
thereto. The Board of Arbitration shall cause its written decision to be
delivered to all parties involved in the dispute. Any decision made by the Board
of Arbitration (either prior to or after the expiration of such thirty (30)
calendar day period) shall be final, binding and conclusive on the parties to
the dispute, and entitled to be enforced to the fullest extent permitted by law
and entered in any court of competent jurisdiction. The Board of Arbitration
shall be authorized and is hereby directed to enter a default judgment against
any party failing to participate in any proceeding hereunder within the time
periods set forth in the AAA rules. The non-prevailing party to any arbitration
(as determined by the Board of Arbitration) shall pay the expenses of the
prevailing party, including reasonable attorney's fees, in connection with such
arbitration. Any party shall be entitled to obtain injunctive relief from a
court in any case where such relief is available.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the
Investors or the Company hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, (a) the provisions of this Agreement
shall inure to the benefit of, and be enforceable by, any permitted transferee
of any of the Convertible Debentures or Warrants purchased or acquired by any
Investor hereunder with respect to the Convertible Debentures or Warrants held
by such person, and (b) upon the prior written consent of the Company, which
consent shall not unreasonably be withheld or delayed, each Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any Affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
NOTICES
Section 12.1. Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) hand delivered,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by facsimile, addressed as set forth below or to
such other address as such party shall have specified most recently by written
notice. Any notice or other communication required or permitted to be given
hereunder shall be deemed effective (a) upon hand delivery or delivery by
facsimile, with accurate confirmation generated by the transmitting facsimile
machine, at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the first business day following the date of sending by reputable
courier service, fully
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prepaid, addressed to such address, or (c) upon actual receipt of such mailing,
if mailed. The addresses for such communications shall be:
<TABLE>
<S> <C>
If to the Company: UOL Publishing, Inc.
8251 Greensboro Drive
Suite 500
McLean, VA 22102
Attention: Narasimhan P. Kannan, CEO
Telephone: (703) 893-7800
Facsimile: (703) 893-1905
with a copy to (shall not constitute notice): Wyrick Robbins Yates & Ponton LLP
4101 Lake Boone Trail, Suite 300
Raleigh, NC 27615
Attention: Donald R. Reynolds, Esq.
Telephone: (919) 781-4000
Facsimile: (919) 781-4865
if to the Investors: As set forth on the signature pages hereto
with a copy to: Joseph A. Smith, Esq.
(shall not constitute notice) Epstein Becker & Green, P.C.
250 Park Avenue
New York, New York
Telephone: (212) 351-4500
Facsimile: (212) 661-0989
</TABLE>
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/Facsimile/Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu of the original documents, a facsimile
transmission or copy of the original documents shall be as effective and
enforceable as the original. This Agreement may be amended only by a writing
executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached
as Exhibits hereto, which include, but are not limited to the Convertible
Debentures, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision of this
Agreement becomes or is declared by a court of competent jurisdiction to be
illegal, unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that such severability shall be
ineffective if it materially changes the economic benefit of this Agreement to
any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
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Section 13.5. Number and Gender. There may be one or more Investors
parties to this Agreement, which Investors may be natural persons or entities.
All references to plural Investors shall apply equally to a single Investor if
there is only one Investor, and all references to an Investor as "it" shall
apply equally to a natural person.
Section 13.6. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Convertible Debentures or any
Conversion Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not include the posting of any bond unless required by the
Company's transfer agent) or (iii) in the case of any such mutilation, on
surrender and cancellation of such certificate, the Company at its expense will
execute and deliver, in lieu thereof, a new certificate of like tenor.
Section 13.7. Fees and Expenses. Each of the Company and the Investors
agrees to pay its own expenses incident to the execution and delivery of this
Agreement and each agreement which is an Exhibit hereto, except that the Company
shall pay the fees, expenses and disbursements of Epstein Becker & Green, P.C.,
counsel to the Investors, in an amount equal to $20,000, and shall reimburse BH
Capital Investments, L.P. $5,000 in consideration of its due diligence with
respect to the Company, all as set forth in the Escrow Agreement. The Company
shall reimburse the Investors for their reasonable expenses and legal fees
incurred in enforcing this Agreement or in any modifications or waivers with
respect thereto. The Company shall be responsible for all fees and expenses of
its financial advisor, Cardinal Capital Management.
Section 13.8. Brokerage. Each of the parties hereto represents that it
has had no dealings in connection with this transaction with any finder or
broker who will demand payment of any fee or commission from the other. The
Company on the one hand, and the Investors, on the other hand, agree to
indemnify the other against and hold the other harmless from any and all
liabilities to any person claiming brokerage commissions or finder's fees on
account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby.
Section 13.9. Publicity. The Company agrees that it will not issue any
press release or other public announcement of the transactions contemplated by
this Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
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IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Debenture and Warrants Purchase Agreement to be executed by the undersigned,
thereunto duly authorized, as of the date first set forth above.
UOL PUBLISHING, INC.
By:
--------------------------------------
<TABLE>
<S> <C>
Address: 175 Bloor Street East Investor: BH Capital Investments, L.P.
South Tower, 7th Floor By: HB and Co., Inc., its General Partner
Toronto, Ontario, Canada M4W 3R8 By:
Fax: 416-929-5314 ----------------------------------------------
Principal Amount of Debentures Purchased: $1,250,000 Name: Henry Brachfeld
Authorized Signatory
Address: 33 Prince Arthur Avenue Investor: Excalibur Limited Partnership
Toronto, Ontario, Canada M5R 1B2 By: Excalibur Capital Management, Inc.
Fax: 416-964-8868 By:
Principal Amount of Debentures Purchased: $1,250,000 ----------------------------------------------
Name: William Hechter, President
</TABLE>
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<PAGE> 69
APPENDIX D
9% SECURED SUBORDINATED CONVERTIBLE DEBENTURE
NEITHER THESE SECURITIES NOR THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE BEEN REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION
OF ANY STATE OR UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"). THE SECURITIES ARE RESTRICTED AND MAY NOT BE
OFFERED, RESOLD, PLEDGED OR TRANSFERRED EXCEPT AS PERMITTED
UNDER THE ACT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
[NO. ] [US $ ]
UOL PUBLISHING, INC.
9% SECURED SUBORDINATED CONVERTIBLE DEBENTURE DUE DECEMBER 15, 2000
THIS DEBENTURE is issued by UOL PUBLISHING, INC., a corporation organized
and existing under the laws of the State of Delaware (the "Company") and is
designated as its 9% Secured Subordinated Convertible Debenture Due December 15,
2000.
FOR VALUE RECEIVED, the Company promises to pay to [INVESTOR], or permitted
assigns (the "Holder"), the principal sum of [ AND 00/100 (US $XX,000)
DOLLARS] on December 15, 2000 (the "Maturity Date") and to pay interest on the
principal sum outstanding from time to time quarterly in arrears at the rate of
9% per annum accruing from the date of initial issuance. Accrual of interest
shall commence on the first business day to occur after the date of initial
issuance and continue daily on the basis of a 360 day year until payment in full
of the principal sum has been made or duly provided for. Quarterly interest
payments shall be due and payable on September 1, December 1, March 1 and June 1
of each year, commencing with September 1, 1999. If any interest payment date or
the Maturity Date is not a business day in the State of New York, then such
payment shall be made on the next succeeding business day. Subject to the
provisions of Section 4 below, principal and accrued interest on this Debenture
is payable at the option of the Company, in cash or in registered shares of
Common Stock of the Company, $.01 par value per share ("Common Stock") valued at
the Conversion Price (as defined herein) on the interest payment date or the
Maturity Date, as applicable, at the address last appearing on the Debenture
Register of the Company as designated in writing by the Holder from time to
time. The Company will pay the principal of and any accrued but unpaid interest
due upon this Debenture on the Maturity Date, less any amounts required by law
to be deducted, to the registered holder of this Debenture as of the tenth day
prior to the Maturity Date and addressed to such holder at the last address
appearing on the Debenture Register. The forwarding of such check, or the
required number of shares of Common Stock determined pursuant to the provisions
of Section 4 below, shall constitute a payment of principal and interest
hereunder and shall satisfy and discharge the liability for principal and
interest on this Debenture to the extent of the sum represented by such check or
the equivalent Conversion Price value of such shares of Common Stock (as defined
in Section 3 below) plus any amounts so deducted.
This Debenture is subject to the following additional provisions:
1. The Company shall be entitled to withhold from all payments of principal
of, and interest on, this Debenture any amounts required to be withheld under
the applicable provisions of the United States income tax laws or other
applicable laws at the time of such payments, and Holder shall execute and
deliver all required documentation in connection therewith.
2. This Debenture has been issued subject to investment representations of
the original purchaser hereof and may be transferred or exchanged only in
compliance with the Securities Act of 1933, as amended (the
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<PAGE> 70
"Act"), and other applicable state and foreign securities laws. The Holder shall
deliver written notice to the Company of any proposed transfer of this
Debenture. In the event of any proposed transfer of this Debenture, the Company
may require, prior to issuance of a new Debenture in the name of such other
person, that it receive reasonable transfer documentation including legal
opinions that the issuance of the Debenture in such other name does not and will
not cause a violation of the Act or any applicable state or foreign securities
laws. Prior to due presentment for transfer of this Debenture, the Company and
any agent of the Company may treat the person in whose name this Debenture is
duly registered on the Company's Debenture Register as the owner hereof for the
purpose of receiving payment as herein provided and for all other purposes,
whether or not this Debenture be overdue, and neither the Company nor any such
agent shall be affected by notice to the contrary. This Debenture has been
executed and delivered pursuant to the Convertible Debenture and Warrants
Purchase Agreement dated as of June 4, 1999 between the Company and the original
Holder (the "Purchase Agreement"), and is subject to the terms and conditions of
the Purchase Agreement, which are, by this reference, incorporated herein and
made a part hereof. Capitalized terms used and not otherwise defined herein
shall have the meanings set forth for such terms in the Purchase Agreement.
3. Subject to Section 4 below, the Holder of this Debenture is entitled, at
its option, to convert at any time commencing ninety (90) days after the date
hereof, the principal amount of this Debenture or any portion thereof, together
with accrued but unpaid interest, into shares of Common Stock of the Company
("Conversion Shares"); provided, that the Holder may not convert more than
fifteen percent (15%) of the original principal balance of this Debenture per
month, on a cumulative basis. For further clarity, if the Holder does not
convert any part of this Debenture in month one, it may convert up to 30% of the
original principal balance at the beginning of month 2, and would be able to
convert a further 15% of the original principal balance at the beginning of
month three. The conversion price for each share of Common Stock ("Conversion
Price") shall be $5.55 and shall be adjusted proportionately for any subsequent
stock splits, stock dividends and reverse stock splits.
4. If the Market Price (as defined in the Purchase Agreement) on any
Conversion Date is less than the Conversion Price established in Section 3, then
the Company shall have the option, upon at least seven (7) days' prior written
notice to the holder, to pay the Holder (i) in shares of Common Stock with a
Conversion Price equal to eighty-five percent (85%) of the two lowest
consecutive closing bid prices of the Common Stock during the twenty (20)
Trading Days immediately preceding the Conversion Date, or else (ii) in cash in
an amount equal to 110% of the principal amount sought to be converted, if such
Conversion Date occurs no later than 210 days after the date hereof, or 115% of
the principal amount sought to be converted at any time thereafter, together
with, in either case, all accrued but unpaid interest thereon. Further, if the
Company shall honor any conversion request in cash in accordance with this
Section no later than 210 days after the date hereof, the Company shall also
issue the Holder an additional number of Warrants, identical to the Warrants
issued at Closing, in a number equal to twenty percent (20%) of the number of
Warrants issued to the holder at Closing. If notice of the Company's election to
pay the holder in cash is not received by the Holder at least seven (7) days
prior to the receipt by the Company of a Conversion Notice, the Company shall
pay the holder in shares of Common Stock. Notwithstanding anything to the
contrary contained herein, in the event that a conversion (when aggregated with
all prior conversions of portions of this Debenture and any other Convertible
Debenture issued pursuant to the Purchase Agreement and all shares of Common
Stock issuable upon exercise of the Warrants (as defined in the Purchase
Agreement)) required the Company to issue a number of shares of Common Stock
which would exceed 19.9% of the number of shares of Common Stock issued and
outstanding on the issuance date of this Debenture, the Company shall issue only
such number of shares of Common Stock as shall not exceed such limit and shall
pay the Holder cash in the amount of the Market Price for the number of shares
of Common Stock in excess of such number of shares into which this Debenture (or
the portion thereof then being converted) is then convertible at the current
Conversion Price, unless the Company has obtained shareholder approval for such
issuance pursuant to the rules of The Nasdaq Stock Market, or as otherwise
permitted by The Nasdaq Stock Market.
5. (a) Conversion shall be effectuated by surrendering this Debenture to
the Company (if such Conversion will convert all outstanding principal) together
with the form of conversion notice attached hereto as Exhibit A (the "Notice of
Conversion"), executed by the Holder of this Debenture evidencing such
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<PAGE> 71
Holder's intention to convert this Debenture or a specified portion (as above
provided) hereof, and accompanied, if required by the Company, by proper
assignment hereof in blank. Interest accrued or accruing from the date of
issuance to the date of conversion shall, at the option of the Company, be paid
in cash as set forth above or in Common Stock upon conversion at the Conversion
Price on the Conversion Date. No fraction of a share or scrip representing a
fraction of a share will be issued on conversion, but the number of shares
issuable shall be rounded to the nearest whole share, without compensation to
the holder or the Company for such fraction. The date on which Notice of
Conversion is given (the "Conversion Date") shall be deemed to be the date on
which the Holder faxes the Notice of Conversion duly executed to the Company.
Facsimile delivery of the Notice of Conversion shall be accepted by the Company
at facsimile number (703) 893-1905 Attn.: Narasimhan P. Kannan, C.E.O.
Certificates representing Common Stock upon conversion will be delivered to the
Holder within three (3) Trading Days from the date the Notice of Conversion is
delivered to the Company. Delivery of shares upon conversion shall be made to
the address specified by the Holder in the Notice of Conversion.
(b) The Company understands that a delay in the issuance of shares of
Common Stock upon a conversion beyond the five (5) Trading Day period described
in Section 5(a) could result in economic loss to the Holder. As compensation to
the Holder for such loss, the Company agrees to pay liquidated damages to the
Holder for late issuance of shares of Common Stock upon conversion in the amount
of three percent (3%) per month of the principal amount converted, pro-rated for
each day of delay beyond five (5) Trading Days; provided, that such liquidated
damages shall be tolled for each Trading Day when such delivery is delayed due
to force majeure.
The Company shall pay any payments incurred under this Section 5(b) in
immediately available funds upon demand. Nothing herein shall limit Holder's
right to pursue injunctive relief and/or actual damages for the Company's
failure to issue and deliver Common Stock to the Holder, including, without
limitation, the Holder's actual losses occasioned by any "buy-in" of Common
Stock necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the Holder, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
five (5) Trading Days from the date the Notice of Conversion is delivered to the
Company, the Holder will be entitled to revoke the relevant Notice of Conversion
by delivering a notice to such effect to the Company, whereupon the Company and
the Holder shall each be restored to their respective positions immediately
prior to delivery of such Notice of Conversion, and in such event no liquidated
damages shall be due in connection with such withdrawn conversion.
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. sec. 101 et seq.
(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. sec. 362 in respect of the Holder's
conversion privilege.
6. No provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of, and
interest on, this Debenture at the time, place, and rate, and in the coin or
currency or shares of Common Stock, herein prescribed. This Debenture is a
direct obligation of the Company.
7. No recourse shall be had for the payment of the principal of, or the
interest on, this Debenture, or for any claim based hereon, or otherwise in
respect hereof, against any incorporator, shareholder, employee, officer or
director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law, or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
8. If any of the following events occurs:
(a) the Company merges or consolidates with another corporation or
sells or transfers all or substantially all of its assets to another
person; or
D-3
<PAGE> 72
(b) the Company fails to issue shares of Common Stock to the Holder or
to cause its Transfer Agent to issue shares of Common Stock upon exercise
by the Holder of the conversion rights of the Holder in accordance with the
terms of this Debenture, fails to transfer or to cause its Transfer Agent
to transfer any certificate for shares of Common Stock issued to the Holder
upon conversion of this Debenture as and when required by this Debenture or
the Registration Rights Agreement, and such transfer is otherwise lawful,
or fails to remove any restrictive legend or to cause its Transfer Agent to
transfer any certificate or any shares of Common Stock issued to the Holder
upon conversion of this Debenture as and when required by this Debenture,
the Purchase Agreement or the Registration Rights Agreement and such legend
removal is otherwise lawful, and any such failure shall continue uncured
for five (5) business days; or
(c) the Company shall fail to perform or observe, in any material
respect, any other covenant, term, provision, condition, agreement or
obligation of the Company under the Purchase Agreement, the Security
Agreement, the Registration Rights Agreement or this Debenture, including,
without limitation, any failure to obtain shareholder approval to issue
shares upon conversion of this Debenture in excess of 19.9% of the number
of shares of Common Stock issued and outstanding on the issuance date
hereof, or to cause an increase in the authorized capital of the Company
when required by the Purchase Agreement, or the Company does not have
registered shares of Common Stock available for issuance upon conversion of
this Debenture at any time after the period required by the Registration
Rights Agreement, or the Registration Statement is not effective within 150
days of the issuance date hereof, or the Registration Statement shall be
suspended from effectiveness for any reason for in excess of thirty (30)
days in any twelve (12) month period, and such failure shall continue
uncured for a period of five (5) days after written notice from the Holder
of such failure; or
(d) the Company shall not have its Common Stock listed for trading on
a Principal Market for in excess of five (5) Trading Days;
Then, in any of such events, the Company shall, upon written demand of the
Holder, repurchase this Debenture at a price equal to the fair market value
of the shares of Common Stock the remaining principal balance hereof, plus
all accrued but unpaid interest through the date of such repayment, would
otherwise convert into. Such payment shall be made within three (3) Trading
Days of such demand, and if not paid within such period, the Company shall
pay the Holder liquidated damages of three percent (3%) per month of such
amount until paid, pro-rated for any partial months.
9. The Holder of the Debenture, by acceptance hereof, agrees that this
Debenture is being acquired for investment and that such Holder will not offer,
sell or otherwise dispose of this Debenture or the Shares of Common Stock
issuable upon conversion thereof except under circumstances which will not
result in a violation of the Act or any applicable state Blue Sky or foreign
laws or similar laws relating to the sale of securities.
10. This Debenture shall be governed by and construed in accordance with
the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
11. The following shall constitute an "Event of Default":
a. The Company shall default in the payment of principal or interest on
this Debenture and same shall continue for a period of five (5)
Trading Days; or
b. Any of the representations or warranties made by the Company herein,
in the Purchase Agreement, the Registration Rights Agreement, or in
any agreement, certificate or financial or other written statements
heretofore or hereafter furnished by the Company in connection with
the execution and delivery of this Debenture or the Purchase
Agreement shall be false or misleading in any material respect at the
time made; or
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c. Any Senior Debt (as defined herein) shall declare an Event of Default
with respect to such Senior Debt; or
d. The Company shall (1) admit in writing its inability to pay its debts
generally as they mature; (2) make an assignment for the benefit of
creditors or commence proceedings for its dissolution; or (3) apply
for or consent to the appointment of a trustee, liquidator or
receiver for its or for a substantial part of its property or
business; or
e. A trustee, liquidator or receiver shall be appointed for the Company
or for a substantial part of its property or business without its
consent and shall not be discharged within sixty (60) days after such
appointment; or
f. Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control
of the whole or any substantial portion of the properties or assets
of the Company and shall not be dismissed within sixty (60) days
thereafter; or
g. Any money judgment, writ or warrant of attachment, or similar process
in excess of One Hundred Thousand ($100,000) Dollars in the aggregate
shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated,
unbonded or unstayed for a period of sixty (60) days or in any event
later than five (5) days prior to the date of any proposed sale
thereunder; or
h. Bankruptcy, reorganization, insolvency or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for
the relief of debtors shall be instituted by or against the Company
and, if instituted against the Company, shall not be dismissed within
sixty (60) days after such institution or the Company shall by any
action or answer approve of, consent to, or acquiesce in any such
proceedings or admit the material allegations of, or default in
answering a petition filed in any such proceeding; or
i. The Company challenges, disputes or denies the right of the Holder to
effect the conversion of this Debenture into Common Stock or
otherwise dishonors or rejects any Notice of Conversion delivered in
accordance with Section 5 or any Company stockholder who is not and
has never been an Affiliate (as defined in Rule 405 under the
Securities Act of 1933, as amended) of the Holder obtains a judgment
or any injunctive relief from any court or public or governmental
authority which denies, enjoins, limits, modifies, delays or disputes
the right of the holder hereof to effect the conversion of this
Debenture into Common Stock.
Then, or at any time thereafter, and in each and every such case, unless such
Event of Default shall have been waived in writing by a majority in interest of
the holders of this series of Debentures (which waiver shall not be deemed to be
a waiver of any subsequent default) and subject to the prior rights of the
Senior Debt as defined in Section 14 hereof, at the option of a majority in
interest of the holders and in the holders' sole discretion, the Holder may
consider this Debenture immediately due and payable, without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
anything herein or in any note or other instruments contained to the contrary
notwithstanding, and the Holder may immediately enforce any and all of the
Holder's rights and remedies provided herein or any other rights or remedies
afforded by law; provided, that any payment of this Debenture in connection with
an Event of Default shall be made at the fair market value of the shares of
Common Stock which would be issued at the Conversion Price on the date the
Debenture becomes due and payable pursuant to this provision. Such payment shall
be made within three (3) Trading Days of such demand, and if not paid within
such period, the Company shall pay the holder liquidated damages of three
percent (3%) per month of such amount until paid, pro-rated for any partial
months.
12. Nothing contained in this Debenture shall be construed as conferring
upon the Holder the right to vote or to receive dividends or to consent or
receive notice as a shareholder in respect of any meeting of shareholders or any
rights whatsoever as a shareholder of the Company, unless and to the extent
converted in accordance with the terms hereof.
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<PAGE> 74
13. In no event shall the Holder be permitted to convert this Debenture for
shares of Common Stock in excess of the amount of this Debenture upon the
conversion of which, (x) the number of shares of Common Stock owned by such
Holder (other than shares of Common Stock issuable upon conversion of this
Debenture) plus (y) the number of shares of Common Stock issuable upon
conversion of this Debenture, would be equal to or exceed 9.9% of the number of
shares of Common Stock then issued and outstanding, including shares issuable
upon conversion of this Debenture held by such Holder after application of this
Section 13. As used herein, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and the rules and regulations thereunder. To the extent that the
limitation contained in this Section 13 applies, the determination of whether
this Debenture is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Debenture is convertible shall be in the
sole discretion of such Holder, and the submission of a Notice of Conversion
shall be deemed to be such Holder's determination of whether this Debenture is
convertible (in relation to other securities owned by such holder) and of which
portion of this Debenture is convertible, in each case subject to such aggregate
percentage limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained herein shall be
deemed to restrict the right of a holder to convert this Debenture into shares
of Common Stock at such time as such conversion will not violate the provisions
of this Section 13. The provisions of this Section 13 may be waived by the
Holder of this Debenture upon not less than 75 days' prior notice to the
Company, and the provisions of this Section 13 shall continue to apply until
such 75th day (or such later date as may be specified in such notice of waiver).
No conversion of this Debenture in violation of this Section 13 but otherwise in
accordance with this Debenture shall affect the status of the Common Stock
issued upon such conversion as validly issued, fully-paid and nonassessable. If
on the Maturity Date the conversion of this Debenture into Common Stock pursuant
to Section 4 would cause the limit contained in the first sentence of this
Section 13 to be exceeded, such conversion of this Debenture shall occur up to
such limit and the remaining unconverted portion of this Debenture shall be
converted into Common Stock (1) in accordance with one or more Notices of
Conversion delivered by the Holder or (2) 65 days after the Maturity Date,
whichever is earlier. Notwithstanding anything contained herein to the contrary,
no interest shall accrue after the Maturity Date on any such unconverted portion
of this Debenture.
14. In the event of any distribution, division or application, partial or
complete, voluntary or involuntary, by operation of law or otherwise, of all or
any part of the assets of the Company, or the proceeds thereof, to creditors of
the company or upon any indebtedness of the Company, by reason of the
liquidation, dissolution or other winding-up of the Company, or the Company's
business or affairs, or in the event of any sale, receivership, insolvency or
bankruptcy proceeding, assignment for the benefit of creditors or any other
proceeding by or against the Company for any relief under any bankruptcy or
insolvency law or laws relating to the relief of debtors, readjustment of
indebtedness, reorganizations, compositions or extensions, then, and in each
such event, each payment or distribution of any kind or character, either in
cash, securities or other property, which shall be payable or deliverable upon
or with respect to any of the obligations of the Company evidenced by this Note
shall, until $1,000,000 in the aggregate of such payments and distributions
shall have been paid on account of the Senior Debt (as defined below), be paid
directly to the holders of the Senior Debt, for application on account of the
Senior Debt. So long as any such Senior debt is outstanding or there exists any
commitment which could give rise to any Senior Debt, upon the occurrence of an
Event of Default hereunder, Holder shall not, for a period of up to 30 days from
the occurrence of each such Event of Default, accelerate or declare that this
Note is forthwith due and payable, nor during such 30 day period shall Holder
sue for payment of the Note or commence or join with any other creditor of the
Company other than the holders of the Senior Debt or their agents until and
unless the holders of the Senior Debt have accelerated the Senior Debt or the
Company shall have initiated a bankruptcy proceeding, provided, that nothing
contained herein shall prohibit or prevent the Holder from delivering written
notice of default to the Company or to the holders of any of the Senior Debt.
"Senior Debt" shall mean all existing and future obligations of the Company to
one or more lenders in connection with loans in the maximum principal amount of
$1,000,000 extended or to be extended by such lenders to the Company, and shall
include the outstanding principal amount of such Senior Debt from time to time,
whenever incurred.
15. The obligations of the Company pursuant to this instrument are secured
by a security interest in substantially all of the Company's assets, as set
forth in a Security Agreement of even date herewith.
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IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed by an officer thereunto duly authorized.
Dated: June , 1999
UOL PUBLISHING, INC.
By:
Name:
Title:
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<PAGE> 76
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder)
The undersigned hereby irrevocably elects to be repaid or convert, at the
Company's option except as provided in Section 4 of the above Debenture,
$ of the principal amount of the above Debenture No. into Shares
of Common Stock of UOL PUBLISHING, INC. (the "Company") according to the
conditions hereof, as of the date written below.
Date of Conversion
Applicable Conversion Price
Accrued Interest
Number of shares to be issued:
Holder:
Signature
Title if applicable:
Address for delivery of shares or DTC account number for deposit of
shares: _____________________________________________________________________
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PROXY
UOL PUBLISHING, INC.
8251 Greensboro Drive
Suite 500
McLean, Virginia 22102
SOLICITED BY THE BOARD OF DIRECTORS FOR THE ANNUAL MEETING OF STOCKHOLDERS
The undersigned hereby appoints Narasimhan P. Kannan and Michael A.
Schwien, as proxies, each with full power to appoint his substitute, and
hereby authorizes them to represent and to vote, as designated on the reverse
side, all shares of Common Stock and/or Preferred Stock of UOL Publishing, Inc.
(the "Company") held of record by the undersigned on July 12, 1999 at the
Annual Meeting of Stockholders of the Company to be held on ____________, 1999
and any adjournments thereof.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED. IF NO
DIRECTION IS GIVEN WITH RESPECT TO A PARTICULAR PROPOSAL, THIS PROXY WILL BE
VOTED FOR SUCH PROPOSAL.
PLEASE MARK, DATE, SIGN AND RETURN THIS PROXY CARD PROMPTLY, USING THE
ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO BE PRESENT AT THE MEETING. IF YOU
ATTEND THE MEETING, YOU CAN VOTE EITHER IN PERSON OR BY PROXY. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES.
- ------------------ -----------------
SEE REVERSE SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE SIDE
- ------------------ -----------------
<PAGE> 78
UOL PUBLISHING
c/o EquiServe
P.O. Box 8040
Boston, MA 02266-8040
Dear Stockholder:
Please take note of the important information enclosed with this Proxy. There
are a number of issues related to the operation of the Company that require your
immediate attention.
Your vote counts, and you are strongly encouraged to exercise your right to vote
your shares.
Please mark the boxes on the proxy card to indicate how your shares will be
voted. Then sign the card, detach it and return your proxy in the enclosed
postage paid envelope.
Thank you in advance for your prompt consideration of these matters.
Sincerely,
UOL Publishing, Inc.
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[X] Please
mark votes
as in this
example.
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2. To amend the Company's FOR AGAINST ABSTAIN
Certificate of Incorporation
to change the Company's name
1. Election of Directors. to VCampus, Inc. [ ] [ ] [ ]
Nominees: Narasimhan P. Kannan,
Edson D. deCastro, John D. Sears,
Kamyar Kaviani, William E.
Kimberly, Barry K. Fingerhut,
Steven M.H. Wallman
3. To approve an amendment to
the Company's 1996 Stock
Plan to increase the number
of shares of Common Stock
reserved for issuance
thereunder by 1,000,000
shares. [ ] [ ] [ ]
FOR WITHHELD
ALL FROM ALL
NOMINEES [ ] [ ] NOMINEES
4. To approve the Company's
procurement of a private
equity line of credit of up
to $3 million with Hambrect
MARK HERE & Quist Guaranty LLC
FOR pursuant to which the
ADDRESS Company would be authorized
CHANGE AND to issue convertible
[ ] NOTE BELOW [ ] preferred stock; [ ] [ ] [ ]
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For all nominees except
as noted above
5. To approve the $2.5 million
convertible debenture financing
with Excalibur Limited
Partnership and B.H. Capital
Investments, L.P. [ ] [ ] [ ]
6. To ratify the appointment of
Ernst & Young LLP as
independent auditors of the
Company for 1999. [ ] [ ] [ ]
7. In their discretion, the proxies
are authorized to vote upon such
other business as may properly
come before the meeting or any
adjournments thereof
Please sign exactly as your name(s) appear(s) hereon.
Joint owners should each sign. Executors, administrators,
trustees, guardians or other fiduciaries should give full
title as such. If signing for a corporation, please sign
in full corporate name by a duly authorized officer.
Signature:____________________ Date:__________ Signature:___________________________ Date:__________
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CORP-9291-115-132249-01
